10QSB/A 1 form10qsb-a_982684.txt FORM 10QSB/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB/A (Mark One) |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-11765 MEDJET INC. (Name of Small Business Issuer as Specified in its Charter) DELAWARE (State or Other Jurisdiction of Incorporation or Organization) 22-3283541 (I.R.S. Employer Identification No.) 1535 COLES AVENUE MOUNTAINSIDE, NJ 07092 (Address of Principal Executive Offices) 908 233 4677 (Issuer's Telephone Number, Including Area Code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| As of January 5, 2004, 3,901,431 shares of Common Stock, par value $.001 per share, were outstanding. Transitional Small Business Disclosure Format: Yes |_| No |X| 1 EXPLANATORY NOTE This Form 10-QSB/A amends Part I, Item 1 and Item 2 of the Form 10-QSB of Medjet Inc. (the "Company") that was filed with the Securities and Exchange Commission on November 12, 2004 for the fiscal quarter ended on September 30, 2004. The purpose of this amendment is to correct certain accounting errors in calculating "loss from operations" and "cash flows from financing activities" for the nine months ended September 30, 2004. Items included in the original Form 10-QSB that are not included herein are not amended and remain in effect as of the date of the original filing. Additionally, this Form 10-QSB/A does not purport to provide an update or a discussion of any other developments at the Company subsequent to the original filing, except the number of outstanding shares of the Company's Common Stock stated in the cover page. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MEDJET INC. (A Development Stage Company) Condensed Interim Balance Sheet September 30, 2004 (Unaudited) ASSETS Property and Equipment - less accumulated depreciation of $89,012 17,051 Patents and Trademarks - less accumulated amortization of $72,050 164,865 Total Assets 181,916 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued liabilities 498,847 Notes payable - Officer 244,115 ------------- Total Liabilities 742,962 ------------- Stockholders' Equity (Deficit): Common stock, $.001 par value, 30,000,000 shares authorized, 3,935,220 shares issued and 3,901,431 shares outstanding 3,935 Preferred stock, $.01 par value, 1,000,000 shares authorized, 10,400 shares designated as Series B Convertible Preferred issued and outstanding 104 Additional paid-in capital 7,985,298 Accumulated deficit (including deficit accumulated during development stage of $10,104,887 of which $1,556,204 was applied to additional paid-in capital upon conversion from an "S" to a "C" corporation) (8,548,683) Less: Treasury stock, 33,789 shares, at cost (1,700) ------------- Total Stockholders' Equity (Deficit) (561,046) ------------- Total Liabilities and Stockholders' Equity (Deficit) $181,916 ============= See notes to the condensed interim financial statements. 3 MEDJET INC. (A Development Stage Company) Condensed Interim Statements of Operations For the Three Months and Nine Months Ended September 30, 2004 and 2003 and the Period from December 16, 1993 (Date of Inception), to September 30, 2004 (Unaudited)
Period from December 16, 1993 Three Months Ended September 30, Nine Months Ended September 30, (Inception) to 2004 2003 2004 2003 September 30, 2004 Revenues: License fee income - - 25,000 - 4,909,303 ------------------ -------------- ----------------- ---------------- ------------------------ Total Revenues - - 25,000 - 4,909,303 ------------------ -------------- ----------------- ---------------- ------------------------ Expenses: Research, development, general and administrative 154,093 191,450 368,880 571,664 16,525,223 ------------------ -------------- ----------------- ---------------- ------------------------ Total Expenses 154,093 191,450 368,880 571,664 16,525,223 ------------------ -------------- ----------------- ---------------- ------------------------ Loss from Operations (154,093) (191,450) (343,880) (571,664) (11,615,920) ------------------ -------------- ----------------- ---------------- ------------------------ Other Income (Expense): Merger option income - - - - 500,000 Other income 2,916 - 2,916 - 9,688 Net interest income (expense) (7,564) (1,845) (12,830) (4,267) 229,411 ------------------ -------------- ----------------- ---------------- ------------------------ Total Other Income (Expense) (4,648) (1,845) (9,914) (4,267) 739,099 ------------------ -------------- ----------------- ---------------- ------------------------ Loss Before Income Tax (158,741) (193,295) (353,794) (575,931) (10,876,821) ------------------ -------------- ----------------- ---------------- ------------------------ Provision for (Benefit from) Income Tax - (1,890) - (740) (819,420) ------------------ -------------- ----------------- ---------------- ------------------------ Net loss (158,741) (191,405) (353,794) (575,191) (10,057,401) ------------------ -------------- ----------------- ---------------- ------------------------ Dividends on preferred stock - - - - 184,923 ------------------ -------------- ----------------- ---------------- ------------------------ Net Loss Attributable to Common Stockholders (158,741) (191,405) (353,794) (575,191) (10,242,324) Net Loss Per Share: Basic and Diluted (0.04) (0.05) (0.09) (0.15) (2.99) ================== ============== ================= ================ ========================= Weighted Average Common Shares Outstanding: Basic and Diluted 3,901,431 3,901,431 3,901,431 3,901,431 3,429,980 ================== ============== ================= ================ =========================
See notes to the condensed interim financial statements. 4 MEDJET INC. (A Development Stage Company) Condensed Interim Statements of Cash Flows For The Nine Months Ended September 30, 2004 and 2003 And The Period From December 16, 1993 (Date of Inception) to September 30, 2004 (Unaudited)
Period from For the Nine Months Ended December 16, 1993 September 30, (Inception) to 2004 2003 September 30, 2004 Cash Flows from Operating Activities $(45,743) $(270,608) $ (8,120,587) Cash Flows from Investing Activities - (10,534) (954,195) Cash Flows from Financing Activities 44,914 - 9,074,782 ---------- ---------- ------------- Net Decrease in Cash and Cash Equivalents (829) (408,345) - Cash and Cash Equivalents - Beginning of Period 829 409,646 - ---------- ---------- ------------- Cash and Cash Equivalents - End of Period $ - $ 1,301 - ---------- ---------- ------------- Supplemental Disclosures of Cash Flow Information: Cash paid for: Income taxes $ - $ 24,028 $ 25,888 ========== ========== ============= Interest expense $ 9,731 $ 3,750 $ 92,074 ========== ========== =============
See notes to the condensed interim financial statements. 5 MEDJET INC. (A DEVELOPMENT STAGE COMPANY) NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS NOTE A - NATURE OF ORGANIZATION AND BASIS OF PRESENTATION: (1) NATURE OF ORGANIZATION: Medjet Inc. (the "Company") was incorporated in the State of Delaware on December 16, 1993, and is in the development stage. The Company has been engaged in research and development of medical technology, utilizing small-diameter, liquid microjets moving at various speeds above supersonic, depending on the specific application, with an emphasis on surgical technology and equipment. (2) BASIS OF PRESENTATION: The Condensed Interim Financial Statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted as permitted by such rules and regulations. The Condensed Interim Financial Statements included herein reflect, in the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for the interim periods. The results of operations for the three and nine-month periods ended September 30, 2004 are not necessarily indicative of results to be expected for the fiscal year ending December 31, 2004. NOTE B - NET INCOME (LOSS) PER SHARE: Basic net income (loss) per share, in accordance with the provisions of Financial Accounting Standards No. 128, "Earnings Per Share," is computed by dividing net income (loss) by the weighted average number of shares of Common Stock outstanding during the period. Diluted net income per share includes additional dilution from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants outstanding and the conversion of preferred stock. Common Stock equivalents for the nine months ended September 30, 2004 and 2003, and for the period from December 16, 1993 (inception) to September 30, 2004, have not been included in the computation of dilutive loss per share as the effect would be anti-dilutive. 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION THIS QUARTERLY REPORT ON FORM 10-QSB, INCLUDING ANY DOCUMENTS THAT ARE INCORPORATED BY REFERENCE, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. GENERALLY, SUCH STATEMENTS ARE INDICATED BY WORDS OR PHRASES SUCH AS "ANTICIPATES," "EXPECTS," "INTENDS," "BELIEVES" AND SIMILAR WORDS AND PHRASES. SUCH STATEMENTS ARE BASED ON THE COMPANY'S CURRENT EXPECTATIONS AND ARE SUBJECT TO RISKS, UNCERTAINTIES AND ASSUMPTIONS. CERTAIN OF THESE RISKS ARE DESCRIBED OR REFERRED TO BELOW. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALIZE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE ANTICIPATED, EXPECTED, INTENDED OR BELIEVED. GENERAL We have been a development stage company, which has developed proprietary technology based on microjets, and has developed derivative devices and surgical equipment, which use waterjet technology. We generated no revenues in the three-month period ended September 30, 2004, and are currently funding our sustaining operations with the proceeds of a loan received from Dr. Eugene I. Gordon, as further described below. The proceeds of this loan are expected to fund our working capital requirements until such time as a decision is made for our future direction and such decision is in process; with no expected capital expenditure, however, due to the unavailability of financial resources, our research and development activity has ended until alternate financial arrangements can be made. The report of independent certified public accountants to our financial statements for the year ended December 31, 2003 contains an explanatory paragraph that there is substantial doubt as to our ability to continue as a going concern. In August 2001, we, VISX, Inc. ("VISX"), a U.S. provider of equipment for the vision correction procedure known as the Laser Ablation System for In-situ Keratomileusis ("LASIK"), and a subsidiary of VISX ("Merger Sub") entered into an Agreement and Plan of Merger and Reorganization (the "Merger Agreement"), which provided, among other things, for the potential merger of Merger Sub with and into us, at VISX's option. In connection with the execution of the Merger Agreement, VISX and we also entered into a separate one-year research and development agreement. VISX had the option to terminate the Merger Agreement at any time during the one-year period following the date of its execution for any or no reason. In August 2002, VISX and we amended various agreements in connection with the proposed merger of Merger Sub with and into us. The Merger Agreement and the research and development agreement were both extended to October 17, 2002, and then extended again to July 17, 2003. In November of 2002, however, VISX elected to exercise their right to terminate the Merger Agreement, and on November 11, 2002, VISX paid us the $250,000 termination fee as provided in the amended Merger Agreement. The research and development agreement was also terminated. After the termination of the Merger Agreement, we initially sought another strategic partner, purchaser or licensee of our microjet microkeratome. However, during 2002, the number of LASIK procedures fell well below the anticipated rates and the prospects for 2003 and the years beyond were not encouraging. The price of LASIK procedures had also seen serious degradation. We believed that other companies with which we might have pursued a strategic relationship involving our microkeratome shared a similar view of the market and as a result, we discontinued our microkeratome development efforts until additional financing could be procured and focused our efforts on developing treatment of dental caries using our 7 microjet technique. We have, however, recently reviewed the vision correction market, developed a new marketing strategy for our microjet microkeratome and changed our main focus back to the vision correction market, although our research and development activity is dormant due to unavailability of financial resources. We have renewed our efforts to procure additional financing to continue to develop our microjet microkeratome and ophthalmic devices. We anticipate that funds available under our line of credit from Dr. Eugene I. Gordon, as described below, will be sufficient to support our operations until such time as a decision is made for our future direction, which decision is in process, given the dormant state of the company and the fact that we have no paid employees. However, we will require additional financing in order to maintain operations beyond such time. We have no current arrangements with respect to any additional financing. Consequently, there can be no assurance that any additional financing will be available to us on commercially reasonable terms or at all. There can be no assurance that the proceeds obtained by us as a result of such financing would be sufficient to fund our development efforts or that such efforts to develop products for dentistry, skin treatment or ophthalmology would be successful. RESULTS OF OPERATIONS We have not yet initiated sales of our products. We generated no revenues during the three-month period ended September 30, 2004, and generated no revenues for the comparable period in 2003. As a result of the termination of the research and development agreement with VISX, we currently have no source of revenues. Total expenses during the three months ended September 30, 2004 decreased by 20% to $154,093 from $191,450 for the comparable period of 2003. This decrease was primarily due to the fact that we are no longer operating and have no paid employees. Net interest expense for the three months ended September 30, 2004 was $7,564 compared to $1,845 for the comparable period of 2003. These increases resulted principally from lack of interest income resulting from having no cash and cash equivalents and the continued interest issued for the loan to us from Dr. Eugene Gordon. LIQUIDITY AND CAPITAL RESOURCES During March 1999, Eugene I. Gordon, Ph.D., our Chairman of the Board, Chief Executive Officer, Secretary and Treasurer, agreed to make available to us an unsecured line of credit of up to $250,000. Under the terms of this agreement, we issued warrants to Dr. Gordon to purchase up to 50,000 shares of our unregistered common stock and agreed to pay a market interest rate on amounts borrowed. As of September 30, 2004, the amount owed to Dr. Gordon was $245,115 with interest paid monthly. Principal amounts outstanding under this loan are due and payable on January 26, 2009. In 1998, the State of New Jersey enacted legislation allowing emerging technology and/or biotechnology companies to sell their unused New Jersey net operating loss carryover ("NOLs") and research and development tax credits ("R&D Credits") to corporate taxpayers in New Jersey. Under this program, the New Jersey Department of Taxation certifies annual NOLs and R&D Credits, which may be sold to third parties. Generally, corporations operating in New Jersey are subject to a 9% tax on net operating profits. Companies meeting certain criteria and that had NOLs may apply for certificates for 9% of their cumulative state certified NOLs and 3% of their R&D Credits. The total value of the certificates for all 8 companies applying is limited to a fixed amount, as established by statute. As a result, the value of the certificates issued is usually less than the total NOLs and R&D Credit amounts for which applications are submitted, depending on the number of companies applying for such certificates and the amounts claimed. Any remaining amounts of NOLs and R&D Credits exceeding the face value of the certificates issued can be carried over into subsequent years. Whatever certificates are received may be sold for a percentage of their face value, typically between 80% and 86%. The buyers of these certificates are then entitled to use these certificates at 100% of their face value to reduce their own New Jersey state income tax payments. Companies are permitted to apply for such certificates beginning in June with respect to NOLs and R&D Credits relating to prior fiscal years. The New Jersey Department of Taxation generally takes about six months to process these applications and issue the certificates. As a result, we generally do not sell our eligible NOLs and R&D Credits relating to a given year until near the end of the following year. To the extent that the NOLs and R&D Credits are sold, they will be unavailable to us to offset future New Jersey state income taxes. As of December 31, 2002, we sold all of our available NOLs and R&D Credits. We will not be eligible to receive any certificates in 2004. As shown in the accompanying financial statements, we incurred net losses of $158,741 during the three-month period ended September 30, 2004. As of September 30, 2004, our cash and cash equivalents was $0. In light of our current market capitalization, it would be highly dilutive to our current stockholders if we were to obtain the level of financing necessary to fund our business plans and operation from an equity investor. However, management believes that our technology is extremely valuable. We have identified three areas of importance: (1) dentistry, (2) the treatment of skin conditions, obesity, and pain through a non-contact, broad area, subdermal injection of drugs and (3) vision correction surgery. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES GENERAL Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to intangible assets, income taxes, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. PATENTS Costs incurred in connection with patent applications, principally legal and consulting fees, are capitalized. Once a patent is granted, these costs are amortized over the lesser of the life of the patent, generally 20 years, or the estimated future economic life of the technology underlying the patent. Once the amortization period begins, management continues to evaluate the estimated future economic life of the patent. Should it be determined that a shorter life is estimated, than the original estimated future life, the amortization period is adjusted accordingly. Should a patent application be abandoned or not approved, the costs incurred in connection with the application are expensed. 9 At September 30, 2004 unamortized patent costs amounted to $164,865 and are included in the balance sheet under the caption Patents. REVENUE RECOGNITION We had no revenues for the three months ended September 30, 2004, and had no revenues for the comparable period in 2003. ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS NEED FOR CURRENT FINANCING. To fund its current operations, we have borrowed funds from the $250,000 unsecured line of credit, which Dr. Eugene I. Gordon agreed to make available to us. Since the close of the previous fiscal quarter, we have borrowed an additional $44,914 under the loan. Most of this related to the cost of storage of equipment and terminating the employee retirement plan. The amount outstanding under the loan as of September 30, 2004 totaled $244,114.85. Without additional funding, however, the amount currently borrowed under the loan will not be sufficient to carry us through the close of the year, and we will require additional financing in order to maintain any operations beyond November 2004. No such operations are planned. QUALIFICATION IN THE REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS RELATING TO OUR ABILITY TO CONTINUE AS A GOING CONCERN; ACCUMULATED DEFICIT AND HISTORY OF OPERATING LOSSES; ANTICIPATED FUTURE LOSSES. The report of independent certified public accountants on our audited financial statements for the year ended December 31, 2003 contained an explanatory paragraph stating that there is a substantial doubt as to our ability to continue as a going concern. The audited financial statements did not include any adjustments that might result from the outcome of such uncertainty. We incurred operating losses of $158,741 and $193,295 for the three months ended September 30, 2004 and 2003, respectively, and, at September 30, 2004, had an accumulated deficit of $10,876,821. We expect that we will continue operating at a loss until, at the earliest, we generate sufficient revenues to offset the cost of our operations, including our continuing product development efforts. Our future level of revenues and potential profitability depend on many factors, including especially our ability to obtain additional financing. There can be no assurance that we will experience any significant growth in revenues (or even sustain historic revenue levels) in the future or that we will ever achieve profitability. DISCONTINUANCE OF RESEARCH AND DEVELOPMENT. Since February 2003, we have concentrated our research and development activities on dental procedures. However, due to the lack of funding, our research and development was discontinued as of August 2003. We currently have no paid employees and have vacated our facility. Once financing for our continued operations and research and development activities is procured, we expect to resume research and development and may pursue either dental or ophthalmic research or both, depending on the uses for which funds are made available under the terms of such financing. We are also considering other options for the company that would provide value for the shareholders. DEVELOPMENT STAGE COMPANY. We are in the development stage and our business remains subject to all of the risks inherent in the establishment of a new business enterprise. The likelihood of our success 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 we are operating and the possibility that our activities will not result in the 10 development of any commercially viable products. There can be no assurance that our activities will ultimately result in the development of commercially saleable or useful products. We have not sold any products. NO SALES REVENUES; UNCERTAIN PROFITABILITY. No sales revenues are expected until, and only if, we begin commercial marketing of our dental, microkeratome, or other products or we sell or license our technology to a third party. Commercial marketing of our products in the U.S. will be contingent upon obtaining FDA permission or approval and possibly the approval of other governmental agencies. Regulatory clearance procedures are often extremely time consuming, expensive and uncertain. Accordingly, there can be no assurance that we will be successful in obtaining marketing clearance of our devices or that, if such devices are cleared, we will be able to generate sufficient revenues to operate on a profitable basis. DEPENDENCE UPON A KEY OFFICER; ATTRACTION AND RETENTION OF KEY PERSONNEL. Our business is highly dependent upon the active participation of our founder, Chairman of the Board, Chief Executive Officer, Secretary and Treasurer, Dr. Eugene I. Gordon, age 74. The loss or unavailability to us of Dr. Gordon would have a material adverse effect on our business prospects and potential earning capacity. The recruitment of skilled scientific personnel is critical to our success. There can be no assurance that it will be able to continue to attract and retain such personnel in the future. In addition, our expansion into areas and activities requiring additional expertise, clinical testing, governmental approvals, production and marketing of our products (which would be required if we do not enter into licensing arrangements) is expected to place increased demands upon our financial resources and corporate structure. We expect to satisfy such demands, if they arise, through the hiring of additional management personnel and the development of additional expertise by existing management. NO ASSURANCE OF FDA AND OTHER REGULATORY APPROVAL OR CLEARANCE. Our proposed medical devices are subject to regulation by the FDA under the Federal Food, Drug and Cosmetics Act (the "FD&C Act") and implementing regulations. Pursuant to the FD&C Act, the FDA regulates, among other things, the development, manufacture, labeling, distribution, and promotion of medical devices in the United States. 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 us 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 us. UNCERTAINTY OF MARKET ACCEPTANCE; RELIANCE ON SINGLE TECHNOLOGY. Acceptance of our proposed products is difficult to predict and will require substantial marketing efforts and the expenditure of significant funds by us. There can be no assurance that the products will be accepted by the medical community once they are permitted or approved. Market acceptance of our products will depend in large part upon our ability to demonstrate the operational advantages, safety and cost-effectiveness of our products compared to other comparable instruments and techniques. Failure of the products to achieve market acceptance will have a material adverse effect on our financial condition and results of operations. At present, our products (although still in development stage) are our dental waterjet and microkeratomes. We expect that these products will be, if and when commercially available, our sole products for an 11 indefinite period of time. Our present narrow focus on particular products makes us vulnerable to the development of superior competing products and changes in technology that could eliminate the need for our products. There can be no assurance that significant changes in the foreseeable future in the need for our products or the desirability of those products will not occur. DEPENDENCE ON PATENTS AND PROPRIETARY RIGHTS. Our success will depend in part on whether we successfully obtain and maintain patent protection for our products, preserve our trade secrets and operate without infringing the proprietary rights of third parties. We have sought to protect our proprietary interest in our products by applying for patents in the United States and corresponding patents abroad. In September 2003, we were issued our ninth patent from the United States Patent and Trademark Office. The patent is for `Method and Process for Generating a High Repetition Rate Pulsed Microjet.' We currently have eight issued U.S. patents and 20 U.S. and international patents pending. There can be no assurance that any other patents will be issued to us, that any patents owned by or issued to us, or that may be issued to us in the future, will provide a competitive advantage or will afford protection against competitors with similar technology, or that our competitors will not circumvent, or challenge the validity of, any patents issued to us. There also can be no assurance that any patents issued to or licensed by us will not be infringed upon or designed around by others or would prevail in a legal challenge, that others will not obtain patents that we will need to license or design around, that the microkeratomes or any other potential product of us will not inadvertently infringe upon the patents of others, or that others will not manufacture our patented products upon expiration of such patents. There can be no assurance that our existing or future patents 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 us. Also, there can be no assurance that our non-disclosure agreements and other safeguards will protect its proprietary information and trade secrets or provide adequate remedies for us 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 our patent rights, the enforcement by us of our non-disclosure agreements can be lengthy and costly, with no guarantee of success. There can be no assurance that our program of patent protection, internal security of our proprietary information and non-disclosure agreements will be sufficient to protect our proprietary technology from competitors. INFRINGEMENT CLAIMS; LITIGATION. Our competitors and potential competitors may intentionally infringe our patents. Third parties may also assert infringement claims or other claims against us. The defense and prosecution of patent suits and other lawsuits are both costly and time-consuming, even if the outcome is favorable to us. If any of our products are found to infringe upon the patents or proprietary rights of another party, we 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 us, if at all. If required licenses were to be unavailable, we could be prohibited from using, marketing or selling certain technology and devices and such prohibition could have a material adverse effect on us. Third parties may seek damages that exceed our insurance coverage or for which we are not insured. If we sustain damages greater than our insurance coverage, or actions are brought damages for which we are not insured, there could be a material adverse effect on our cash available to maintain our current operations and carry out our business plans. 12 We are currently involved in ongoing patent litigation and have recently been named as a defendant, among others, in an action initiated by one of our former employee, each as described under Part II, Item 1, "Legal Proceedings" of our Quarterly Report for the fiscal quarter ended March 31, 2004. COMPETITIVE TECHNOLOGIES, PROCEDURES AND COMPANIES. We are engaged in a rapidly evolving field. We believe there are companies, both public and private, universities and research laboratories engaged in research activities relating to dental drilling and cavity treatment. We believe that competition from these companies, universities and laboratories will be intense and will increase over time. Our potential products for dental drilling and cavity treatment will not compete with other presently existing forms of treatment for dental disorders, including mechanical drills and burrs, as well as other technologies under development. The main current technology, involving more than 90% of the practice, is the use of mechanical drills and burrs. There are expensive laser devices for removing caries and air abrasion systems for drilling holes. Neither has been well accepted. Based on experiments, we believe that our proposed dental waterjet system will be able to drill holes and remove areas of enamel and dentin, as well as clean out caries and remove tartar and plaque. There can be no assurance that our competitors will not succeed in developing technologies, procedures or products that are more effective or economical than those being developed by us or that would render our technology and proposed products obsolete or noncompetitive or that would allow for the bypassing of our patents. Furthermore, in connection with the commercial sale of our products, we will also be competing with respect to manufacturing efficiency and marketing capabilities, areas in which we have no experience. NO MANUFACTURING EXPERIENCE; DEPENDENCE ON THIRD PARTIES. Assuming additional financing is procured and we are able to continue our microjet development efforts, we may seek to undertake the manufacture and marketing of our microjet products on a limited scale. However, we would need to pursue other possible arrangements for larger-scale manufacturing, marketing and distribution. To the extent we do not enter into such arrangements, we will need to engage in the manufacture and marketing of our products. Manufacturing will consist of purchasing existing parts, having parts formed by vendors, incoming inspection, assembly, qualification testing and packaging, i.e., virtual manufacturing. We have no volume manufacturing capacity or experience in manufacturing medical devices or other products. To be successful, our 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 us. If we are unable or elect not to pursue collaborative arrangements with other companies to manufacture certain of our potential products, we will be required to establish manufacturing capabilities. Establishing our own manufacturing capabilities would require significant scale-up expenses and additions to facilities and personnel. There can be no assurance that we 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 us. There can be no assurance that we 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. Our dependence upon third parties for the manufacture of our products may adversely affect our profit margins and our 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 our ability to deliver products on a timely basis, or otherwise impair our competitive position and any such failure could have a material adverse effect on us. NO MARKETING OR SALES EXPERIENCE. If we do not enter into license or distribution agreements with respect to our products, and assuming additional financing is procured and we are able to continue our operations, we may undertake the marketing and sale of our own products. In such event, we intend to market and sell our products in the United States and certain foreign countries, if and when regulatory approval is obtained, 13 through a direct sales force or a combination of a direct sales force and distributors or other strategic partnerships. We currently have no marketing organization and have never sold a product. Establishing sufficient marketing and sales capability will require significant resources. There can be no assurance that we will be able to recruit and retain skilled sales management, direct salespersons or distributors, or that our marketing or sales efforts will be successful. To the extent that we enter into distribution arrangements for the sale of our products, we 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 entail the inherent risk of liability claims or product recalls. As a result, we face a risk of exposure to product liability claims and/or product recalls in the event that the use of our future potential products are alleged to have caused injury. There can be no assurance that we will avoid significant liability in spite of the precautions taken to minimize exposure to product liability claims. Prior to the commencement of clinical testing, we intend to procure product liability insurance. After any commercialization of our products, we will seek to obtain an appropriate increase in our 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 us. SURGICAL RISKS. There can be no assurance that our products will be successful in supporting dental drilling and cavity treatment. As with all surgical procedures, the procedures for which our products are intended entail certain inherent risks, including defective equipment or human error, infection or other injury. Such injury could expose us to product liability or other claims. We believe 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 our 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 our products and could have a material adverse effect on us. ITEM 6. EXHIBITS INDEX TO EXHIBITS 31.1 Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32 Certification of Chief Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 14 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: January 6, 2005 MEDJET INC. /S/ EUGENE I. GORDON ------------------------ Eugene I. Gordon, Ph.D. Chairman of the Board, Chief Executive Officer, Secretary and Treasurer (Principal Financial Officer) 15