UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10KSB
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
|_| 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 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)
Registrant'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 past 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 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, 1999 were
$175,000.
The aggregate market value of the voting stock held by non-affiliates of
the Issuer as of March 16, 2000 was approximately $4,374,165.
As of March 16, 2000, 3,901,431 shares of the Issuer's Common Stock, par
value $0.001 per share, were outstanding.
---------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE.
Proxy Statement for the 2000 Annual Meeting of Stockholders (to be filed
with the Securities and Exchange Commission on or before April 30, 2000) is
incorporated by reference in Part III hereof.
Transitional Small Business Disclosure Format (check one): Yes /__/ No /X/.
--
<PAGE>
This annual report contains forward-looking statements within the meaning of the
federal securities laws. These include statements about our expectations,
beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe,"
"the Company believes," "management believes," and similar language. The
forward-looking statements are based on our current expectations and are subject
to certain risks, uncertainties and assumptions, including those set forth in
the discussion under "Description of Business" and "Management's Discussion and
Analysis or Plan of Operation." Our actual results may differ materially from
results anticipated in these forward-looking statements. We base our
forward-looking statements on information currently available to us, and we
assume no obligation to update them.
PART I
ITEM I. DESCRIPTION OF BUSINESS.
Overview
Medjet Inc. (the "Company") is engaged in research and development of medical
technology. The Company expects to introduce its first product during the year
2000. The plan for the Company has been to develop products based on its
platform technology and then to license these until its income is adequate to
support manufacturing and marketing activities on new products. The initial
emphasis has been on ophthalmic surgical technology and equipment. The Company
has developed a proprietary patented technology and derivative devices for
vision-correction surgery of the cornea. The Company's technology platform is
based on small-diameter, fluid microjets moving at various speeds above
supersonic, depending on the specific application. For cutting, the beam is
scanned across the tissue to be cut. In each application, the scanned microjet
beam substitutes for lasers or conventional metal, sapphire or diamond
oscillating blades.
The Company has been in the development stage and has not sold any products. To
date, the Company's research and development activities on vision correction
have been limited to constructing and testing experimental versions of
microkeratomes for eye surgery and conducting a limited number of feasibility
studies using enuleated porcine, rabbit and human cadaver eyes and live rabbits
to prove that the 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 blind eye trials are anticipated to begin in the third quarter of 2000.
Assuming success in these trials, the Company plans to introduce a microkeratome
product later this year.
The Company is currently in discussions regarding a contract to supply, for
non-ophthalmic uses on an OEM basis, its Hydrobrush(TM) Keratome, which was
cleared for marketing by the U.S. Food and Drug Administration ("FDA") in 1998.
In July 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 license agreement ("Agreement"), Alcon was to make a best
effort to register, manufacture, promote and market refractive microjet devices
and consumables developed by the Company. Among other things, the Agreement
provided for future payments based on the attainment of certain milestones,
minimum royalty payments starting in the year 2000, royalties upon sales by
Alcon of the
1
<PAGE>
Company's products and payments to the Company to cover the cost of the transfer
to Alcon of the Company's technology, some of which payments were to be credited
against future royalties owed to the Company. The Agreement was terminable on
three months' notice and, on December 13, 1999, the Company received notice of
Alcon's termination of the Agreement. Alcon offered no reason for the
termination.
The Company currently is assessing its plans for ophthalmologic applications for
its microjet technology in light of the termination of the Alcon agreement.
Although the Company currently intends to undertake the manufacture and
marketing of its microjet products on a limited scale, it continues to have
discussions with several potential strategic partners and is investigating other
possible arrangements for larger-scale manufacturing, marketing and
distribution. These discussions are in the early stages, and no formal
understanding or agreement has been reached with any potential strategic
partner. The Company's objective in entering into any such arrangements would be
to obtain adequate funding to support development of other products, in addition
to their manufacture, promotion and marketing.
The Company has filed a patent application and is evaluating the potential use
of waterjets for treatment of dental caries. Initial feasibility tests have been
promising and the Company believes this development program may yield a product
with significant market potential. See "Management's Discussion and Analysis or
Plan of Operation."
The Company was incorporated under the laws of the State of Delaware on December
16, 1993. Its offices are located at 1090 King Georges Post Road, Suite 301,
Edison, New Jersey 08837; its telephone number is (732) 738-3990.
Applications of Company Technology
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. The
Company's current focus has been on applications in ophthalmology but believes
that its proprietary microjet technology has additional surgical applications.
Although only limited studies of such other applications have been carried out
to date, specific applications currently being investigated include
ophthalmology and dentistry. The Company intends to develop additional product
applications, provided adequate funds become available.
Ophthalmology
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.
First Product; Removal of Epithelium. The Company has demonstrated that its
technology can be used to remove the epithelium, a procedure called
hydro-epithelial keratoplasty ("HEK"). 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
2
<PAGE>
beneficially as the first step in the currently-used laser vision correction or
refractive surgery technique known as photo-refractive keratectomy ("PRK").
Management believes that the HEK procedure is superior to currently used
techniques. However, interest in PRK has waned along with the growing enthusiasm
for a modified form of the PRK technique. The device to carry out HEK
procedures, the Hydrobrush(TM) Keratome, has been cleared for marketing by the
FDA. However, the Company has decided to postpone indefinitely the introduction
of this product because of cash constraints (see "Management's Discussion and
Analysis or Plan of Operation - General - The Past Year") and the limited market
currently foreseen for this application. Interest has been expressed in the use
of this device for non-ophthalmic applications. The Company is currently in
discussions regarding a contract to supply, for non-ophthalmic uses on an OEM
basis, its Hydrobrush(TM) Keratome, which was cleared for marketing by the FDA
in 1998.
Second Product; The Microjet Microkeratome. The Company's microjet-based
microkeratome is known as the HydroBlade(TM) Keratome. The microjet
microkeratome may be used to create a uniform thickness hinged flap of corneal
tissue as the first step in a current modification of the PRK technique known as
the Laser Ablation System for In-situ Keratomileusis ("LASIK"). Currently, the
hinged flap is made by blade-based microkeratomes which, in management's view,
are somewhat unsafe, difficult to learn and, despite great success for LASIK,
have limited its use as an alternate to PRK.
Approximately 40,000 corneal procedures, primarily full transplants, are
performed annually in the United States. The Company believes that the microjet
microkeratome would allow Hydro Therapeutic Keratoplasty ("HTK"), partial
transplants, which would be more desirable and safer than full transplants. 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 increasing the donor pool.
Third Product; Refractive Correction. A subsequent, and potentially more
commercially valuable, use of the HydroBlade(TM) Keratome is for vision
correction through refractive surgery in a procedure known as Hydro Refractive
Keratoplasty ("HRK"). Subsequent to the permitted marketing of the
HydroBlade(TM) Keratome for hinged flaps or HTK, the Company intends to seek FDA
clearance to market the device for HRK. Upon clearance or other marketing
approval by the FDA of the HydroBlade(TM) Keratome for HRK, the product will be
marketed to individual or affiliated groups of ophthalmologists for treatment of
patients in a clinical setting. The Company expects to generate revenues by
selling the basic system and disposables.
Dental
Fourth Product. Based on the Company's product-development criteria, the next
area identified for development is treatment of dental caries. The dental caries
is a progressive, infected and decayed portion of a tooth. A break in the enamel
allows the dentin making up the hard portion of the tooth to be infected.
Unchecked, the decayed region enlarges, leading to nerve involvement, pain,
temperature sensitivity, and ultimately loss of the structural integrity of the
tooth. The standard treatment for a dental caries is to remove all the decayed,
infected portion within the dentin and to fill the resulting cavity. The removal
process involves drilling out the affected area of the tooth until only sound
dentin remains. More recently, dental lasers are coming into use.
3
<PAGE>
It is frequently necessary to use local anesthesia to avoid pain or the fear of
pain. Administration of anesthesia takes preparation, requires time and adds to
the cost. The area surrounding the treated tooth is numb following the
procedure. Patient apprehension is frequently high and treatment is sometimes
delayed for that reason. Not all regions of the tooth are readily accessed by
the drill or laser.
Based on its limited experiments to date, the Company believes that the decayed
and infected tissue within the cavity of a tooth, the caries, can be removed
without damage to the surrounding sound dentin by directing a coherent microjet
of the appropriate parameters into the volume of the caries. The Company has
observed that this destroys the caries and washes it out. Although it has not
yet been confirmed on live patients, the Company believes that the treatment, if
perfected, may require no anesthesia in many circumstances and that the
associated time and cost saving and the perceived advantages of the microjet
technique over traditional treatments are potentially significant.
A patent application has been filed and a preliminary associated handpiece and
pump have been constructed. Based on its own internal market study, the Company
believes that a significant market potentially exists for this procedure and
product.
Technology for Ophthalmology. A scanned circular microjet beam is used for
separating thin, uniform or shaped layers from the cornea in a procedure known
as lamellar keratoplasty or keratomileusis. The procedure may be used to produce
a hinged flap as the first step in a laser shaping procedure. The device
normally used to perform lamellar keratoplasty is known as a blade
microkeratome. The procedure with the new microjet microkeratome 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.
Shaped internal layers of the cornea (resembling contact lenses), are excised in
order to reshape the anterior cornea surface to achieve close-to-ideal focusing.
In combination with a template of prescribed dimensions and shape, the shape of
the layer to be removed can be determined in advance. This procedure combines
the hinged flap and laser shaping technique into a one-step procedure without
the laser and without lifting the flap.
The Company's HydroBlade(TM) Keratome, which consists of a microjet nozzle and a
globe positioning device, is used with a miniature high pressure system. It
operates at a pressure of 20,000- to 25,000-psi. In this case, a small electric
motor is used to scan the microjet nozzle and the associated beam of water
across the cornea. 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 and live rabbit eyes. The Company intends to
perform ease-of-use clinical trials and then to submit a Section 510(k)
notification for a ruling of substantial equivalence to current microkeratomes,
which may result in permission to market the HydroBlade(TM) Keratome for HTK.
In combination with other elements of the Company's devices, a fan shaped
microjet beam is capable of removing the epithelium (the front surface of the
eye), without damaging the underlying Bowman's layer, in a procedure known as
epithelial keratoplasty. Although scalpels are normally used to scrape away the
epithelium in treating disorders or damage to the epithelium, they may damage
the Bowman's layer.
4
<PAGE>
Technical Background. 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 an image of an object at a distance of 20 feet
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
can at its best produce a refractive correction that is within +/- 1/2 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/LASIK and keratomileusis in situ ("KIS"). In RK, PRK/LASIK and KIS,
the object of the surgery is to change the shape of the anterior corneal
surface, thereby eliminating or reducing refractive error. PRK and LASIK are by
far the dominant procedures.
PRK uses pulsed 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 "photo-ablates," 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, hyperopia and astigmatism.
In the LASIK technique, the hinged corneal flap is pulled back, and
photo-ablation is performed directly on the exposed stromal surface to change
its curvature. In both KIS and LASIK, the hinged flap is reset as closely as
possible to its original position, where it adheres to the underlying stroma.
Cutting errors in making the flap, occurring in a substantial fraction of the
procedures, are a disadvantage of LASIK. PRK and LASIK produce corrections that
are usually
5
<PAGE>
not optimum, typically leaving the eye within +/- 1 diopter of optimum, but
sometimes worse. The PRK 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.
Nighttime vision may be degraded. See "Competition."
In HRK, using the HydroBlade(TM) Keratome, a single, hair-thin, supersonic
microjet beam with a diameter of approximately 33 microns incises corneal
material while a disposable template supports and shapes 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 microjet
beam; a scanning mechanism to move the microjet 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), and the vacuum is established that holds the template to
the cornea, the surgical cut takes less than one second. The total water volume
used during the procedure, including the amount necessary to check the microjet
beam and its performance, is less than a few drops. The Company believes that
the thickness uniformity, the thickness control, and the roundness of the flap
of the microjet microkeratome are superior to the blade devices.
HRK can be done by four 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. This is akin to PRK. In the second method, HRK2, a
hinged flap is cut into the cornea and the underlying tissue is reshaped before
the flap is replaced. The HRK microkeratome may be used to make the second,
shaping cut or PRK may be used for shaping. In the third method, HRK3, 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. A variation of the HRK3
procedure (HRK4) potentially allows even higher accuracy. Additional patents
have been filed for these procedures. The Company believes that the fourth
method is the simplest, most repeatable, and safest, and it initially intends to
seek FDA permission to market, or other approval, with respect to that method
alone.
Patents and Licenses. The Company has obtained U.S. and international patents on
the method and device for HTK and HRK and other patents, including one relating
to HEK. Other of the Company's patents are pending. To the Company's knowledge,
no other relevant patents have issued to others in this field and the Company
believes that its patent position is strong. See "Legal Proceedings," for a
discussion of a pending legal challenge to the Company's patent position.
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 it decides to manufacture,
market and sell its products. See "Foreign Government Regulation."
Detailed Discussion. Through December 31, 1999, the Company has spent
approximately $9,500,000 in its efforts to make products based on microjet
technology commercially available.
6
<PAGE>
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
experimental versions of the Company's keratomes, and, since July 1994,
conducting feasibility studies on over 2,000 porcine and rabbit corneas, dozens
of human cadaver eyes and dozens of live rabbits. The purpose of the feasibility
studies was to determine if the microjet beam could smoothly incise and shape
the anterior surface of the cornea, without erosion when only cutting is
required, and to determine if the incised eye would heal. A second major
objective has been to establish that HRK3 and HRK4 produce 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, has compared the cuts made by the microjet scalpel with cuts made
by scalpels and lasers in other refractive surgical procedures. The Company
believes that the cuts made by the microjet scalpel are cleaner and less
damaging than those made by conventional scalpels and lasers. The Company has
found the corneal flaps created by the HTK microkeratome to be extremely close
to parallel, as desired, and of the desired thickness (approximately 157 +/- 5
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. Tissue removal consistent with a
full range of myopic, hyperopic and astigmatic corrections have been
demonstrated. The Company's studies on rabbits have also shown that HRK
incisions heal with 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 humans in a clinical setting. An outstanding feature of the Company's
microkeratome is that the pressure internal to the eye is relatively unchanged
during the procedures, in contrast to an order of magnitude increase with a
blade microkeratome.
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. See "Legal Proceedings." The U.S.
patent was 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 microjet microkeratome device. Although there can be no
assurance, the Company believes that this is a blocking patent on the use of
waterjets for keratomileusis procedures for refractive surgery. 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. Some have issued. In addition, for countries not
currently part of the PCT, patent applications have also been filed in Israel,
Taiwan and South Africa. A related U.S. patent has issued on November 10, 1998.
The U.S. patent relating to topographic corneal mapping, which has utility for
surgery utilizing the HRK microkeratome, was issued to the Company on January
19, 1999. A patent application for the HydroBrush(TM) Keratome for HEK use has
issued. Other U.S. patents on HRK3, HRK4 and templates have been filed. A patent
application has been filed for the treatment of dental caries. Other patent
applications are in various stages of preparation.
7
<PAGE>
There is no assurance, however, that any additional patents will issue or that
any issued patents will afford significant protection from competition.
FDA 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
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 ease-of-use 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 a 510(k)
notification in 2000 in which it will seek to demonstrate that the hinged flap
microkeratome is substantially equivalent to currently available microkeratomes
having metal or diamond scalpels used for two types of lamellar keratoplasty.
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 clearance process is available. The Company will
seek to demonstrate that, for the purpose of making lamellar, or substantially
lamellar, corneal incisions, the microjet scalpel and template included in the
hinged flap microkeratome are substantially similar to a microkeratome with a
metal or diamond scalpel.
The FDA has recommended to the Company that it seek permission to market the HTK
microkeratome through a Section 510(k) notification together with ease-of-use
data resulting from a small clinical trial. An investigational device exemption
(IDE) will not be required. It is the Company's intention to file a notification
with the FDA at the beginning of the second half of 2000 relating to use of the
HTK microkeratome. Although there can be no assurance that this will prove to be
the case, permission granted for the 510(k) notification should enable the
commencement of marketing efforts shortly thereafter. The time required would be
far less 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
8
<PAGE>
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.
Although the therapeutic uses described above are the initial intended uses for
its two devices, the Company intends that other uses be made of the microjet
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 FDA strategy relates to the HRK4 microkeratome. Although the
Company believes that the HRK4 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 hinged flap use and the HRK4 use, obtaining such
permission for the HRK microkeratome is likely to be somewhat more complicated
than for the hinged flap microkeratome. There can be no assurance that either
the hinged flap use or the HRK4 use will be permitted for marketing by the FDA.
The differences between the two uses are found in the components, other than the
microjet scalpel, which comprise the microkeratome. For the HRK4 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 microjet microkeratomes, there are no
known or anticipated physical or chemical processes that would impact on the
safety of the HRK procedure. The microjet microkeratome cuts by mechanisms
similar to that of conventional scalpels (although at speeds more than 10 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/LASIK procedure. LASIK could represent
the strongest competition to HRK4. 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 HRK4 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 HRK4 microkeratome is the benign nature of the
microjet cut. While a conventional scalpel tears the lamellae (layers of the
stroma) and PRK completely or partially destroys the surface lamellae, the
microjet 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 microjet 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.
Other U.S. Government Regulation
9
<PAGE>
In addition to laws and regulations enforced by the FDA, the Company's products
may also be subject to labeling 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 HydroBlade(TM) Keratome
will be blade-based microkeratomes. Mechanical blades cut diseased tissue
intended for removal or make hinged flaps as a first step in the LASIK
procedure. 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, LASIK and ALK), and other
technologies under development, such as 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.
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 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,
Technolas and Schwind, each of Germany, and Nidek of Japan. Many
10
<PAGE>
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 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 microjet
technology under development by Visijet (Surgijet) Inc. Visijet (Surgijet) Inc.
holds narrow, apparatus patents for certain microjet technology utilized in
connection with the treatment of cataracts and for HRK. 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 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/LASIK, because of the high costs of the laser equipment
and laser facility necessary for PRK/LASIK, and to be competitively priced with,
or less costly than, other refractive surgery procedures.
Employees
As of December 31, 1999, the Company had seven full-time employees and one
part-time employee, 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 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.
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. 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
11
<PAGE>
claims with respect to uninsured liabilities or in excess of insured liabilities
would have a material adverse effect on the Company.
ITEM 2. DESCRIPTION OF PROPERTY.
Principal Business Facilities
The Company had been leasing approximately 7,358 square feet of research and
development, manufacturing and office space in Edison, New Jersey. The base rent
under this lease, which was to expire December 31, 1999, was $93,550 per year.
During February and March 1999, the Company renegotiated the terms of this
lease, returned the manufacturing space and a portion of the office space under
the lease, and entered into a new lease agreement for the approximately 4,982
square feet of research and development and office space remaining. Under the
terms of the new lease, which will expire December 31, 2004, the base rent is
$78,197 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").
Under the terms of an agreement with the VANJHCS, the Company paid fees based on
its usage of the facility. During 1999, the Company completed its activities at
the facility and terminated the agreement effective December 31, 1999.
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.
New Jersey Institute of Technology
On April 21, 1998, the Company was served with a complaint by the New Jersey
Institute of Technology ("NJIT") commencing a lawsuit in the United States
District Court for the District of New Jersey ("U.S. District Court"). Each of
the Company, Eugene I. Gordon, Ph.D. (the Company's Chairman and Chief Executive
Officer), a former employee of the Company, certain patent law firms and an
individual patent attorney were named as defendants. The complaint alleged that
the defendants, with deceptive intent, failed to name an NJIT professor and/or
NJIT research associate as a co-inventor on the Company's U.S. Patent No.
5,556,406 on the "Lamellar Surgical Device and Procedure" (the "Patent") and
breached fiduciary duties and contractual obligations owed to NJIT. The
complaint sought monetary damages from the Company and an order directing that
the Company's Patent (and corresponding foreign patents and patent applications)
be assigned and transferred to NJIT. It further sought an order that NJIT has
not infringed any claims of such Patent and a declaratory judgment that all of
the Company's claims under such Patent are invalid and unenforceable against
NJIT.
NJIT had submitted a patent application relating to a different refractive
corrective procedure based on the use of an isotonic waterjet to the U.S. Patent
and Trademark Office. That patent has recently issued. The three inventors of
the subject of such patent application, one of which was Dr. Gordon, had
assigned such patent application to NJIT as part of a dispute settlement in
which
12
<PAGE>
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 based
on its evaluation of the patent potential. In its U.S. District Court pleas,
NJIT claims that the Company's Patent emanates from the earlier invention. Prior
to being served with the complaint by NJIT, the Company and Dr. Gordon filed a
complaint, on March 27, 1998, against NJIT in the Superior Court of the State of
New Jersey, Middlesex County ("State Court"), seeking a declaratory judgment
that NJIT had no ownership or other interest in the rights to the Company's
Patent and seeking payment for damages. NJIT removed the Company's lawsuit to
the U.S. District Court, seeking to have it consolidated with its lawsuit. The
Company moved to have its suit remanded to the State Court and to have the NJIT
lawsuit dismissed on the grounds that the federal court lacked jurisdiction over
either action.
During October 1998, the lawsuit brought in U.S. District Court by NJIT was
dismissed on jurisdictional grounds. In addition, the U.S. District Court also
held that NJIT improperly removed the Company's state court action and ordered
that action remanded to the state court. NJIT appealed the remand action and
appealed the dismissal of its lawsuit brought in U.S. District Court. These
appeals have been dismissed. On April 26, 1999, NJIT commenced a second action
in U.S. District Court. NJIT alleged that the defendants failed to name a NJIT
professor and/or a NJIT research associate as co-inventors of the Patent and
breached fiduciary duties and contractual obligations owed to NJIT. As in the
first federal court action, NJIT sought monetary damages, an order directing
that the Company's Patent, foreign patents and patent applications be assigned
and transferred to NJIT, a declaratory judgment that all of the claims of the
Company's Patent are invalid and unenforceable against NJIT and an order
amending the named inventors of the Company's Patent to include the NJIT
professor and/or the NJIT research associate. Briefing to the federal court on
the motion to dismiss the action against the Company, Dr. Gordon and the former
employee of the Company is complete, and a ruling is expected shortly.
With respect to the Company's lawsuit against NJIT, NJIT has asserted similar
counterclaims and/or third party claims against each of the Company, Dr. Gordon,
a former patent attorney for the Company, a former employee of the Company and
certain patent law firms. The state court action is still in the discovery
phase, which by court order is to be completed by April 18, 2000. The deposition
phase has now been completed. Based on the evidence, the Company is virtually
certain that its Patent is valid and enforceable and that the Company has
substantial and valid defenses to each of NJIT's counterclaims. The Company has
recently filed a motion for summary judgement on the basis that NJIT has
presented absolutely no evidence or testimony that support its claims. The
Company believes that an unfavorable outcome is highly unlikely, and therefore
no amounts have been accrued with respect to this lawsuit.
Other
On April 16, 1999, the Company was served with a complaint commencing a lawsuit
in the United States District Court for the District of New Jersey by Robert G.
Donovan, a former officer and director, seeking payment of $129,500 for services
alleged to have been performed by Mr. Donovan as a temporary Co-President for
the Company. A compensation package approved by the Company's Board of Directors
and offered by the Company previously
13
<PAGE>
had been rejected by Mr. Donovan. Since Mr. Donovan has so far been unable to
name or document services performed for the Company as Co-President, the Company
believes the probability of a significant unfavorable outcome is remote. This
matter is currently in the preliminary stages and no prediction can be made of
the ultimate outcome.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
In November 1999, the Board of Directors of the Company adopted, subject to the
approval of the Company's stockholders, the Amendment to increase the number of
authorized shares of Common Stock from 7,000,000 shares to 30,000,000 shares and
resetting the Company's authorized number of shares of Preferred Stock from
890,000 to 1,000,000. In accordance with Section 228 of the Delaware General
Corporation Law, stockholders owning a majority of the outstanding Common Stock
approved the Amendment by written consent, without a meeting, on November 5,
1999. The Amendment was filed and accepted by the Delaware Secretary of State on
November 22, 1999, with a delaying provision that it would not become effective
until January 31, 2000.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
During the third quarter of 1996, the Company consummated an initial public
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 "Class A 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. Prior to November 6, 1996, there was no market for the Common
Stock or the Class A Warrants. The Units became separable on that date and the
Common Stock and the Class A Warrants began trading separately on November 8,
1996. In July 1998, in connection with a private placement (described in the
following paragraph), the Company agreed to extend the exercise period of the
Class A Warrants for an additional 12 months. As a result, the Class A Warrants
expired on November 6, 1999.
In January 1998, the Company commenced a private placement of its Series A 10%
Cumulative Convertible Preferred Stock, $.01 par value (the "Series A
Preferred"), 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 Series A Preferred for an aggregate price of $1,100,000. In
conjunction with this transaction, a total of 18,272 four-year warrants to
purchase one share of Common Stock, each at an exercise price of $4.34 per
share, was also issued to the placement agent. The net proceeds of this private
placement were used to augment the Company's working capital.
The Series A Preferred bore a cumulative annual dividend of 10% (subject to
increase to 12% in certain events) and was convertible into approximately 1.66
shares of Common Stock for each
14
<PAGE>
share of Series A Preferred, subject to adjustment for any stock splits, stock
dividends, recapitalizations, reclassifications and similar events.
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 Series A Preferred 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 Series A Preferred. The dividend was computed at 10% per annum and
totalled approximately $51,534.
In December 1999, the Company commenced a private placement of its Series B
Convertible Preferred Stock, $.01 par value (the "Series B Preferred"), at a
price of $125 per share. At the closing for this private placement, which was
held on December 6, 1999, the Company sold and issued 16,000 shares of Series B
Preferred for an aggregate price of $2,000,000. In addition, the investors
received 1.6 million five-year warrants (the "Series B Warrants") to purchase
one share of Common Stock, each at an exercise price of $3.50 per share. The
Company also entered into an investment banking agreement with a New York firm
affiliated with certain of the investors, and issued the firm 500,000 Series B
Warrants.
The Series B Preferred is convertible into 100 shares of Common Stock for each
share of Series B Preferred, subject to adjustment for any stock splits, stock
dividends, recapitalizations, reclassifications and similar events.
This private placement 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 January 28, 2000, the Company returned $700,000 of the $2,000,000 aggregate
price received from the sale of the Series B Preferred. The original investment
was made based, in part, on the Company's Agreement with Alcon which, as
previously mentioned in this report, was unexpectedly terminated by Alcon on
December 13, 1999. In light of the termination of the Agreement, and in order to
resolve any possible disputes relating to the termination, the Company and the
investors reevaluated the assumptions on which the original investment was made
and determined that a return of a portion of the original investment was
appropriate. The return of funds was made pursuant to an agreement, dated
January 28, 2000, under which the Company received a return of a proportionate
share of the Series B Preferred and Series B Warrants issued in the private
placement. In connection with this agreement, the investment banking agreement
entered into by the Company at the time of the original investment also was
cancelled.
The net proceeds of this private placement will be used by the Company to
complete the development and introduction of its waterjet microkeratome for
vision correction applications.
The following table sets forth the range of high and low bid quotations per
share of the Common Stock (symbol MDJT) 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.
15
<PAGE>
Range of High and Low Bid Prices
1999 1998
COMMON STOCK
First Quarter $1.3125 - $ .5625 $8.25 - $6.00
Second Quarter $3.1875 - $ .78125 $7.25 - $6.0625
Third Quarter $2.00 - $1.03125 $7.5625 - $3.00
Fourth Quarter $2.25 - $ .625 $3.00 - $ .59375
As of March 16, 2000, there were approximately 54 holders of record of the
Common Stock.
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.
Prior to November 6, 1999, the Company also had outstanding Class A Warrants. On
November 6, 1999, the Class A Warrants expired by their terms.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This annual report contains forward-looking statements within the meaning of the
federal securities laws. These include statements about our expectations,
beliefs, intentions or strategies for the future, which we indicate by words or
phrases such as "anticipate," "expect," "intend," "plan," "will," "we believe,"
"the Company believes," "management believes," and similar language. The
forward-looking statements are based on our current expectations and are subject
to certain risks, uncertainties and assumptions, including those set forth in
the following discussion and in the previous discussion under "Description of
Business." Our actual results may differ materially from results anticipated in
these forward-looking statements. We base our forward-looking statements on
information currently available to us, and we assume no obligation to update
them.
General
The Company is engaged in research and development for manufacture of medical
technology, with a current emphasis on ophthalmic surgical technology and
equipment and has developed a proprietary technology and derivative devices for
corneal surgery based on microjets. The Company expects, during 2000, assuming
the appropriate regulatory clearances are obtained, to continue its research and
development activities focusing principally on ophthalmic surgical technology
and equipment and to offer for sale its first microjet microkeratome product. It
also expects to commence early exploratory work on dental applications of
microjet technology. The Company is a development-stage company.
Overview. Since its inception in December 1993, the Company has been engaged in
developing a technology suitable for surgery of the eye, in particular, vision
correction surgery. The cost of entry into this market with a medical device is
typically large and, being a fledgling company, the Company initially focused on
developing the technology to a point that it could license it. Using the
technology already developed for ophthalmic applications, the Company believed
that microjets can be used in a variety of other medical markets. Hence,
management believed that it
16
<PAGE>
might be possible, using the income resulting from royalties on its initial
products, to develop new devices, and potentially to manufacture and market
these. A license vs. make and sell decision would be made in each case.
Management exercises the following algorithm for choice of new areas for
development:
o A broad or blocking patent could result.
o The size of the conservatively estimated market could justify the
development expense.
o The new device could satisfy an unmet need.
In 1998, the Company licensed its refractive surgery technology to Nestle S.A.
and its Alcon Laboratories ophthalmic division ("Alcon"). On December 13, 1999,
the Company received notice of termination of the license agreement. In giving
the three-months notice of termination required under the agreement, Alcon
offered no reason for the termination. The Company is currently discussing with
Alcon the Company's assertion that Alcon owes the Company certain fees
associated with the license agreement.
While continuing its efforts associated with its refractive surgery technology,
the Company has initiated a new product area associated with treatment of dental
caries.
The Past Year. Due to the Company's limited working capital, 1999 was a
difficult year. The Company has sought to keep operating costs to a minimum,
consistent with completing the technology transfer to Alcon and allowing
development of a new technology option. The overriding constraint has been cash
flow. The current rate of expenditures for staff and direct expenses, with the
Company's current cash balances and cash flow projections, is expected to allow
the Company to continue operating in its present manner until year-end 2000. The
cash flow projections include the sale of NJ tax losses as described under
"Liquidity and Capital Resources."
Refractive Surgery. The Company's initial product, expected to be introduced in
2000, is a microkeratome for producing hinged flaps. Management of the Company
believes this product has certain advantages compared to blade microkeratomes
for producing flaps for the popular vision correction surgery using lasers known
as LASIK. Management believes it should increase surgeon interest in performing
this type of surgery and reduce the potential for patient complications. The
perceived advantages of the waterjet microkeratome include:
o It produces uniform and precise thickness flaps
o It operates at normal IOP
o The flap is circular every time, with the desired vertical-edge shape
o The procedure is quick and relatively easy
o Tissue damage is minimal
The basic microkeratome can be modified to make it suitable for vision
correction surgery without the need for the laser. The Company believes this
should have a significant impact on the vision correction market in terms of
cost of the procedure and quality of the result. Depending on the level of
funding available, the Company anticipates that this product will be available
in 2001.
17
<PAGE>
Dental Caries. The Company's next proposed product development area is for
waterjet treatment of dental caries. The Company has filed a patent application
for this use. The waterjet product has the potential for treating dental caries
and preparation of the tooth for filling.
Future Products. The Company has made an excellent start in its ophthalmic
products. There are new product areas that build on the same technology platform
that are under development, e.g., arthroscopic surgery. The Company's limited
resources currently restrict its product development efforts. Nevertheless,
management is optimistic about the Company's ability to move forward and patents
are being filed.
Results Of Operations
The Company has not yet initiated sales of its products and, consequently, had
no sales revenues during the year ended December 31, 1999. Under the terms of
the Alcon Agreement (as described under "Description of Business"), a total of
$350,000 was paid to the Company during the year ended December 31, 1999. This
amount has been reflected as license fee income and deferred revenues in the
accompanying financial statements.
Total expenses during the year ended December 31, 1999 decreased by $1,469,288
(51.0%) to $1,410,518 from $2,879,806 for the prior year. This was primarily due
to the net decrease in staff during the year (from an average of seventeen
full-time employees in 1998 to an average of eight full-time employees in 1999,
with seven full-time employees and one part-time employee at December 31, 1999)
and a decrease in consulting and professional fees as the Company continued to
curtail several operational activities in order to husband and stretch its
existing capital. See "Liquidity and Capital Resources." Expenses were also
higher during 1998 due to increased purchases for materials, testing and
analysis and greater insurance and occupancy costs reflecting additional office
and laboratory space for pre-clinical research and development activities. Total
expenses for the year ended December 31, 1999 also included approximately
$350,000 in legal fees, primarily related to the NJIT litigation. See "Legal
Proceedings."
Other income/expense consists of interest income, interest expense and finance
charges. For the year ended December 31, 1999, net interest expense amounted to
$2,310 compared with net interest income of $55,259 for 1998. This overall
decrease in net interest income principally resulted from income earned on the
Company's short-term investments, which were lower in 1999 reflecting the
utilization of these funds to continue the Company's research and development
activities, and the interest expense incurred on funds borrowed during 1999.
Liquidity and Capital Resources
As of December 31, 1999, the Company's working capital was $540,527.
Throughout the second half of 1998 and into 1999, the Company sought additional
capital to finance its 1999 and 2000 business plans. 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. In October and
November, 1998, the Company dismissed 9 of its 19 employees and also
significantly reduced the salary of the management group, in some cases by up to
50%. The specific goal was to reduce the Company's monthly expenditures by 60%,
to approximately $100,000.
18
<PAGE>
In December 1999, the Company commenced a private placement of its Series B
Convertible Preferred Stock at a price of $125 per share. The Preferred is
convertible into 100 shares of Common Stock for each share of Preferred, subject
to adjustment for any stock splits, stock dividends, recapitalizations,
reclassifications and similar events. At the closing for this private placement,
held on December 6, 1999, the Company sold and issued 16,000 shares of Preferred
for an aggregate price of $2,000,000. In addition, the investors received 1.6
million five-year warrants to purchase Common Stock, each at an exercise price
of $3.50 per share. The Company also entered into an investment banking
agreement with a New York firm affiliated with certain of the investors, and
issued the firm 500,000 warrants with the same terms.
As discussed under "Market for Common Equity and Related Stockholder Matters,"
on January 28, 2000, the Company returned $700,000 of the $2,000,000 aggregate
price received from the sale of the Series B Preferred, in exchange for the
surrender of a corresponding number of shares of Series B Preferred and Series B
Warrants.
In January 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey Net
Operating Loss ("NOL") Carryover and Research and Development Tax Credits ("R&D
Credits") to corporate taxpayers in New Jersey. During 1999, the Company entered
into an agreement under which it retained a third party broker to identify a
buyer for the Company's NOL Carryover and R&D Credits. The total anticipated net
proceeds of this transaction ($594,209) were recorded as a non-current deferred
tax asset in the accompanying financial statements. Due to limitations placed by
the State of New Jersey on the total amount of NOL Carryover and R&D Credits
eligible to be sold in any one year, the sale of only a portion of the Company's
NOL Carryover and R&D Credits ($327,000) was completed in 1999. The receipt of
these funds, on December 16, 1999, was recorded as a reduction to the
non-current deferred tax asset in the accompanying financial statements. The
sale of the remaining balance of the Company's NOL Carryover and R&D Credits is
anticipated by the end of the third quarter of 2000. There can be no assurances,
however, that this proposed sale will occur. To the extent that the NOL
Carryover and R&D Credits are sold, they will be unavailable to the Company to
offset future New Jersey state taxes.
During March 1999, Dr. Gordon agreed to make available to the Company a loan of
up to $250,000. Under the terms of this agreement, the Company issued to Dr.
Gordon warrants to purchase up to 50,000 shares of the Company's Common Stock
and pays a market interest rate on amounts borrowed. During 1999, amounts
advanced under this agreement totalled $250,000. At December 31, 1999, $100,000
of this amount, plus accrued interest, had been repaid.
The Company anticipates that its cash on hand, plus the loan available from Dr.
Gordon and the sale of its New Jersey State NOL Carryover and R&D Credits, will
be sufficient to meet the Company's 2000 working capital and planned capital
expenditure requirements. If, however, the Company incurs unexpected expenses,
or if the New Jersey NOL Carryover and R&D Credits are not sold as anticipated,
the Company may require additional financing prior to the end of 2000 in order
to maintain its current operations. The Company currently has no commitment or
arrangement for any capital, and there can be no assurance whether or on what
terms it will be able to obtain any needed capital. If additional financing is
not available, the Company would be materially adversely affected and be
required to further curtail or cease altogether its current operations.
19
<PAGE>
During 2000, the Company intends to seek additional funding in order to
accelerate its product development efforts and augment its working capital.
Additional Factors That May Affect Future Results
No Revenues; Uncertain Profitability; Development Stage Company; History of
Losses. Since its inception, the Company has been principally engaged in
developmental and organizational activities. To date, the Company has not yet
initiated sales of its products and, consequently, has had no sales revenues.
The Company's Agreement with Alcon, under which payments totalling $850,000 were
made by Alcon to the Company, was terminated by Alcon, and the Company has no
other agreements with respect to the license, manufacture or distribution of its
products. Although the Company is currently discussing with Alcon the Company's
assertion that Alcon owes the Company certain fees associated with the
termination, there can be no assurance that the Company will be successful in
these discussions.
No sales revenues are expected until, and only if, the Company begins commercial
marketing of the Company's microkeratome or other products. Commercial marketing
of the Company's products in the U.S. will be contingent upon obtaining FDA
permission or approval and possibly the approval of other governmental agencies.
To date, only the Company's HydroBrush(TM) Keratome has been granted 510(k)
notification from the FDA and is the Company's only product which has received
the regulatory approvals required prior to the commencement of commercial
marketing. The Company is currently discussing sale of this product on an OEM
basis. The Company is also currently planning to seek FDA clearance of the
HydroBlade(TM) Keratome device in 2000. Regulatory clearance procedures are
often extremely time consuming, expensive and uncertain. Accordingly, there can
be no assurance that the Company will be successful in obtaining marketing
clearance of the HydroBlade(TM) Keratome or other devices or that, if such
devices are cleared, it will be able to generate sufficient revenues to operate
on a profitable basis.
The Company, which was founded in December 1993, is in the development stage,
and its business is subject to all of the risks inherent in the establishment of
a new business enterprise. The likelihood of success of the Company must be
considered in light of the problems, expenses, complications and delays
frequently encountered in connection with the formation of a new business, the
development of new products, the competitive and regulatory environment in which
the Company is operating and the possibility that its activities will not result
in the development of any commercially viable products. There can be no
assurance that the Company's activities will ultimately result in the
development of commercially saleable or useful products.
The Company has experienced annual operating losses and negative operating cash
flow since inception. At December 31, 1999, the Company had an accumulated
deficit of approximately $6,000,000, excluding approximately $1,500,000 which
was applied to additional paid-in capital when the Company converted from a
subchapter S corporation to a C corporation for federal income tax purposes in
connection with its initial public offering during August 1996. Unless and until
the Company's product development and marketing activities are successful and
its products are sold, of which there can be no assurance, the Company will not
have any revenues to apply to operating expenses and the Company will continue
to incur losses.
Need for Future Financing. The Company currently is focusing on its efforts to
undertake the limited manufacture and marketing of its products. To proceed with
its planned research and development and marketing activities, the Company will
require additional capital before, if ever, it reaches profitability and
positive cash flow. As a result, the Company will be required to
20
<PAGE>
raise additional funds through public or private financing including grants that
may be available for its research and development. In connection with two
private placement offerings for the Company's Preferred Stock (one in the second
quarter of 1998 and one in the fourth quarter of 1999) the Company raised a
total of $2,400,000 (net of the amount returned to investors in January 2000).
There can, however, be no assurance that the Company will be able to obtain
additional financing on terms favorable to it, if at all. If adequate funds are
not available to satisfy short-term or long-term capital requirements, the
Company may be required to reduce substantially, or eliminate, certain areas of
its product development activities, limit its operations significantly, or
otherwise modify its business strategy. The failure of the Company to obtain any
other acceptable financing would have a material adverse effect on the
operations of the Company. Without additional financing or the exercise of the
Company's outstanding options and warrants or otherwise, the Company would
become unable to maintain its current operations and would be unable to carry
out its business plan. Except for currently outstanding warrants and options,
the Company has no current plans, understandings or commitments to obtain any
additional financing from the sale of its securities or otherwise. Additional
financing from the sale of its securities may result in dilution of the
Company's then current stockholders.
Dependence Upon A Key Officer; Attraction and Retention of Key Personnel. The
business of the Company is highly dependent upon the active participation of its
founder and Chief Executive Officer, Dr. Eugene I. Gordon, age 69. The loss or
unavailability to the Company of Dr. Gordon would have a material adverse effect
on the Company's business prospects and potential earning capacity. The
recruitment of skilled scientific personnel is critical to the Company's
success. There can be no assurance that it will be able to continue to attract
and retain such personnel in the future. In addition, the Company's anticipated
growth and expansion into areas and activities requiring additional expertise,
clinical testing, governmental approvals, production and marketing of the
Company's products (which would be required if the Company does not enter into
licensing arrangements) is expected to place increased demands upon the
Company's financial resources and corporate structure. The Company expects to
satisfy such demands, if they arise, through the hiring of additional management
personnel and the development of additional expertise by existing management.
No Assurance of FDA and Other Regulatory Approval. As medical devices, the
Company's microkeratomes are subject to regulation by the FDA under the FD&C Act
and implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among
other things, the development, manufacture, labeling, distribution, and
promotion of microkeratomes in the United States. If the Company fails to enter
into licensing arrangements, it will be required to pursue FDA approval of or
clearance to market its products at its own cost.
The process of obtaining required regulatory clearances or approvals can be
time-consuming and expensive, and compliance with the FDA's Good Manufacturing
Practices regulations and other regulatory requirements can be burdensome.
Moreover, there can be no assurance that the required regulatory clearances will
be obtained, and such clearances, if obtained, may include significant
limitations on the uses of the product in question. In addition, changes in
existing regulations or guidelines or the adoption of new regulations or
guidelines could make regulatory compliance by the Company more difficult in the
future. The failure to comply with applicable regulations could result in fines,
delays or suspensions of clearances, seizures or recalls of products, operating
restrictions and criminal prosecutions, and would have a material adverse effect
on the Company.
21
<PAGE>
Uncertainty of Market Acceptance; Reliance on Single Technology. Acceptance of
the Company's products is difficult to predict and will require substantial
marketing efforts and the expenditure of significant funds by the Company. There
can be no assurance that the products will be accepted by the medical community
once they are permitted or approved. Market acceptance of the Company's products
will depend in large part upon the Company's ability to demonstrate the
operational advantages, safety and cost-effectiveness of its products compared
to other comparable surgical techniques. Failure of the products to achieve
market acceptance will have a material adverse effect on the Company's financial
condition and results of operations.
At present, the Company's only products (although still in development stage)
are its microkeratomes, and the Company expects that its microkeratomes will be,
if and when commercially available, its sole products for an indefinite period
of time. The Company's present narrow focus on particular products makes the
Company vulnerable to the development of superior competing products and changes
in technology that could eliminate the need for the Company's products. There
can be no assurance that significant changes in the foreseeable future in the
need for the Company's products or the desirability of those products will not
occur.
Dependence on Patents and Proprietary Rights. The Company's success will depend
in part on whether it successfully obtains and maintains patent protection for
its products, preserves its trade secrets and operates without infringing the
proprietary rights of third parties.
The Company has sought to protect its proprietary interest in its products by
applying for patents in the United States and corresponding patents abroad. The
Company currently has four issued U.S. patents and two issued foreign patents.
The Company also has several dozen U.S. and foreign patents in process. There
can be no assurance that any other patent will be issued to the Company, that
any patents owned by or issued to the Company, or that may issue to the Company
in the future, will provide a competitive advantage or will afford protection
against competitors with similar technology, or that competitors of the Company
will not circumvent, or challenge the validity of, any patents issued to the
Company. There also can be no assurance that any patents issued to or licensed
by the Company will not be infringed upon or designed around by others or would
prevail in a legal challenge, that others will not obtain patents that the
Company will need to license or design around, that the microkeratomes or any
other potential product of the Company will not inadvertently infringe upon the
patents of others, or that others will not manufacture the Company's patented
products upon expiration of such patents. There can be no assurance that
existing or future patents of the Company will not be invalidated. Additionally,
patent applications filed in foreign countries and patents granted in such
countries are subject to laws, rules and procedures which differ from those in
the United States. Patent protection in such countries may be different from
patent protection provided by United States laws and may not be as favorable to
the Company.
Also, there can be no assurance that the Company's non-disclosure agreements and
other safeguards will protect its proprietary information and trade secrets or
provide adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to independently
develop such information. As is the case with the Company's patent rights, the
enforcement by the Company of its non-disclosure agreements can be lengthy and
costly, with no guarantee of success. There can be no assurance that the
Company's program of patent protection, internal security of its proprietary
information and non-disclosure agreements will be sufficient to protect the
Company's proprietary technology from competitors.
22
<PAGE>
Infringement Claims; Litigation. If any of the Company's products are found to
infringe upon the patents or proprietary rights of another party, the Company
may be required to obtain licenses under such patents or proprietary rights of
such other party. No assurance can be given that any such licenses would be made
available on terms acceptable to the Company, if at all. If required licenses
were to be unavailable, the Company could be prohibited from using, marketing or
selling certain technology and devices and such prohibition could have a
material adverse effect on the Company.
The Company is currently involved in ongoing litigation, as described under
"Legal Proceedings."
Competitive Technologies, Procedures and Companies. The Company is engaged in a
rapidly evolving field. There are many companies, both public and private,
universities and research laboratories engaged in research activities relating
to other vision correction alternatives. Competition from these companies,
universities and laboratories is intense and is expected to increase. The
Company's initial products will compete with other presently existing forms of
treatment for vision disorders, including eyeglasses, contact lenses, corneal
transplants, other refractive surgery procedures and other technologies under
development. There can be no assurance that persons whose vision can be
corrected with eyeglasses or contact lenses will elect to undergo the surgical
procedures with the Company's products when non-surgical vision correction
alternatives are available.
The Company is aware of ongoing research at certain companies and institutions
into a variety of procedures for corneal adjustment and refractive surgery,
including waterjet technology under development by Visijet (Surgijet) Inc. Some
of these companies and institutions, which may in the future become competitors
of the Company, have substantially greater resources, research and development
staffs and facilities, as well as greater experience in research and
development, obtaining regulatory approval and manufacturing and marketing
medical device products than the Company. On the other hand, the nature of the
Company's patents is blocking.
Additionally, there can be no assurance that the Company's competitors will not
succeed in developing technologies, procedures or products that are more
effective or economical than those being developed by the Company or that would
render the Company's technology and proposed products obsolete or noncompetitive
or that would allow for the bypassing of the Company's patents. Furthermore, in
connection with the commercial sale of its products, the Company will also be
competing with respect to manufacturing efficiency and marketing capabilities,
areas in which the Company has no experience.
No Manufacturing Experience; Dependence on Third Parties. Although the Company's
current strategy is to focus on the manufacture and marketing of its products,
if marketing clearance is obtained, the Company continues to have discussions
with several potential strategic partners and is investigating other possible
arrangements. To the extent the Company does not enter into such arrangements,
it will need to engage in the manufacture and marketing of its products.
Manufacturing will consist of purchasing existing parts, having parts formed by
vendors, incoming inspection, assembly, qualification testing and packaging,
i.e., virtual manufacturing. The Company has no volume manufacturing capacity or
experience in manufacturing medical devices or other products. To be successful,
the Company's proposed products must be manufactured in commercial quantities in
compliance with regulatory requirements at acceptable costs. Production in
clinical or commercial-scale quantities will involve technical challenges for
the Company. If the Company is unable or elects not to pursue collaborative
arrangements with other companies to manufacture certain of its potential
products,
23
<PAGE>
the Company will be required to establish manufacturing capabilities.
Establishing its own manufacturing capabilities would require significant
scale-up expenses and additions to facilities and personnel. There can be no
assurance that the Company will be able to obtain necessary regulatory approvals
on a timely basis or at all. Delays in receipt of or failure to receive such
approvals or loss of previously received approvals would have a material adverse
effect on the Company. There can be no assurance that the Company will be able
to develop clinical or commercial-scale manufacturing capabilities at acceptable
costs or enter into agreements with third parties with respect to these
activities. The Company's dependence upon third parties for the manufacture of
its products may adversely affect the Company's profit margins and the Company's
ability to develop and deliver such products on a timely basis. Moreover, there
can be no assurance that such parties will perform adequately, and any failures
by third parties may delay the submission of products for regulatory approval,
impair the Company's ability to deliver products on a timely basis, or otherwise
impair the Company's competitive position and any such failure could have a
material adverse effect on the Company.
No Marketing or Sales Experience. Unless the Company enters into 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 or other strategic partnerships. The Company currently has no
marketing organization and has never sold a product. Establishing sufficient
marketing and sales capability will require significant resources. There can be
no assurance that the Company will be able to recruit and retain skilled sales
management, direct salespersons or distributors, or that the Company's marketing
or sales efforts will be successful. To the extent that the Company enters into
distribution arrangements for the sale of its products, the Company will be
dependent on the efforts of third parties. There can be no assurance that such
efforts will be successful.
Risk of Product Liability Litigation; Potential Unavailability of Insurance. The
testing, manufacture, marketing and sale of medical devices entails the inherent
risk of liability claims or product recalls. As a result, the Company faces a
risk of exposure to product liability claims and/or product recalls in the event
that the use of its current or future potential products are alleged to have
caused injury. There can be no assurance that the Company will avoid significant
liability in spite of the precautions taken to minimize exposure to product
liability claims. Prior to the commencement of clinical testing, the Company
intends to procure product liability insurance. After any commercialization of
its products, the Company will seek to obtain an appropriate increase in its
coverage. There can, however, be no assurance that adequate insurance coverage
will be available at an acceptable cost, if at all. Consequently, a product
liability claim, product recall or other claims with respect to uninsured
liabilities or in excess of insured liabilities could have a material adverse
effect on the Company.
Surgical Risks. There can be no assurance that the Company's products will be
successful in providing reliable surgical corrections. As with all surgical
procedures, the procedures for which the Company's products are intended entail
certain inherent risks, including defective equipment or human error, infection
or other injury resulting in partial or total loss of vision. Such injury could
expose the Company to product liability or other claims. The Company believes
competing products have the same risks and have experienced a small number of
these situations without undue impact on the commercial prospects of such
products. There can be no assurance that the Company's product liability
insurance in effect from time to time will be sufficient to cover any such claim
in part or in whole. Any such claim could adversely impact the commercialization
of the Company's products and could have a material adverse effect on the
Company.
24
<PAGE>
Other Matters. The Year 2000 problem has not to date had a material impact on
the Company's operations, and the Company believes that the Year 2000 problem
will not have a significant impact on the Company's future operations. Costs
incurred to insure that the Company's systems are Year 2000 compliant have to
date not been, and are not expected to be, material to the Company's results of
operations, financial position or cash flows, and no Year 2000 problems have
been encountered by the Company's systems to date.
25
<PAGE>
ITEM 7. FINANCIAL STATEMENTS.
Page No.
--------
Independent Auditors' Report............................................ 27
Balance Sheet as of December 31, 1999................................... 28
Statements of Operations for the years ended
December 31, 1999 and 1998, and for the period
from inception to December 31, 1999..................................... 29
Statement of Stockholders' Equity for the period
from inception to December 31, 1999..................................... 30
Statements of Cash Flows for the years ended
December 31, 1999 and 1998, and for the period
from inception to December 31, 1999..................................... 32
Notes to Financial Statements........................................... 33
26
<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, 1999 and the related statements of operations,
stockholders' equity and cash flows for the years ended December 31, 1999 and
1998. 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 the 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, 1999 and the results of its operations and its
cash flows for the years ended December 31, 1999 and 1998 in conformity with
generally accepted accounting principles.
ROSENBERG RICH BAKER BERMAN & COMPANY
Bridgewater, New Jersey
February 17, 2000
27
<PAGE>
MEDJET INC.
(A Development Stage Company)
Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C>
Current Assets:
Cash and cash equivalents $ 1,063,749
Restricted cash 700,000
Prepaid expenses 58,049
----------------
Total Current Assets 1,821,798
----------------
Property and Equipment - less accumulated depreciation of $323,802 111,444
Patents and Trademarks - less accumulated amortization of $29,172 163,403
Deferred tax asset 267,063
Security deposits 4,837
----------------
Total Assets $ 2,368,545
================
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued liabilities $ 206,271
Deferred revenues 175,000
Notes payable - Officer 150,000
Notes payable - Other 50,000
Amount due investors 700,000
----------------
Total Liabilities 1,281,271
----------------
Stockholders' Equity:
Common stock, $.001 par value, 30,000,000 shares authorized,
3,935,220 shares issued and 3,901,431 shares outstanding 3,935
Preferred stock, $.01 par value, 1,000,000 shares authorized,
10,400 shares designated as Series B Convertible Preferred
issued and outstanding 104
Additional paid-in capital 7,365,932
Accumulated deficit (including deficit accumulated during
development stage of $7,785,667 of which $1,556,204 was
applied to additional paid-in capital upon conversion
from an "S" to a "C" corporation) (6,280,997)
Less: Treasury stock, 33,789 shares, at cost (1,700)
----------------
Total Stockholders' Equity 1,087,274
----------------
Total Liabilities and Stockholders' Equity $ 2,368,545
================
</TABLE>
See notes to the financial statements.
28
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statements of Operations
<TABLE>
<CAPTION>
Period from
Year Ended December 31, December 16, 1993
------------------------------------ (Inception) to
1999 1998 December 31, 1999
----------------- ----------------- --------------------
<S> <C> <C> <C>
Revenues:
License fee income $ 175,000 $ 500,000 $ 675,000
----------------- ----------------- --------------------
Total Revenues 175,000 500,000 675,000
----------------- ----------------- --------------------
Expenses:
Research, development,
general and administrative 1,410,518 2,879,806 9,318,208
----------------- ----------------- --------------------
Total Expenses 1,410,518 2,879,806 9,318,208
----------------- ----------------- --------------------
Loss from Operations (1,235,518) (2,379,806) (8,643,208)
----------------- ----------------- --------------------
Other Income/(Expense):
Net interest income/(expense) (2,310) 55,259 264,582
----------------- ----------------- --------------------
Loss Before Income Tax (1,237,828) (2,324,547) (8,378,626)
Federal income tax - - -
State income tax 200 (594,009) (592,959)
----------------- ----------------- --------------------
Total Income Tax 200 (594,009) (592,959)
----------------- ----------------- --------------------
Net Loss (1,238,028) (1,730,538) (7,785,667)
Dividends on Preferred Stock - 184,923 184,923
----------------- ----------------- --------------------
Net Loss Attributable to
Common Shareholders $ (1,238,028) $ (1,915,461) $ (7,970,590)
================= ================= ====================
Net Loss Per Share $ (0.32) $ (0.51) $ (2.52)
================= ================= ====================
Weighted Average Common
Shares Outstanding 3,894,045 3,728,594 3,159,023
================= ================= ====================
</TABLE>
See notes to the financial statements.
29
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statement of Stockholders' Equity
Period From December 16, 1993 (Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
Total Common Preferred
Preferred Common Price Consider- Stock Stock Paid-
Shares Shares Per ation ($.001 ($.01 In
Date/Description Issued Issued Share Paid Par Value) Par Value) Capital
- --------------------------------------- --------- ----------- -------- ----------- --------- --------- ------------
<S> <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 - - - - - - -
--------- ----------- ======== ----------- --------- --------- ------------
Balance, December 31, 1994 - 1,213,004 847,824 1,213 - 846,611
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 - - - - - - -
--------- ----------- ======== ----------- --------- --------- ------------
Balance, December 31, 1995 - 2,450,312 $ 966,824 $ 2,450 $ - $ 964,374
--------- ----------- ======== ----------- --------- --------- ------------
Paid-In
Capital Accum-
(Beneficial ulated Treasury
Date/Description Conversion) Deficit Stock
- --------------------------------------- ---------- ------------ ---------
<S> <C> <C> <C>
March 12, 1994 Share Issuance $ - $ - $ -
April 21, 1994 Share Issuance - - -
May 1, 1994 Share Issuance - - -
May 25, 1994 Share Issuance - - -
May 31, 1994 Share Issuance - - -
June 6, 1994 Share Issuance - - -
June 7, 1994 Share Issuance - - -
June 13, 1994 Share Issuance - - -
June 20, 1994 Share Issuance - - -
July 28, 1994 Share Issuance - - -
September 23, 1994 Share Issuance - - -
October 20, 1994 Share Issuance - - -
October 28, 1994 Share Issuance - - -
November 10, 1994 Share Issuance - - -
November 16, 1994 Share Issuance - - -
Net Loss, Year Ended December 31, 1994 - (287,291) -
---------- ------------ ---------
Balance, December 31, 1994 - (287,291) -
August 8, 1995 Share Issuance - - -
August 28, 1995 Share Issuance - - -
September 21, 1995 Share Issuance - - -
September 29, 1995 Share Issuance - - -
December 31, 1995 Share Issuance - - -
December 31, 1995 Stock Split:
1.987538926-to-1
Share Outstanding - - -
Net Loss, Year Ended December 31, 1995 - (677,385) -
---------- ------------ ---------
Balance, December 31, 1995 $ - $ (964,676) $ -
---------- ------------ ---------
</TABLE>
See notes to the financial statements.
30
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statement of Stockholders' Equity
Period From December 16, 1993 (Date of Inception) to December 31, 1999
<TABLE>
<CAPTION>
Total Common Preferred
Preferred Common Price Consider- Stock Stock Paid-
Shares Shares Per ation ($.001 ($.01 In
Date/Description Issued Issued Share Paid Par Value) Par Value) Capital
- ------------------------------------------------- --------- ----------- -------- ----------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995, brought forward - 2,450,312 $ 966,824 $ 2,450 $ - $ 964,374
August 6, 1996 Share Issuance - 1,071,429 $ 5.60 6,000,002 1,071 - 5,998,931
August 6, 1996 Reclassification of deferred
offering costs - - - - - - (1,436,045)
August 6, 1996 Reclassification of accumulated
deficit for change from an S to
a C corporation - - - - - - (1,556,204)
September 3, 1996 Share Issuance - 160,714 5.60 899,998 161 - 899,837
December 30, 1996 Acquisition of treasury shares - - - - - - -
Net Loss, Year Ended December 31, 1996 - - - - - - -
--------- ----------- ======== ----------- --------- --------- ------------
Balance, December 31, 1996 - 3,682,455 7,866,824 3,682 - 4,870,893
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 - 24,994
Net Loss, Year Ended December 31, 1997 - - - - - - -
--------- ----------- ======== ----------- --------- --------- ------------
Balance, December 31, 1997 - 3,708,719 7,892,919 3,709 - 4,896,962
January 27, 1998 Share Issuance - 1,350 $ 5.60 7,560 1 - 7,559
March 31, 1998 Share Issuance - 10,000 3.02 30,188 10 - 30,178
April 20, 1998 Share Issuance 110,000 - 10.00 1,100,000 - 1,100 945,511
April 20, 1998 Placement Agent Warrants - - - - - - 18
October 9, 1998 Preferred Conversion (110,000) 182,724 6.02 - 183 (1,100) 184,911
October 9, 1998 Preferred Dividend - 12,154 4.24 51,534 12 - 917
Net Loss, Year Ended December 31, 1998 - - - - - - -
--------- ----------- ======== ----------- --------- --------- ------------
Balance, December 31, 1998 - 3,914,947 9,082,201 3,915 - 6,066,056
May 13, 1999 Share Issuance - 19,588 $ 1.00 - 19 - (19)
June 11, 1999 Share Issuance - 685 1.70 - 1 - (1)
December 3, 1999 Share Issuance 16,000 - 125.00 2,000,000 - 160 1,999,840
December 31, 1999 Partial Rescission of Preferred (5,600) - 125.00 (700,000) - (56) (699,944)
Net Loss, Year Ended December 31, 1999 - - - - - - -
--------- ----------- ======== ----------- --------- --------- ------------
Balance, December 31, 1999 10,400 3,935,220 $10,382,201 $ 3,935 $ 104 $ 7,365,932
========= =========== =========== ========= ========= ============
Paid-In
Capital Accum-
(Beneficial ulated Treasury
Date/Description Conversion) Deficit Stock
- ------------------------------------------------- ---------- ------------ ---------
<S> <C> <C> <C>
Balance, December 31, 1995, brought forward $ - $ (964,676) $ -
August 6, 1996 Share Issuance - - -
August 6, 1996 Reclassification of deferred -
offering costs - -
August 6, 1996 Reclassification of accumulated
deficit for change from an S
to a C corporation - 1,556,204 -
September 3, 1996 Share Issuance - - -
December 30, 1996 Acquisition of treasury shares - - (1,700)
Net Loss, Year Ended December 31, 1996 - (1,273,977) -
---------- ------------ ---------
Balance, December 31, 1996 - (682,449) (1,700)
July 18, 1997 Share Issuance - - -
July 24, 1997 Share Issuance - - -
Net Loss, Year Ended December 31, 1997 - (2,578,448) -
---------- ------------ ---------
Balance, December 31, 1997 - (3,260,897) (1,700)
January 27, 1998 Share Issuance - - -
March 31, 1998 Share Issuance - - -
April 20, 1998 Share Issuance 133,389 - -
" Placement Agent Warrants - - -
October 9, 1998 Preferred Conversion (133,389) - -
" Preferred Dividend - (51,534) -
Net Loss, Year Ended December 31, 1998 - (1,730,538) -
---------- ------------ ---------
Balance, December 31, 1998 - (5,042,969) (1,700)
May 13, 1999 Share Issuance - - -
June 11, 1999 Share Issuance - - -
December 3, 1999 Share Issuance - - -
December 31, 1999 Partial Rescission of Preferred - - -
Net Loss, Year Ended December 31, 1999 - (1,238,028) -
---------- ------------ ---------
Balance, December 31, 1999 $ - $(6,280,997) $ (1,700)
========== ============ =========
</TABLE>
See notes to the financial statements.
31
<PAGE>
MEDJET INC.
(A Development Stage Company)
Statements of Cash Flows
<TABLE>
<CAPTION>
For the Year Ended Period from
December 31, December 16, 1993
--------------------------- (Inception) to
1999 1998 December 31, 1999
------------- ------------ -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (1,238,028) $ (1,730,538) $ (7,785,667)
Adjustments to Reconcile Net Loss to
Net Cash (Used) by Operating Activities:
Depreciation and amortization 81,895 102,723 401,154
Loss on abandonment of property and equipment 28,987 - 28,987
(Increase) Decrease in prepaid expenses (26,977) 32,651 (58,049)
(Increase) Decrease in deferred tax asset 327,146 (594,209) (267,063)
Increase (Decrease) in accounts payable
and accrued expenses (85,338) 72,717 206,278
Increase (Decrease) in deferred revenues 175,000 - 175,000
Increase (Decrease) in deferred rental obligation (3,698) (1,594) -
------------- ------------ ----------------
Net Cash (Used) by Operating Activities (741,013) (2,118,250) (7,299,360)
------------- ------------ ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash redemptions of marketable securities - - 320,605
Cash (purchases) of marketable securities - - (320,605)
Cash purchases of property, plant & equipment (3,650) (102,282) (475,026)
Cash purchase of organization costs - - (37,387)
Cash payments for patents and trademarks (37,395) (45,280) (192,575)
Cash receipts (payments) for security deposits 2,213 600 (4,837)
------------- ------------ ----------------
Net Cash (Used) by Investing Activities (38,832) (146,962) (709,825)
------------- ------------ ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock 1,300,000 1,080,018 2,380,018
Proceeds from issuance of common stock
and initial public offering - 37,748 6,494,616
Purchase of treasury stock - - (1,700)
Proceeds from officer notes payable 250,000 - 571,000
Repayment of officer notes payable (100,000) - (421,000)
Proceeds from other notes payable 50,000 - 450,000
Repayment of other notes payable - - (400,000)
------------- ------------ ----------------
Net Cash Provided by Financing Activities 1,500,000 1,117,766 9,072,934
------------- ------------ ----------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 720,155 (1,147,446) 1,063,749
Cash and Cash Equivalents - Beginning of Period 343,594 1,491,040 -
------------- ------------ ----------------
Cash and Cash Equivalents - End of Period $ 1,063,749 $ 343,594 $ 1,063,749
============= ============ ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Income taxes $ 200 $ 200 $ 600
============= ============ ================
Interest expense $ 11,964 $ 521 $ 25,485
============= ============ ================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
During the year ended December 31, 1999, amount due
investors was increased by $700,000 due to a
partial rescission of the preferred stock issuance.
See notes to the financial statements.
32
<PAGE>
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 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.
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 "Class A 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 Class A Warrants began trading separately on
November 8, 1996. In July 1998, in connection with a private placement
(described in the following paragraph), the Company agreed to extend
the exercise period of the Class A Warrants for an additional 12
months. As a result, the Class A Warrants expired on November 6, 1999.
In January 1998, the Company commenced a private placement of its
Series A 10% Cumulative Convertible Preferred Stock, $.01 par value
(the "Series A Preferred"), 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 Series A Preferred for an aggregate
price of $1,100,000. In conjunction with this transaction, a total of
18,272 four-year warrants, each at an exercise price of $4.34 per
share, was also issued to the placement agent. The net proceeds of this
private placement were used to augment the Company's working capital.
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 Series A Preferred
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 Series A Preferred. The
dividend was computed at 10% per annum and totalled approximately
$51,534.
33
<PAGE>
In December 1999, the Company commenced a private placement of its
Series B Convertible Preferred Stock, $.01 par value (the "Series B
Preferred"), at a price of $125 per share. At the closing for this
private placement, which was held on December 6, 1999, the Company sold
and issued 16,000 shares of Series B Preferred for an aggregate price
of $2,000,000. In addition, the investors received 1.6 million
five-year warrants (the "Series B Warrants"), each at an exercise price
of $3.50 per share. The Company also entered into an investment banking
agreement with a New York firm affiliated with certain of the
investors, and issued the firm 500,000 Series B Warrants.
The net proceeds of this private placement will be used by the Company
to complete specific development for manufacture and to introduce its
waterjet microkeratome for vision correction applications.
The Series B Preferred is convertible into approximately 100 shares of
Common Stock for each share of Series B Preferred, subject to
adjustment for any stock splits, stock dividends, recapitalizations,
reclassifications and similar events.
This private placement 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.
In accordance with an agreement entered into on January 28, 2000, the
Company returned $700,000 of the $2,000,000 aggregate price received
from the sale of the Series B Preferred. See "Subsequent Event" note.
The Company has continued to incur losses since its inception and at
December 31, 1999 has accumulated deficits. Management has implemented
a program to reduce costs and to reduce the break-even point necessary
for continuing operations. Management believes that its 2000 operating
plan, which anticipates the program to reduce costs as well as certain
funding sources, is reasonable and attainable and will provide
sufficient cash to sustain operations during 2000. In addition, a
principal stockholder of the Company has committed to provide
additional working capital, if necessary.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, cash equivalents
includes 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.
34
<PAGE>
Amortization
Organization costs have been amortized over sixty months on a
straight-line basis and were completely amortized at December 31, 1999.
Total amortization for the years ended December 31, 1999 and 1998 was
$2,295 and $7,477, 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, 1999 and 1998 was $11,237
and $9,038, respectively.
Revenue Recognition/Deferred Revenues
The Company's revenue for 1999 and 1998 is generated from license fees
and is recognized in accordance with the terms of the agreements
reached with third parties.
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 federal income taxes has been
offset entirely by a valuation allowance against the related deferred
tax asset for the year ended December 31, 1999. Since the sale of the
Company's state net operating losses and research and development
credits is now available, the net estimated proceeds from the sale of
these assets has been recorded as a deferred tax benefit.
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.
35
<PAGE>
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.
NOTES PAYABLE - OFFICER/OTHER
Notes payable - officer represents an unsecured loan from an officer of
the Company with interest at 8.27% per annum, earliest due date May 15,
2000.
Notes payable - other represents an unsecured loan from an outside
party with interest at 10% per annum. The loan was paid in full in
January 2000.
STOCKHOLDERS' EQUITY
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 700,000 and
449,688 shares at December 31, 1999 and 1998, 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 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 as of December 31,
----------------------------------
1999 1998
---- ----
Outstanding, beginning of year 377,550 96,220
Granted during the year 210,000 412,025
Canceled during the year (218,727) (119,345)
Exercised during the year:
At $1.00 per share (19,588) -
At $1.70 per share (685) -
At $3.02 per share - (10,000)
At $5.60 per share - (1,350)
-------- --------
Outstanding, end of year 348,550 377,550
======== ========
Eligible, end of year, for exercise 110,924 51,714
======== ========
Range of exercise price per share $.05 to $7.63 $.05 to $7.63
============= =============
36
<PAGE>
At December 31, 1999 and 1998, the average exercise price and remaining
contractual life were $2.13 and $4.15 per share, and 8 years 3 months and 9
years 6 months, respectively.
At December 31, 1999 and 1998, there were 298,027 and 38,988 shares,
respectively, reserved for future grants.
Warrants
The Company has issued common stock purchase warrants separately and in
conjunction with the Offering and both of the preferred stock private
placements (see "Nature of Organization"), as well as to consultants and to
lenders, as follows:
As of December 31, 1999:
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
04/20/98 18,272 4.34 04/20/98 04/20/02 100% on 4/20/98
07/15/99 50,000 1.00 07/15/99 07/15/04 100% on 7/15/99
07/16/99 10,000 1.37 07/16/99 07/16/01 100% on 7/16/99
11/12/99 7,500 3.50 11/12/99 11/12/04 100% on 11/12/99
12/03/99 1,365,000 3.50 02/01/00 12/03/04 100% after 1/31/00
---------
1,548,161 Outstanding at December 31, 1999
=========
As of December 31, 1998:
Exercise Exercise Term
Date of No. of Price Per --------------------
Grant Shares Share Start Expiration Vesting Rights
-------- ---------- --------- ----- ---------- --------------
5/20/96 97,389 $ 3.37 05/20/96 05/20/01 25% per year
8/14/96 1,071,429 10.00 11/06/96 11/06/99 100% on 11/6/96
8/14/96 107,143 10.00 08/06/97 08/06/99 100% on 8/6/97
9/13/96 160,714 10.00 11/06/96 11/06/99 100% on 11/6/96
4/20/98 18,272 4.34 04/20/98 04/20/02 100% on 4/20/98
----------
1,454,947 Outstanding at December 31, 1998
==========
There were no warrants exercised during 1999 and 1998. At December 31, 1999
and 1998, there were 158,813 and 1,406,253 shares, respectively, eligible
for exercise at prices ranging from $1.00 to $10.00 per share.
37
<PAGE>
Pro Forma Information
In 1996, the Company adopted the disclosure only provisions of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock Based
Compensation". Accordingly, no compensation expense has been recognized for
stock options and warrants issued. Had compensation expense for the options
and the warrants which vested in 1999 and 1998 been determined based on the
fair value at the grant date commensurate with the provisions of SFAS No.
123, the Company's net loss and net loss per share for 1999 and 1998,
respectively, would have been increased to the pro forma amounts indicated
below:
1999 1998
---- ----
Net loss:
As reported $(1,238,028) $(1,915,461)
Pro forma $(1,589,895) $(2,065,689)
Basic loss per share:
As reported $(0.32) $(0.51)
Pro forma $(0.41) $(0.55)
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes pricing model with the following weighted
average assumptions for grants in 1999 and 1998, respectively: dividend
yield of 0% and 0%; expected volatility of 182% and 44%; risk-free interest
rate of 4.5% in both years and expected lives of 5 and 10 years.
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.
INCOME TAXES
The income tax provision is comprised of the following:
Year Ended December 31,
------------------------
1999 1998
----------- -----------
State current provision $ 200 $ 200
State deferred provision -- (594,209)
----------- ---------
$ 200 $(594,009)
=========== =========
In 1998, the State of New Jersey enacted legislation allowing emerging
technology and/or biotechnology companies to sell their unused New Jersey
Net Operating Loss ("NOL") Carryover and Research and Development Tax
Credits ("R&D Credits") to corporate taxpayers in New Jersey. During 1999,
the Company entered into an agreement under which it retained a third party
broker to identify a buyer for its NOL Carryover and R&D Credits. The total
anticipated net proceeds of this transaction ($594,209) were recorded as a
non-current deferred tax asset in the accompanying financial statements.
38
<PAGE>
Due to limitations placed by the State of New Jersey on the total amount of
NOL Carryover and R&D Credits eligible to be sold in any one year, the sale
of only a portion of the Company's NOL Carryover and R&D Credits ($327,146
was completed in 1999. The receipt of these funds was recorded as a
reduction to the non-current deferred tax asset in the accompanying
financial statements. The sale of the remaining balance of the Company's
NOL Carryover and R&D Credits is anticipated by the end of the third
quarter of 2000.
The Company's total deferred tax asset (related entirely to the NOL
Carryover and R&D Credits) and valuation allowance are as follows:
December 31,
------------
1999 1998
------- ------
Total deferred tax asset, noncurrent $2,037,702 $ 2,063,279
Less valuation allowance (1,763,639) (1,469,070)
---------- -----------
Net deferred tax asset, noncurrent $ 267,063 $ 594,209
========== ===========
The total change in the valuation allowance amounted to $294,569 and
$233,070 for the years ended December 31, 1999 and 1998, respectively.
The differences between income tax benefits in the financial statements and
the tax benefit computed at the U.S. Federal statutory rate of 34% are as
follows:
Year Ended December 31,
1999 1998
------------- ------------
Tax benefit (34%) (34%)
Valuation allowance 34% 8%
----- ----
Effective tax rate - (26%)
===== ====
At December 31, 1999, the Company has available approximately $6,263,486 of
net operating losses to carryforward and which may be used to reduce future
federal taxable income through December 31, 2019.
At December 31, 1999, the Company has available approximately $1,208,293 of
net operating losses to carryforward and which may be used to reduce future
state taxable income through December 31, 2006.
COMMITMENTS AND CONTINGENCIES
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, 1999 under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year:
39
<PAGE>
Year Ended December 31,
2000 $73,474
2001 74,730
2002 80,210
2003 83,000
2004 83,448
--------
Total Minimum Lease
Payments Required $394,862
========
Rent expense under the operating leases totalled $87,024 and $100,446 for
the years ended December 31, 1999 and 1998, respectively.
The Company had been leasing approximately 7,358 square feet of research
and development, manufacturing and office space in Edison, New Jersey. The
base rent under this lease, which was to expire December 31, 1999, was
$93,550 per year. During February and March 1999, the Company renegotiated
the terms of this lease, returned the manufacturing space and a portion of
the office space under the lease, and entered into a new lease agreement
for the approximately 4,982 square feet of research and development and
office space remaining. Under the terms of the new lease, which will expire
December 31, 2004, the base rent is $78,197 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").
Under the terms of an agreement with the VANJHCS, the Company paid fees
based on its usage of the facility. During 1999, the Company completed its
activities at the facility and terminated the agreement effective December
31, 1999.
The Company believes the space currently available to it will be sufficient
to meet the Company's requirements for the foreseeable future.
During 1998, the Company instituted litigation regarding certain patent
rights issues. The Company intends to vigorously prosecute this litigation.
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
40
<PAGE>
and therefore cannot be determined with precision. Changes in
assumptions could significantly affect these estimates.
EMPLOYMENT AGREEMENTS
In 1996, the Company and its Chairman and Chief Executive Officer (the
"Executive") entered into an employment agreement which expired on
March 15, 1999. The agreement, which was amended effective as of
January 1, 1997, provided 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 the Executive's
participation) could also increase such base compensation in its sole
discretion. In conjunction with a voluntary reduction in his base
compensation, beginning November 1998, to $85,000 per year, the
Executive was issued a total of 42,500 options to purchase the common
stock of the Company. These options, the vesting of which was
contingent on the number of months such base compensation was reduced,
were fully vested on April 30, 1999.
The expired agreement could be terminated for cause and contained
proprietary information, invention and non-competition provisions which
prohibited disclosure of any of the Company's proprietary information
and precluded competition with the Company for two years after
termination of employment.
In 1999, a new agreement was signed. This agreement, which expires on
March 15, 2002, provides for a base compensation of $170,000 per year,
bonuses aggregating a maximum of $60,000 for any one year 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 the executive's
participation) could also increase such base compensation in its sole
discretion. The new agreement, which can 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, also provides for the
payment of an amount upon the death or disability of the Executive. The
agreement also provides for the grant of an option to purchase up to
150,000 shares of the Company's common stock, such option to vest over
the period of the agreement.
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 Chairman and Chief Executive Officer.
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-
41
<PAGE>
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. In conjunction
with a voluntary reduction in his base compensation, beginning
November 1998, to $80,000 per year, the Vice President - Finance and
Human Resources was issued a total of 10,000 options to purchase the
common stock of the Company. Effective May 1, 1999, the base
compensation of the Vice President - Finance and Human Resource was
restored. The options, the vesting of which was contingent on the
number of months such base compensation was reduced, were fully vested
at April 30, 1999.
SUBSEQUENT EVENT
As explained in the "Nature of Organization" section of the "Summary of
Significant Accounting Policies" note, on December 6, 1999, the Company
sold and issued 16,000 shares of its Series B Preferred stock for an
aggregate price of $2,000,000. In addition, the investors received 1.6
million five-year warrants to purchase one share of Common Stock, each
at an exercise price of $3.50 per share. The Company also entered into
an investment banking agreement with a New York firm affiliated with
certain of the investors, and issued the firm 500,000 Series B
warrants.
On January 28, 2000, the Company returned $700,000 of the $2,000,000
aggregate price received from the sale of the Series B Preferred. The
original investment was made based, in part, on the Company's exclusive
worldwide refractive surgery license agreement with Alcon which was
unexpectedly terminated by Alcon on December 13, 1999. In light of the
termination of the license agreement, and in order to resolve any
possible disputes relating to the termination, the Company and the
investors reevaluated the assumptions on which the original investment
was made and determined that a return of a portion of the original
investment was appropriate. The return of funds was made pursuant to an
agreement, dated January 28, 2000, under which the Company received a
return of a proportionate share of the Series B Preferred and Series B
Warrants issued in the private placement. In connection with this
agreement, the investment banking agreement entered into by the Company
at the time of the original investment also was cancelled.
The amount rescinded has been recorded as restricted cash and amount
due investors in the accompanying financial statements. This amount was
returned to the investors on January 28, 2000.
42
<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 required by this item will be contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION.
The information required by this item will be contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be contained in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Stockholders, and is
incorporated herein by reference.
ITEM 13. EXHIBITS 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:
43
<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 Certificate of Amendment of Amended and Restated Certificate of
Incorporation of the Registrant (incorporated herein by reference to
Exhibit 3.1 to the Registrant's Report on Form 8-K filed on December 17,
1999).
3.3 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).
3.4 Certificate of Designations of Series B Convertible Preferred Stock of
Medjet Inc. (incorporated herein by reference to Exhibit 3.2 to the
Registrant's Report on Form 8-K filed on December 17, 1999).
4.1 Subscription Agreement for Series B Convertible Preferred Stock and
Warrants, dated as of December 3, 1999, by and among the Registrant and
the "Investors" (as defined therein) (incorporated herein by reference to
Exhibit 4.1 to the Registrant's Report on Form 8-K filed on December 17,
1999).
4.2 Composite copy of Common Stock Purchase Warrant, dated December 3, 1999,
by the Registrant in favor of the Investors (incorporated herein by
reference to Exhibit 4.2 to the Registrant's Report on Form 8-K filed on
December 17, 1999).
4.3 Registration Rights Agreement, dated December 3, 1999, by and among the
Registrant and the Investors (incorporated herein by reference to Exhibit
4.3 to the Registrant's Report on Form 8-K filed on December 17, 1999).
4.5 Investment Banking Agreement, dated December 3, 1999, between the
Registrant and Adam Smith & Company, Inc. (incorporated herein by
reference to Exhibit 3.2 to the Registrant's Report on Form 8-K filed on
December 17, 1999).
*4.6 Settlement Agreement, dated January 28, 2000, by and among the Registrant
and the Investors. *+10.1 Employment Agreement between the Registrant and
Eugene I. Gordon, dated as of April 9, 1999. +10.2 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). 10.3 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).
10.4 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).
10.5 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).
44
<PAGE>
*10.6 Third Amendment to Lease between the Registrant and BCE Associates, L.P.,
dated March 25, 1999.
10.17 Exclusive License Agreement, effective as of July 22, 1998, between the
Company and Nestle S.A. (incorporated herein by reference to Exhibit 10
to the Registrant's Form 10-QSB for the quarter ended September 30,
1998).
*11 Computation of Net (Loss) Per Common Share.
*24.1 Power of Attorney (included on signature page).
*27 Financial Data Schedule - December 31, 1999.
99.1 Press release of December 7, 1999, relating to the Private Placement
(incorporated herein by reference to Exhibit 99.1 to the Registrant's
Report on Form 8-K filed on December 17, 1999).
99.2 Press release of December 16, 1999, relating to the termination of the
Alcon Agreement (incorporated herein by reference to Exhibit 99.2 to the
Registrant's Report on Form 8-K filed on December 17, 1999).
- --------------------------------------------------------------------------------
+ Management contract or compensatory plan or arrangement.
* Filed herewith.
45
<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 Edison,
State of New Jersey, on the 23rd day of March, 2000.
MEDJET INC.
By: /s/ Eugene I. Gordon
----------------------------
Eugene I. Gordon,
Chairman of the Board and
Chief Executive Officer
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-KSB, 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 23rd day of March, 2000.
Signature Title(s)
--------- --------
/s/ Eugene I. Gordon Chairman of the Board and
----------------------------------------
Eugene I. Gordon Chief Executive Officer
/s/ Thomas M. Handschiegel Vice President - Finance and
----------------------------------------
Thomas M. Handschiegel Human Resources
/s/ Edward E. David, Jr. Director
----------------------------------------
Edward E. David, Jr.
/s/ William C. Hittinger Director
----------------------------------------
William C. Hittinger
/s/ Ronald B. Odrich Director
----------------------------------------
Ronald B. Odrich
/s/ Elias Snitzer Director
----------------------------------------
Elias Snitzer
46
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Document
- ------- -----------------------
4.6 Settlement Agreement, dated January 28, 2000, by and among the
Registrant and the Investors.
10.1 Employment Agreement between the Registrant and Eugene I. Gordon,
dated as of April 9, 1999.
10.6 Third Amendment to Lease between the Registrant and
BCE Associates, L.P., dated March 25, 1999.
11 Computation of Net (Loss) Per Common Share.
24.1 Power of Attorney (included on signature page).
27 Financial Data Schedule - December 31, 1999.
47
SETTLEMENT AGREEMENT
THIS AGREEMENT made this 28 day of January, 2000, by and between Medjet
Inc. ("Medjet"), Eugene I. Gordon ("Gordon"), Adam Smith & Company, Inc. ("Adam
Smith") and the investors whose names are set forth on the signature page(s)
hereof (individually, an "Investor" and collectively, the "Investors").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Medjet and the Investors entered into a Subscription Agreement
dated as of December 3, 1999 (the "Subscription Agreement") pursuant to which
the Investors purchased an aggregate of 16,000 shares of Medjet's Series B
Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred
Stock"), and 1,600,000 five-year warrants, each exercisable to purchase one
share of the Company's Common Stock, par value $.001 per share (the "Purchased
Warrants", and collectively with the Series B Preferred Stock, the "Purchased
Securities"), for an aggregate purchase price of $2,000,000; and
WHEREAS, Gordon, the principal shareholder of Medjet, has executed and
delivered to the Investors a letter agreement dated December 3, 1999 (the
"Letter Agreement") related to the NJIT Litigation (as defined in the Letter
Agreement) and, concurrently therewith, the Investors and Gordon entered into
Joint Escrow Instructions dated December 3, 1999 (the "Joint Escrow
Instructions") with Hahn & Hessen LLP, as escrow holder ("Escrow Holder"),
pursuant to which Gordon deposited 500,000 shares of Common Stock ( the "Escrow
Shares") into escrow;
WHEREAS, Medjet and Adam Smith entered into an Investment Banking Agreement
dated as of December 3, 1999 (the "Investment Banking Agreement") pursuant to
which Medjet issued to Adam Smith as compensation 500,000 warrants (the "
Investment Banking Warrants");
WHEREAS, Medjet and Alcon Universal Ltd. ("Alcon") were parties to an
Exclusive License Agreement, dated July 22, 1998, as amended (the "Alcon
Agreement"); and
WHEREAS, Alcon has terminated the Alcon Agreement;
WHEREAS, Medjet and the Investors have decided to settle any actual or
potential claims that the Investors may have against Medjet in connection with
the acquisition by the Investors of the Purchased Securities that relate to or
arise out of the termination of the Alcon Agreement (the "Alcon Claims"); and
WHEREAS, Medjet and the Investors wish to rescind, on a pro rata basis, the
purchase of 5,600 shares of Series B Preferred Stock and 560,000 Purchased
Warrants; and
<PAGE>
WHEREAS, Medjet and Adam Smith wish to terminate the Investment Banking
Agreement and have agreed to reduce to 325,000 the number of Investment Banking
Warrants, which remaining warrants represent consideration for services rendered
to the date hereof and for the agreement hereunder to early termination of the
Investment Banking Agreement; and
WHEREAS, Gordon and the Investors wish to terminate the Letter Agreement
and the Joint Escrow Instructions; and
WHEREAS, Medjet, Gordon, Adam Smith and the Investors wish to enter into,
and duly execute, the settlement agreement and mutual releases provided for
herein;
NOW, THEREFORE, for $1.00 and other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, Medjet, Gordon, Adam Smith
and the Investors agree as follows:
A. RESCISSION; TERMINATION:
------------------------
1. (a) Medjet and the Investors agree to rescind, on a pro rata basis (as
set forth opposite each Investor's name on the signature pages hereof), the
purchase of 5,600 shares of Series B Preferred Stock and 560,000 Purchased
Warrants (the "Rescission"), effective on January 24, 2000 (the "Rescission
Date").
(b) On the Rescission Date, (i) each Investor shall deliver to Medjet
the certificate or certificates for the Series B Preferred Stock purchased by
such Investor and the warrants for Purchased Warrants purchased by such
Investor, (ii) Medjet shall issue and deliver to each Investor a certificate or
certificates for such Investor's portion of the Series B Preferred Stock that is
not subject to rescission hereunder and warrants for such Investor's portion of
the Purchased Warrants that is not subject to rescission hereunder, and (iii)
Medjet shall deliver to each Investor or its designee by wire transfer to an
account designated by such Investor, an amount equal to the purchase price of
the rescinded portion of the Purchased Securities purchased by such Investor, as
set forth opposite such Investor's name on the signature pages hereof.
2. (a) Medjet and Adam Smith hereby terminate the Investment Banking
Agreement, and Gordon and the Investors hereby terminate the Letter Agreement
and the Joint Escrow Instructions (collectively, the "Termination"), effective
on the Rescission Date.
(b) On the Rescission Date, (i) Adam Smith shall deliver to Medjet the
warrants for 500,000 Investment Banking Warrants and (ii) Medjet shall issue and
deliver to Adam Smith warrants for 325,000 Investment Banking Warrants
3. (a) On the Rescission Date, the Escrow Holder shall deliver to Gordon
the Escrow Shares. The Investors and Gordon hereby expressly authorize and
direct the Escrow Holder to deliver the Escrow Shares to Gordon concurrently
with the consummation of the Rescission and Termination. Effective upon the
delivery of the Escrow Shares, the Escrow
<PAGE>
Holder is released from any and all liability arising from its execution or
performance of the Escrow Instruction Letter.
B. MUTUAL SPECIAL RELEASES
-----------------------
1. Except with respect to the terms and conditions contained in this
Agreement, each Investor, as "Investor Releasor", hereby fully and forever
releases, remises, acquits and discharges Medjet, and all of Medjet's directors,
officers, shareholders, employees, servants, parents, subsidiaries, affiliates,
divisions, attorneys, insurers, assigns, successors, agents and representatives,
past and present, and any and all persons acting by, through, under or in
concert with them, as "Medjet Releasees", of and from any and all claims,
demands, actions, causes of action, debts, liabilities, rights, contracts,
obligations, duties, damages, costs, expenses or losses, of every kind and
nature whatsoever, whether at this time known or suspected, or unknown or
unsuspected, in law, equity or otherwise which such Investor Releasor ever had,
now has, or may now have, against Medjet Releasees arising out of, under or
related to the Alcon Claims.
2. Except with respect to the terms and conditions contained in this
Agreement, Medjet, as "Medjet Releasor", hereby fully and forever releases,
remises, acquits and discharges each Investor, and all of such Investor's
respective assigns, successors, heirs, executors, administrators, directors,
officers, shareholders, partners, employees, servants, parents, subsidiaries,
affiliates, divisions, attorneys, insurers, assigns, successors, agents and
representatives, past and present, and any and all persons acting by, through,
under or in concert with them, as "Investor Releasees", of and from any and all
claims, demands, actions, causes of action, debts, liabilities, rights,
contracts, obligations, duties, damages, costs, expenses or losses, of every
kind and nature whatsoever, whether at this time known or suspected, or unknown
or unsuspected, in law, equity or otherwise which Medjet Releasors ever had, now
has, or may now have, against Investor Releasees arising out of, under or
related to the Alcon Claims.
3. Except with respect to the terms and conditions contained in this
Agreement, Adam Smith, as "Adam Smith Releasor", hereby fully and forever
releases, remises, acquits and discharges Medjet, and all of Medjet's directors,
officers, shareholders, employees, servants, parents, subsidiaries, affiliates,
divisions, attorneys, insurers, assigns, successors, agents and representatives,
past and present, and any and all persons acting by, through, under or in
concert with them, as "Medjet Releasees", of and from any and all claims,
demands, actions, causes of action, debts, liabilities, rights, contracts,
obligations, duties, damages, costs, expenses or losses, of every kind and
nature whatsoever, whether at this time known or suspected, or unknown or
unsuspected, in law, equity or otherwise which Adam Smith Releasor ever had, now
has, or may now have, against Medjet Releasees arising out of, under or related
to the Investment Banking Agreement.
4. Except with respect to the terms and conditions contained in this
Agreement, Medjet, as "Medjet Releasor", hereby fully and forever releases,
remises, acquits and discharges Adam Smith, and all of Adam Smith's respective
assigns, successors, heirs, executors, administrators, directors, officers,
shareholders, partners, employees, servants, parents, subsidiaries, affiliates,
divisions, attorneys, insurers, assigns, successors, agents and
<PAGE>
representatives, past and present, and any and all persons acting by, through,
under or in concert with them, as "Adam Smith Releasees", of and from any and
all claims, demands, actions, causes of action, debts, liabilities, rights,
contracts, obligations, duties, damages, costs, expenses or losses, of every
kind and nature whatsoever, whether at this time known or suspected, or unknown
or unsuspected, in law, equity or otherwise which Medjet Releasors ever had, now
has, or may now have, against Adam Smith Releasees arising out of, under or
related to the Investment Banking Agreement.
5. The Mutual Releases set forth in Sections B.1 and B.2 above are
specifically limited and shall apply only to the Alcon Claims. Except as
expressly set forth herein, this Agreement does not supersede, amend or modify
the Subscription Agreement or the Other Agreements (as defined in the
Subscription Agreement). The Mutual Releases set forth in Sections B.3 and B.4
above (i) are specifically limited and shall apply only to the Investment
Banking Agreement and (ii) shall not relieve either Medjet or Adam Smith of
their respective obligations under the indemnification provisions of the
Investment Banking Agreement, which shall survive the termination of the
Investment Banking Agreement and the execution and delivery of this Agreement.
The Releases set forth in Sections B.1, B.2, B.3 and B.4 above shall only be
effective upon the Rescission and Termination being completed.
6. Effective upon the delivery of the Escrow Shares to Gordon, Gordon and
each Investor, as "Escrow Releasor", hereby fully and forever releases, remises,
acquits and discharges Escrow Holder, and all of Escrow Holder's partners,
employees, servants, affiliates, attorneys, insurers, assigns, successors,
agents and representatives, past and present, and any and all persons acting by,
through, under or in concert with them, as "Escrow Holder Releasees", of and
from any and all claims, demands, actions, causes of action, debts, liabilities,
rights, contracts, obligations, duties, damages, costs, expenses or losses, of
every kind and nature whatsoever, whether at this time known or suspected, or
unknown or unsuspected, in law, equity or otherwise which such Escrow Releasor
ever had, now has, or may now have, against Escrow Holder Releasees arising out
of, under or related to the Joint Escrow Instructions and the Escrow Shares.
C. MISCELLANEOUS
-------------
1. If any action or proceeding is brought to enforce or obtain any relief
regarding any of the terms and conditions of this Agreement, or if any action or
proceeding is brought to which this Agreement establishes a complete defense,
then the party or parties in whose favor a final, unappealed and unappealable
judgment shall be entered shall be entitled to recover from the other party or
parties named in said action or proceeding, all costs, disbursements and
expenses, including attorneys' fees, incurred in the action and any appeals
therefrom.
2. Gordon and Medjet, on the one hand, and Adam Smith and the Investors, on
the other hand, each hereby warrants and represents that such party has not
assigned or transferred, or purported to assign or transfer, to any third party
any claim, demand, or cause of action against the other party to this Agreement.
<PAGE>
3. Each of the parties hereto represents and warrants that he, or the
person executing this Agreement on its behalf, as the case may be, is duly
authorized to do so and is empowered to bind such party to the terms of this
Agreement, and that once executed by all parties hereto, this Agreement shall be
valid and enforceable in accordance with its terms.
4. This Agreement may be executed in counterparts, each of which shall be
an original, and which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it as
of the date first above written.
MEDJET INC.
By: /s/ Eugene Gordon
Name: Eugene Gordon
Title: Chairman of the Board and
Chief Executive Officer
/s/ Eugene Gordon
Eugene Gordon, as an individual
Number of Purchased Securities INVESTORS:
rescinded hereunder and dollars
returned:
ADAM SMITH INVESTMENT PARTNERS, L.P.
By: ADAM SMITH CAPITAL MANAGEMENT,
L.L.C., General Partner
3,640 Purchased Shares and
364,000 Purchased Warrants rescinded By: /s/ Richard Grossman
$455,000 returned Name: Richard Grossman
Title: Manager
ADAM SMITH INVESTMENTS, LTD.
560 Purchased Shares and By: F.M.C LIMITED
56,000 Purchased Warrants rescinded
$70,000 returned By: /s/ Susan V. Demers
Name: Susan V. Demers
Title: Director
<PAGE>
RICHARD AND ANA GROSSMAN JTWROS
280 Purchased Shares and By: /s/ Richard Grossman
28,000 Purchased Warrants rescinded Name: Richard Grossman
$35,000 returned
<PAGE>
266 Purchased Shares and
26,600 Purchased Warrants rescinded /s/ Orin Hirschman
$33,250 returned Orin Hirschman
126 Purchased Shares and
12,600 Purchased Warrants rescinded /s/ Paul Packer
$15,750 returned Paul Packer
ADAM-JACK M. DODICK, MD
GENERAL PARTNERSHIP
By: ADAM SMITH CAPITAL
700 Purchased Shares and MANAGEMENT, L.L.C., General Partner
70,000 Purchased Warrants rescinded
$87,500 returned
By: /s/ Richard Grossman
Name: Richard Grossman
Title: Manager
28 Purchased Shares and
2,800 Purchased Warrants rescinded /s/ Hershel P. Berkowitz
$3,500 returned Hershel P. Berkowitz
ADAM SMITH & COMPANY, INC.
By: /s/ Richard Grossman
Name: Richard Grossman
Title: Vice President
Exhibit 10.1
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 9th day of April, 1999 between MEDJET INC. (the
"Company"), a Delaware corporation having an office at 1090 King Georges Post
Road, Suite 301, Edison, New Jersey 08837 and EUGENE I. GORDON ("Executive"),
residing at 1535 Coles Avenue, Mountainside, New Jersey 07092.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive has served as Chairman, Chief Executive Officer, and
Chief Technical Officer of the Company since its inception;
WHEREAS, the Company desires to continue to receive the benefit of
Executive services and Executive is willing to continue to provide such services
to the Company, upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, the parties agree as follows:
1. EMPLOYMENT.
1.01 Term. The Company hereby employs Executive, and Executive hereby
accepts employment with the Company with the duties hereinafter set forth, for a
period commencing on March 16, 1999 and ending March 15, 2002 subject, however,
to earlier termination in accordance with the provisions of this Agreement (the
"Employment Period").
2. DUTIES; CHAIRMAN AND CHIEF EXECUTIVE OFFICER.
2.01 Duties. During the Employment Period, Executive shall serve as
Chairman, Chief Executive Officer and Chief Technical Officer of the Company in
accordance with the provisions of the Company by-laws or such other executive
position determined by the Board of Directors of the Company in accordance with
Section 2.02 and shall perform such duties as may from time to time be
reasonably assigned to him by the Company's Board of Directors, consistent with
such position, taking into account those duties currently performed by him.
Executive agrees that, during the term of this Agreement, he will devote his
full time, skills and efforts to the performance of his duties hereunder and to
the furtherance of the interests of the business of the Company.
2.02 Titles. When elected annually by the Board of Directors,
Executive shall serve as Chairman and Chief Executive Officer of the Company. If
Executive is not reelected as a director of the Company or if the Board of
Directors chooses to remove Executive from the offices of Chairman, Chief
Executive Officer and/or Chief Technical Officer, Executive agrees to serve in
such other executive capacity as the Board of Directors shall determine.
3. COMPENSATION AND RELATED MATTERS.
3.01 Base Salary. As compensation for Executive's services, the
Company shall pay Executive during the Employment Period, a base salary of
$170,000 per annum (the "Base Salary"), commencing March 16, 1999, payable
semi-monthly or in accordance with the Company's customary practice from time to
time. The Base Salary may be increased in the sole discretion of the Company's
Board of Directors from time to time, provided, however, that Executive shall
not participate in such determination. The Company and the Executive may, from
time to time, agree in writing that the Executive shall forego all or a portion
of his Base Salary for a specified period and receive in lieu thereof that
number of unregistered shares of the Company's Common Stock, $.001 par value per
share ("Common Stock") having an aggregate Fair Market Value (as that term is
hereinafter defined) equal to the portion of the Base Salary otherwise due to
him during the period specified in such written agreement.
3.02 Bonuses. For each twelve (12) month period commencing March 16,
1999 during the Employment Period ("Agreement Year"), Executive shall receive,
in addition to his Base Salary, a bonus of $20,000 ("Bonus") upon the occurrence
of each one of any three events defined by the Company's Board of Directors from
time to time (the "Bonus Events"), up to an aggregate of $60,000 during any
Agreement Year. Each Bonus earned by Executive shall be paid in 12 equal
payments over one year after the Bonus Event for which it was earned, provided,
however, that in the event the foregoing would require the payment of more than
$60,000 in Bonuses in any Agreement Year, the additional Bonus(es) may be
deferred at the Company's option, until the first day of the next Agreement
Year, or, if this Agreement shall have terminated, upon the termination of this
Agreement. In the event that the Company's Board of Directors determines that
the Company's financial condition makes it infeasible to pay these Bonuses in
cash, they will be paid in unregistered shares of the Company's Common Stock as
specified in Section 3.01 of this Agreement.
<PAGE>
3.03 Stock Options. Executive shall be granted stock options to
purchase 150,000 shares of the Company's Common Stock. Such stock options shall
be either incentive stock options or non-qualified stock options for the
purposes of the Internal Revenue Code of 1986, as amended, at the option of
Executive. The exercise price of such stock options shall be the Fair Market
Value of the Company's Common Stock on the date of this Agreement unless such
stock options shall be incentive stock options, in which event the exercise
price shall be 110% of such Fair Market Value. Such stock options shall be
exercisable to the extent of one-third on the first anniversary of the date of
the grant and an additional one-third on each of the succeeding two
anniversaries of date of grant provided Executive remains an employee of the
Company as of such date and shall terminate on the tenth anniversary of such
grant unless such stock options shall be incentive stock options, in which event
the termination date shall be the fifth anniversary of the date of grant or such
earlier date as may be required by law. The stock options shall be evidenced by
an agreement substantially in the form of Exhibit A (incentive stock options) or
Exhibit B (nonqualified stock options) attached hereto. The Company shall take
all steps as shall be necessary to effectuate the foregoing including, without
limitation, proposing a new stock option plan for approval by the Company's
stockholders and reserving a sufficient number of authorized but unissued shares
to permit the purchase of the shares pursuant to the stock options to be granted
to Executive.
3.04 Fair Market Value. For the purpose of any computation under this
Agreement, the Fair Market Value per share of Common Stock at any time shall
mean: (a) If the principal market for the Common Stock is a national securities
exchange, the Nasdaq National Market or the Nasdaq SmallCap Market, the closing
sales price of the Common Stock on such day as reported by such exchange or
market, or on a consolidated tape reflecting transactions on such exchange or
market; or
(b) If the principal market for the Common Stock is not a national
securities exchange, the Nasdaq National Market or the Nasdaq SmallCap Market,
the closing mean between the highest bid and lowest asked price for the Common
Stock on the date in question, as reported by the National Quotation Bureau,
Inc. ("NQB") or at least two market makers in the Common Stock if quotations are
not available from NQB but are available from market makers; or
(c) If the Fair Market Value can not be determined in accordance with
subsections (a) or (b), Fair Market Value shall be determined by the Company's
Board of Directors, whose decision shall be final and binding, provided,
however, that Executive shall not participate in such determination.
3.05 Expenses. The Company shall pay or reimburse Executive for all
reasonable business expenses (including automobile, hotel, business
entertainment and other travel (other than commuting) expenses) incurred in the
performance of Executive's duties, upon submission of appropriate vouchers and
other supporting data.
3.06 Benefits. Executive shall be entitled to (i) participate in all
general pension, profit-sharing, life, medical, disability and other insurance
and executive benefit plans at any time in effect for executives of the Company,
and (ii) twenty (20) days paid vacation during each Agreement Year at mutually
agreeable times.
<PAGE>
4. TERMINATION; DISABILITY; DEATH.
4.01 Termination. The Company shall have the right to terminate the
employment of Executive hereunder at any time for any reason upon written
notice. If termination is "for cause", such cause shall include and be limited
exclusively to the occurrence of any of the following acts or events by or
relating to Executive: (i) any material breach of any obligations of Executive
under this Agreement or the Company's Proprietary Information, Inventions,
Non-Competition and Non-Solicitation Agreement executed by the Executive on
February 28, 1996 (the "Proprietary Info Agreement") which remains uncured for
more than thirty (30) days after written notice thereof by the Company to
Executive; (ii) continued, habitual intoxication or performance under the
influence of controlled substances during working hours, after the Company shall
have provided written notice to Executive and given Executive thirty (30) days
within which to commence rehabilitation with respect thereto, and the Employee
shall have failed to commence such rehabilitation; (iii) theft or embezzlement
from the Company or any other material acts of dishonesty in the course of
Executive's duties hereunder which significantly injures the Company; or (iv)
conviction by a court of competent jurisdiction of a felony or conviction in
respect of any dishonest or fraudulent act relating to the Executive's
<PAGE>
duties as an executive officer of the Company or which significantly injures the
Company or its reputation (other than traffic violations and minor
misdemeanors). In the event that during the Employment Period, the Company
discharges Executive for any reason other than for cause, death or disability,
Executive shall be entitled to receive a severance payment (the "Severance
Payment") equal to the lesser of (a) the amount of Base Salary payable to
Executive for the balance of the Employment Period (as if such Employment Period
had not been terminated), payable semi-monthly or in accordance with the
Company's customary payroll practices for the balance of the Employment Period
or (b) the amount of the Base Salary and Bonuses earned during the one year
period immediately prior to such termination. If Executive is discharged for
death or disability, the Company shall pay to Executive or his designated
beneficiaries a payment ("Death/Disability Payment") equal to the amount set
forth in (b) above; provided further that any payments to Executive under any
disability insurance or plan maintained by the Company shall be applied against
and shall reduce the amount of the Death/Disability Payment. In the event
Executive shall have received a portion of his Base Salary in Common Stock in
accordance with Section 3.01, for purposes of the calculation of the Severance
Payment or Death/Disability Payment under clause (b) above, Executive's Base
Salary shall include the amount he would have received in cash had he not
received payment in Common Stock. The Death/Disability Payment or the Severance
Payment (only if calculated under clause (b) above) shall be due and payable to
Executive in 12 equal monthly payments over the ensuing one year period. If the
Company breaches this Agreement, Executive shall have the option to treat it as
termination without cause and to receive the Severance Payment after Executive
shall have given the Company written notice thereof and the Company has failed
to cure such breach within thirty (30) days thereafter.
4.02 Disability. If Executive, by reason of illness, mental or
physical incapacity (as determined by a physician chosen by the Company) or
other disability, is unable to perform his regular duties hereunder for any
consecutive period of 180 days or more from its commencement or for
non-consecutive periods aggregating 180 days in any consecutive twelve-month
period, then, in any such event, the Company may terminate this Agreement at any
time thereafter upon ten days' written notice to Executive.
4.03 Death. In the event of Executive's death, the Employment Period
shall terminate effective as of the date of death.
<PAGE>
4.04 No Salary Continuation For Cause. In the event of termination of
this Agreement or the Employment Period "for cause" under Section 4.01,
Executive's Base Salary shall cease as of the date of termination and the
Company shall pay Executive any Bonuses then earned and unpaid, in accordance
with Section 3.02.
4.05 Transfer of Assets. If during the Employment Period, a sale of
all or substantially all the assets of the Company occurs, Executive's remaining
unvested stock options granted under Section 3.03 will immediately vest.
5. MISCELLANEOUS.
5.01 Notices. All notices under this Agreement shall be in writing and
shall be deemed to have been duly given if personally delivered or if mailed by
first class registered or certified mail, return receipt requested, addressed to
the Company or to Executive, as the case may be, at their respective addresses
set forth on the first page of this Agreement, or to such other person or
address as may be designated by like notice hereunder. Any such notice shall be
deemed to have been given on the day delivered, if personally delivered, or on
the third day after the date of mailing if mailed in accordance with the above.
5.02 Parties in Interest. This Agreement shall be binding upon and
inure to the benefit of and be enforceable by the parties hereto and their
respective heirs, legal representatives, successors and, in the case of the
Company, assigns, but no other person shall acquire or have any rights under or
by virtue of this Agreement, and the obligations of Executive under this
Agreement may not be assigned or delegated.
5.03 Governing Law; Severability. This Agreement shall be governed by
and construed and enforced in accordance with the laws and decisions of the
State of New Jersey applicable to contracts made and to be performed therein
without giving effect to the principles of conflict of laws. The invalidity or
unenforceability of any other provision of this Agreement, or the application
thereof to any person or circumstance, in any jurisdiction shall in no way
impair, affect or prejudice the balance of this Agreement, which shall remain in
full force and effect, or the application thereof to other persons and
circumstances.
5.04 Survival. The provisions of Section 5 shall survive the
expiration or termination of this Agreement for any reason.
5.05 Entire Agreement; Modification; Waiver; Interpretation. This
Agreement, together with the Proprietary Info Agreement, contain the entire
agreement and
<PAGE>
understanding between the parties with respect to the subject matter hereof and
thereof and supersede all prior negotiations and oral understandings, if any.
Neither this Agreement nor any of its provisions may be modified, amended,
waived, discharged or terminated, in whole or in part, except in writing signed
by the party to be charged. No waiver of any such provision or any breach of or
default under this Agreement shall be deemed or shall constitute a waiver of any
other provision, breach or default. All pronouns and words used in this
Agreement shall be read in the appropriate number and gender, the masculine,
feminine and neuter shall be interpreted interchangeably and the singular shall
include the plural and vice versa, as the circumstances may require.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
MEDJET INC.
By /s/ Thomas M. Handschiegel
----------------------------------
Name: Thomas M. Handschiegel
Title: Vice President - Finance and
Human Resources
Executive
By /s/ Eugene I. Gordon
----------------------------------
Eugene I. Gordon
Exhibit 10.6
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease dated this 25th day of March, 1999 by and
between BCE ASSOCIATES, L.P. successor in interest to Linpro Edison Land Limited
and 1993 N-2 Properties No.3 Limited Partnership ("Landlord") and MEDJET, INC.
("Tenant").
1) By Lease Agreement dated May 13, 1994 and First Amendment to Lease
dated February 28, 1996, Landlord and Landlord's predecessors in
interest leased to Tenant Suite 301 and 308 ("Suites 301 and 308")
consisting of 4,982 gross rentable square feet in Building #3 at 1090
King Georges Post Road, Edison, New Jersey. By Second Amendment to
Lease dated December 13, 1996, Landlord also leased to Tenant Suite
505 ("Suite 505") consisting of 2,376 gross rentable square feet in
Building #5 at 1090 King Georges Post Road, Edison, New Jersey. The
Lease and the First and Second Amendment to Lease are hereby referred
to as the "Lease".
2) By Termination Agreement dated January 12, 1999, Landlord released
Tenant of its obligations on Suite 505 only as of January 31, 1999.
3) The term of the Lease for Suites 301 and 308 expires December 31,
1999.
4) Landlord and Tenant desire to extend the term of the Lease for Suites
301 and 308 for an additional five (5) year term (the "Renewal Term")
to commence on January 1, 2000 and to terminate on December 31, 2004.
5) Tenant's Base Rent during the Renewal Term shall be as follows:
A) $69,598.44 per annum; $5,799.88 per month for the period January
1, 2000 through December 31, 2000.
B) $74,730.00 per annum; $6,227.50 per month for the period January
1, 2001 through December 31, 2001.
C) $80,210.20 per annum; $6,684.18 per month for the period January
1, 2002 through December 31, 2002.
D) $83,000.12 per annum; $6,916.68 per month for the period January
1, 2003 through December 31, 2003.
E) $83,448.50 per annum; $6,954.04 per month for the period January
1, 2004 through December 31, 2004.
<PAGE>
6) Tenant shall also remain responsible for Tenant Electric in the amount
$5,781.24 per annum; $481.77 per month. Tenant's Base Year shall
remain 1996.
7) Except as modified herein, all terms and conditions of the Lease shall
remain in full force and effect.
BCE ASSOCIATES, L.P.
BCE GP, INC.
By: /s/ Steven J. Denholtz
----------------------------------
Steven J. Denholtz, President
MEDJET, INC.
By: /s/ Eugene I. Gordon
----------------------------------
Eugene I. Gordon
Exhibit 11
COMPUTATION OF NET LOSS PER SHARE
Year Ended December 31,
-----------------------
1999 1998
---- ----
NET LOSS PER SHARE
Loss from Operations applicable to Common Stock $(1,238,028) $(1,915,461)
============ ============
Weighted Average Common Shares Outstanding 3,894,045 3,728,594
------------ ------------
Net Loss Per Share $ (0.32) $ (0.51)
============ ============
NET LOSS PER SHARE - ASSUMING DILUTION
Loss from Operations applicable to Common Stock $(1,238,028) $(1,915,461)
============ ============
Weighted Average Common Shares Outstanding 3,894,045 3,728,594
Add: (A) Assumed Conversion of Preferred Stock 125,589 -
(B) Assumed Exercise of Stock Options 79,796 119,737
(C) Assumed Exercise of Warrants 16,069 42,745
------------ ------------
Weighted Average Common Shares
Outstanding - Assuming Dilution 4,115,499 3,891,076
============ ============
Net Loss Per Share - Assuming Dilution $ (0.30) $ (0.49)
============ ============
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 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.
Year Ended December 31,
-----------------------
1999 1998
---- ----
Options assumed exercised 247,550 179,550
Proceeds assumed realized $ 243,243 $ 334,353
Shares assumed reacquired:
- During 1999 ($243,243/$1.45) 167,754
- During 1998 ($334,353/$5.59) 59,813
Net additional shares assumed outstanding 79,796 119,737
<PAGE>
(B) - For 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.
Year Ended December 31,
-----------------------
1999 1998
---- ----
Warrants assumed exercised 60,000 115,661
Proceeds assumed realized $ 63,700 $407,600
Shares assumed reacquired:
- During 1999 ($63,700/$1.45) 43,931
- During 1998 ($407,600/$5.59) 72,916
Net additional shares assumed outstanding 16,069 42,745
Included on signature page
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,763,749
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,821,798
<PP&E> 435,246
<DEPRECIATION> 323,802
<TOTAL-ASSETS> 2,368,545
<CURRENT-LIABILITIES> 1,281,271
<BONDS> 0
0
104
<COMMON> 3,935
<OTHER-SE> 1,083,235
<TOTAL-LIABILITY-AND-EQUITY> 2,368,545
<SALES> 0
<TOTAL-REVENUES> 175,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,410,518
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,555
<INCOME-PRETAX> (1,237,828)
<INCOME-TAX> 200
<INCOME-CONTINUING> (1,238,028)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,238,028)
<EPS-BASIC> (.32)
<EPS-DILUTED> (.30)
</TABLE>
