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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
COMMISSION FILE NUMBER: 0-30391
MEDIS TECHNOLOGIES LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3669062
(State of incorporation) (I.R.S. Employer Identification No.)
805 THIRD AVENUE
NEW YORK, NEW YORK 10022
(Address of principal executive offices, including zip code)
(212) 935-8484
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAD BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO |_|
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT 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-K OR ANY AMENDMENT TO THIS
FORM 10-K. |_|
AS OF MARCH 15, 2001, THE AGGREGATE MARKET VALUE OF THE COMMON STOCK OF
MEDIS TECHNOLOGIES LTD. HELD BY NON-AFFILIATES OF MEDIS TECHNOLOGIES LTD. WAS
APPROXIMATELY $147,000,000.
AS OF MARCH 15, 2001, THERE WERE OUTSTANDING 16,830,991 SHARES OF THE
REGISTRANT'S COMMON STOCK.
MEDIS TECHNOLOGIES LTD.
2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
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PART 1
ITEM 1. BUSINESS.......................................................................................1
ITEM 2. PROPERTIES....................................................................................10
ITEM 3. LEGAL PROCEEDINGS.............................................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................10
PART 2
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS........................11
ITEM 6. SELECTED FINANCIAL DATA.......................................................................11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........13
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................25
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........25
PART 3
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................26
ITEM 11. EXECUTIVE COMPENSATION........................................................................29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................32
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................33
PART 4
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..............................35
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References in this Annual Report to "we," "us," or "our" are to Medis
Technologies Ltd. and its direct and indirect subsidiaries, unless the context
specifies or requires otherwise.
PART 1
ITEM 1. BUSINESS
INTRODUCTION
Our primary business is the development and commercialization of direct
liquid methanol (DLM) fuel cells and attendant refueling cartridges for use in
portable electronic devices which currently use as their power source
rechargeable or disposable batteries. Such devices include cell phones, personal
digital assistants (PDAs), laptop computers and certain military devices.
We expect that as portable electronic devices become more advanced and
offer greater functionality, battery manufacturers will seek to acquire fuel
cells offering significantly increased and longer lasting sources of energy. We
believe that our DLM fuel cell technology, the components of which are our
highly electrically conductive polymers (HECPs), catalyst and liquid
electrolyte, will enable us to meet this requirement. We also believe that we
can be responsive to manufacturers' demands for reduced size and weight,
increased length of operating time and competitive pricing.
While our primary focus is on the development and commercialization of
refuelable fuel cells, we are also in discussions with battery manufacturers
about the possibility of using our fuel cell technology to develop batteries
that can compete in the disposable market. We also intend to manufacture and
sell our HECPs as a stand-alone product. Furthermore, we own patents and
intellectual property rights to other technologies relating to clean energy,
which we are looking to exploit commercially, including:
o toroidal technologies;
o stirling cycle linear compressor technology; and
o reciprocating electrical machine.
We also own rights relating to the CellScan system, which we have
recently renamed CellMatrix, which is a detection and monitoring system for
human and other cells which may have many potential applications relating to
disease detection and cure. We intend to transfer the assets relating to the
CellScan to a newly formed subsidiary which will have independent management and
its own research and development team. We are currently seeking private venture
financing for that company with a view ultimately to spinning it off as a
separate entity.
We are a Delaware corporation organized in April 1992. Our executive
offices are located at 805 Third Avenue, New York, New York 10022; our telephone
number is (212) 935-8484. Our website is located at www.medistechnologies.com.
The information on our website is not a part of this Annual Report.
CORPORATE RESTRUCTURING
On June 6, 2000, we completed a transaction in which we acquired
approximately 36% of the ordinary shares of Medis El Ltd., an Israel
corporation, being those not already owned by us, in exchange for approximately
5,000,000 shares of our common stock. Prior to such time, we were a
privately-held company. Upon the completion of this transaction, Medis El became
our wholly-owned, indirect subsidiary, serving as our operating company for the
development of our technologies, and our common stock began trading on the
Nasdaq SmallCap Market. At the same time, Medis El's ordinary shares were
delisted from that market and Medis El ceased to be a reporting company under
the Securities Exchange Act of 1934. Our common stock began trading on the
Nasdaq National Market on October 3, 2000 under the symbol "MDTL".
FUEL CELLS
A fuel cell is an electro-chemical device that converts the chemical energy
of a fuel, such as hydrogen, methanol or ethanol, into electrical energy.
Fuel cells are not currently available for widespread commercial use. Types
of fuel cells being developed for commercial applications include:
o DIRECT METHANOL. Uses include portable and transportation
applications.
o PROTON EXCHANGE MEMBRANE. Uses include transportation and stationary
power generation applications.
o PHOSPHORIC ACID. Used for stationary power generation applications
and larger vehicles, such as buses and locomotives.
o MOLTON CARBONATE. Uses include stationary power generation
applications.
o SOLID OXIDE. Uses include industrial and large-scale central
electricity generating stations.
o ALKALINE. Used by NASA on space missions, they are considered too
costly for commercial applications.
o REGENERATIVE. Another technology being researched by NASA.
We believe that except for direct methanol and PEM fuel cells, none of the above
fuel cell technologies have applications in the portable electronic devices
market.
Fuel cells have many of the characteristics of batteries without some
of their negative attributes. While they share similar operating
characteristics, a key distinguishing feature is that a fuel cell relies on an
external fuel supply while batteries are energy storage devices. As a result,
fuel cells are more convenient to operate because they produce power as long as
fuel is supplied, unlike a battery which provides power only as long as it has
stored power. Because methanol has many times the energy storage capacity as the
operative components in batteries, the DLM fuel cell has the potential for far
greater operating time than any of today's batteries. Moreover, the external
fuel supply can be refilled or replaced quickly, unlike a battery which either
has to be disposed of or go through a long recharging process of three or more
hours. Finally, from an environmental perspective, fuel cells are far easier and
less costly to dispose of than batteries since they have no or minimal metal
components.
MARKET OPPORTUNITIES
PORTABLE ELECTRONIC DEVICE MARKET. It has been widely reported that over
$100 billion has been committed by the telecommunications companies to license
radio spectrum space for the development of wireless networks and equal amounts
are estimated as the cost of building out these wireless systems. Furthermore,
recent announcements by large handset manufacturers reflect the fact that sales
of handsets are slowing as the available demand for present state-of-the-art
cell phones is increasingly being satisfied. To justify these huge investments
and in order for the cell phone companies to significantly increase sales of
handsets, these companies are expected to offer a more advanced cell phone
offering greater functionality, i.e., many more applications, such as e-mail and
internet availability, shopping, banking and stock purchasing capabilities,
music, movies and the like. Whether offered on a next-generation 3G cell phone,
a currently available cell phone or some other device such as a combination of a
PDA and a cell phone, such functionality will require greater power capability
than that possessed by currently available devices, as well as much
longer-lasting power to extend use time, if the consumer expectation regarding
the availability of those applications is to be fully satisfied.
CIBC World Markets estimates the worldwide rechargeable battery market to
be in excess of 2 billion units totaling almost $5 billion in revenue, of which
more than $3 billion is for portable applications including cellular phones,
cordless phones, notebook computers and PDAs. Furthermore, published reports
project growth over the next several years for today's cellular phones to
increase from roughly 415 million units in 2000 to 1.6 billion units by 2005
(Source: IDC, Dataquest, Nokia, Motorola & McDonald Investments, Inc.).
MILITARY APPLICATIONS. The Department of Defense has stated that it has a
pressing need for lighter and more compact electrical power sources as the
modern soldier is increasingly equipped with many new portable electronic
devices. As with the latest portable electronics for consumers, these devices
have increased power needs that our DLM fuel cells are being developed to
satisfy. The DOD may therefore be presumed to have an interest in developing or
acquiring fuel cell power sources for use by the individual soldier and for
other uses.
OUR FUEL CELLS COMPARED TO OTHER FUEL CELLS
Our DLM fuel cell differs from other fuel cells being developed for the
portable electronic device market in that we use a proprietary liquid
electrolyte instead of a solid polymer membrane (proton exchange membrane, or
PEM). The presence of a PEM makes it difficult to reduce size and increase the
power densities to a needed level for portable electronic devices. In a direct
methanol fuel cell with a PEM, the concentration of methanol is generally
limited to 3% to 5%, reducing the performance of the fuel cell. As a result,
some direct methanol fuel cells are planned with an external delivery system to
feed the methanol into the fuel cell which have some form of regulator to
control the amount of methanol. This direct methanol fuel cell therefore
requires additional delivery mechanisms involving more complexity and cost. By
reason of our fuel cell's design and architecture and the use of our liquid
electrolyte which replaces the PEM in our fuel cell, we are able to increase the
methanol concentration, thereby increasing the power, electrical output and
service life of the fuel cell between each refueling, without harming the fuel
cell and without additional mechanisms to regulate the methanol intake. Our DLM
fuel cells are presently capable of carrying a 30% concentration of methanol, a
far larger proportion of methanol than any other DLM fuel cell we know of.
There are three proprietary components used in our DLM fuel cells that help
us achieve these results--our HECPs, catalyst and liquid electrolyte. The HECPs
act to protect our DLM fuel cell's electrodes from impurities in the fuel that
would normally cause deterioration of the electrodes and a shorter life span to
the fuel cell. Based on laboratory tests, our proprietary catalyst, which is
used for oxidation of liquid fuel, acts more effectively than standard
catalysts, improving performance of the fuel cell. Because of its effectiveness,
we have been able to reduce the amount of platinum needed in our DLM fuel cell,
thus enabling us to lower the component costs of our product. Our liquid
electrolyte replaces the PEM in our fuel cell, enabling the substantial increase
in the concentration of methanol in our fuel.
OUR FUEL CELL TECHNOLOGY
We are working to supply increased energy while also reducing the size of
the DLM fuel cell. One important criterion affecting size is the amount of
energy density the fuel cell can generate, which helps determine the ability to
supply more energy at smaller sizes. At this time, in laboratory tests, our
individual fuel cell has attained a maximum energy density of 60mW/cm2, or 0.06
watts per square centimeter. We believe that this energy density level is
substantially higher than that of any other DLM fuel cell that we know of. Our
target by the end of this year is 80mW/cm2.
Other important criteria are the discharge characteristics and the length
of operating time of the fuel cell, as that determines how much power the fuel
cell can deliver over a period of time before refueling. Our individual fuel
cell with a volume of 16cc, or cubic centimeters, and an active electrode area
of 4/cm2 can operate for ten hours at 380mA (milliamperes) at 0.5 volts, then
reducing to 220mA at 0.5 volts for a total of 3000 mA hours, in laboratory
tests. Our target for the end of the year is to increase the power after ten
hours of use time to 320mA-350mA, for a total of 4000 mA hours. We believe that
these results are superior to those achieved in any other DLM fuel cell using
methanol that we know of and, if we attain this goal, of which there can be no
assurance, we may be able to satisfy the power requirements of today's and the
next generation of portable electronic devices.
OUR PROPOSED FUEL CELL PRODUCTS
POWER PACK
Presently, we expect that our first attempt at a commercially viable DLM
fuel cell product will be a miniature power pack, capable of charging the phone
at the same time that it is being used, as if the user had connected to an
electrical outlet. By taking this approach, we are looking to serve an immediate
large potential market - all of the users who already have cell phones or other
wireless devices. We would not have to wait until the new generation of devices
is ready for market to offer a fuel cell product. Electronic device
manufacturers could benefit by having a fuel cell power source actually
operating in the market place that they can immediately offer to their customers
and later decide to add it as original equipment in their products.
We intend for our power pack to consist of several individual fuel cells
enclosed in a plastic casing with an adapter cord that can fit directly into the
handset's recharging outlet. The life of the power pack is targeted to be 20
hours, significantly longer than existing battery technology. Once the fuel runs
out, it is simply refilled via our refueling cartridges that hold the
electrolyte and the methanol, effectively "recharging" the power pack.
PEM GAS FUEL CELL
While our major focus is on the DLM fuel cell, we believe that certain
technologies used to develop our DLM fuel cell can be applied towards the
development of a gas PEM fuel cell which would be superior in certain respects
to other gas PEM fuel cells currently under development by others. Although
comparative figures for other PEM fuel cells are not widely available, we
believe that we may be able to improve upon the power density, the catalytic
performance and the electrode life of such other PEM fuel cells. We are
developing one PEM fuel cell that is intended to provide us the opportunity to
test our technologies in that context. Although we have no current intention to
manufacture gas PEM fuel cells, we might seek a strategic partner or other
arrangement so that we can exploit this technology.
HIGHLY ELECTRICALLY CONDUCTIVE POLYMERS
HECPs are an important component of our DLM fuel cell. These polymers are
endowed with high conductivity of certain metals and the non-corrosive
properties, superior flexibility and durability of plastics; properties which
may have applications in civilian and military products, particularly in
electronic products such as sensors and capacitors. We have demonstrated our
HECPs for these uses to a few potential customers who have expressed interest in
them. However, we still have to demonstrate that we can make the transition from
advanced polymers made in small quantities in the laboratory to large scale
production of uniform, attractively priced, commercially acceptable products. We
have leased space near our offices in Israel and ordered equipment with a view
to having a small HECP manufacturing facility operating before the end of this
year.
We believe that the catalyst component of our fuel cells may also have
stand-alone applications in such fields as electro and organic synthesis,
producing mineral fertilizer and reforming, cleaning and purifying industrial
and automotive gases and exhaust fumes, however, we are not looking to exploit
the catalyst as a stand-alone product at the present time.
BUSINESS STRATEGY
Our business strategy is to translate our advanced fuel cell technology
into commercially viable products that will compete with and ultimately replace
rechargeable batteries and other power sources in the portable electronic
devices market. We hope to be the first fuel cell development company to make a
commercially viable fuel cell product for portable electronic devices, and
consequently capture a large market share of what promises to be a multi-billion
dollar industry. In making the transition from laboratory to commercial
production, use and sales, we will seek assistance in the engineering, design
and, particularly, the production of our fuel cells from large multinational
battery and electronic device manufacturers with whom we have, and are entering
into, cooperation agreements.
We intend to acquire additional equipment capable of measuring our fuel
cell components and testing our fuel cells, in an effort to further their
performance. If we are able to successfully complete the technological
development of our DLM fuel cells, we intend to build, subject to the
availability of commercially reasonable financing, a pilot plant to demonstrate
the ability to manufacture these products in commercial quantities at an
attractive price and profit margin. We have commenced discussions with the State
of Israel to build such a pilot plant. If and when we can demonstrate the
viability of manufacturing our fuel cell products, we intend to either license
the production of our fuel cell products to our strategic partners and/or other
manufacturers or sell our technology to them.
As we are hopeful that our fuel cell technology will be able to provide the
greatest amount of power for portable electronic devices when compared to the
most advanced batteries that we are currently aware are offered or under
development by our competitors, we believe both consumers and portable
electronics manufacturers would prefer our DLM fuel cell as an alternative power
source, as long as the cost and other factors are competitive. Moreover, our DLM
fuel cell offers the possibility of being refueled in seconds compared to the
approximately 3 hours required to charge the phone with the most advanced
rechargeable technology - the lithium polymer battery.
STRATEGIC ALLIANCES
To accomplish our strategy of achieving a successful transition from the
laboratory to commercial use, we must determine how best to design products
employing our fuel cells that are attractive to the consumer, as well as how to
connect them to the circuitry inside the phones and other electronic devices as
the original equipment power sources. This includes such decisions as the best
way to package and market the refills to satisfy consumer demands. We also have
to develop the know-how to produce the fuel cells using the newest automated
equipment that enables the most efficient production. We believe that the most
effective and least costly way for us to achieve these objectives is to enter
into strategic alliances with manufacturers of portable electronic devices so
that together we can develop a fuel cell product that will satisfy the
consumer's demand for maximum power and operating time for their equipment. We
are also looking to these alliances to provide us with manufacturing expertise
and distribution channels. Additionally, we expect to look to our strategic
partners to help us develop our pilot plant for producing our fuel cells.
To date, we have entered into the following strategic arrangements:
o We have entered into a non-exclusive cooperative agreement with
France-based Sagem, SA, one of Europe's largest manufacturers of cell
phone handsets and other electronic equipment with sales in year 2000
of approximately $4 billion.
o We have entered into an exclusive agreement with General Dynamics
Government Systems Corporation, a unit of General Dynamics
Corporation, to develop and market fuel cells and fuel cell-powered
portable electronic devices for the United States Department of
Defense. As part of such agreement, among other things, General
Dynamics agrees to market our DLM fuel cells to the Department of
Defense.
We are looking to enter into additional agreements with other cell phone,
laptop computer, portable electronic device and battery manufacturers who can
help us expedite the development of a commercial fuel cell, as well as to
demonstrate the viability of our fuel cell and battery technologies and develop
a product designed to each of such companies' specifications and product
requirements.
PRODUCTION
We are working to develop engineering prototypes for our liquid fuel cells
by mid-2001 and plan to commence production of our HECPs by the end of 2001 in
our Or-Yehuda, Israel manufacturing facility. Assuming our ability to adhere to
this timetable, we are hopeful that we will be able by sometime in 2002 to
establish an additional manufacturing facility in Israel to produce on a limited
basis the catalyst and electrolyte, which are essential elements of our DLM fuel
cells, with capital costs for the two plants expected to approximate US$10
million. On a long range basis and subject to the availability of requisite
financing, we plan to commence production of individual fuel cells by the end of
2003 or during 2004, attaining a maximum fuel cell production of 30 million
individual fuel cells (enough for approximately 5 million cellular phones). This
will enable us to test the manufacturing process and validate our estimated
production costs and sales price. Our preliminary estimates are that we will be
able to deliver a fuel cell system to original equipment manufacturers at a
price of $15 and that the gross profit on that product will amount to $6.00.
We do not intend to develop or invest in full-scale manufacturing
facilities for our proposed fuel cell products, if and when developed. We plan
to satisfy such demand by entering into license, joint venture or other
arrangements with a company or companies that are capable of worldwide mass
production of our products.
REFILL CARTRIDGES
We also intend to separately offer proprietary refueling cartridges to
power the power packs and fuel cells once the fuel has depleted. We see this as
a "razorblade" equivalent, holding out the prospect of repeated sales. Assuming
that a next generation phone is used an average of two hours a day (60 hours a
month) and that our fuel cell provides power for twenty hours, the user will
need three refueling cartridges a month. Our preliminary estimates are that at a
sales price to the user of $3.00 per month, the gross profit potential from
refill cartridges could amount to $1.00 per month for each cell phone unit sold.
RESEARCH AND DEVELOPMENT
Our research and development programs are generally pursued by scientists
employed by us in Israel on a full-time basis or hired as per diem consultants.
Most of the scientists working in the fuel cell field are emigres from the
former Soviet Union where they worked on developing fuel cells for as much as
fifteen years. Our programs are also pursued in collaboration with multinational
companies with interests in our fuel cell technologies.
Currently, our major focus is upon achieving a greater power output at
smaller sizes and extending the length of use time and standby time for our DLM
fuel cell. Our development team is also working to lower the cost of the
components of the fuel cell. We are further working to lower the platinum
content of our catalyst, which represents a significant expense in manufacturing
a fuel cell.
Another objective of our research and development programs is to find new
applications for the components that make up our fuel cells, including our HECPs
and catalysts.
COMPETITION
We expect to compete against other fuel cell developers as well as against
other advanced battery technologies.
We expect that our direct competitors will be companies developing fuel
cells for the portable electronics market, such as Manhattan Scientifics Inc.,
which reports that it is developing a fuel cell to power cellular phones and
pagers, as well as mid-range fuel cells to power larger applications such as
laptop computers. That company has not yet publicly announced an expected date
for commercialization. Motorola, along with the Los Alamos National Laboratory
in New Mexico, is also developing a direct methanol fuel cell for mobile phones
that it expects to run up to ten times longer than existing batteries. Motorola
has announced they expect to have a commercially viable product in 3-5 years.
Mechanical Technology Inc. has recently announced their intention to develop
direct methanol fuel cells and are working with talent formerly of the Los
Alamos National Laboratory and have also licensed certain fuel cell technology
from Los Alamos National Laboratory to further such intentions.
We believe that most other fuel cell companies are focusing on different
markets than the portable electronic device market that we are targeting. Other
fuel cell companies, including Plug Power, Avista Systems Inc., Fuel Cell Energy
Inc. and H Power are not primarily targeting the portable electronics market,
although at any time these companies could introduce new products that compete
directly in the markets we are targeting. Ballard Power Inc., a recognized
leader in PEM fuel cell technology, has announced they are developing a direct
methanol fuel cell for transportation and portable applications, however, we do
not know if this is intended for the portable electronic device market.
We also expect indirect competition from battery manufacturers who utilize
existing battery technologies (both chargeable and rechargeable). Existing
battery technologies have the significant advantage of having commercially
available products today, and are backed by companies who are continuously
investing in marketing and further research and development to improve their
existing products and explore alternative technologies.
We expect our fuel cell products to compete on the bases of size and
weight, length of operating time, ease of use and cost.
GOVERNMENT REGULATION
Currently, the only regulations we encounter are the regulations that are
common to all businesses, such as employment legislation, implied warranty laws,
and environmental, health and safety standards, both in the United States and
Israel, to the extent applicable. It is likely we will encounter industry
specific government regulations in the future in the jurisdictions in which we
operate. It may become the case that regulatory approvals will be required for
the design and manufacture of our fuel cells. The use of methanol may be limited
by government regulation in which case we would have to change our fuel to
ethanol or another hydrogen-based fuel, which may be less effective and more
costly than methanol. Furthermore, we must obtain from the State of Israel
permits to work with certain chemicals used to make our fuel cells. To the
extent that there are delays in gaining regulatory approval, our development and
growth may be constrained.
OUR OTHER TECHNOLOGIES
Starting with our formation in 1992, we have been working to develop and
commercialize next generation technologies. We seek to exploit our relationship
with Russian scientists who have immigrated to Israel as well as with Israel
Aircraft Industries Ltd., a company wholly owned by the State of Israel and a
leader in aerospace technology. Israel Aircraft is also our largest stockholder.
With the exception of our CellScan system, all of these technologies are in
the development stage and no successful prototypes have as yet been developed,
nor can we assure you that any such prototypes will be developed or, if
developed, commercialized.
o CELLSCAN. The CellScan, which we have renamed the CellMatrix, is a
system for the viewing and testing of cells and cell reaction to
stimulation by antigens and other stimuli. Unlike microscopes and
other existing technology, the CellScan allows viewing of thousands of
cells in a living state and provides the ability to revisit and probe
each cell a number of times. The CellScan also permits real-time
monitoring of on-going cellular events. The cells are placed on a
patented matrix where they can be stimulated and monitored to detect
changes in the intensity and direction of light emanating from the
cell which can then be measured and recorded.
The CellScan can be used as a diagnostic tool to detect diseases such
as breast, prostate and gynecological cancers, tuberculosis and
atherosclerosis as well as a research tool to develop individual
patient chemotherapy, drugs, vaccines, antigens and aspects of gene
therapy.
o TOROIDAL TECHNOLOGIES. We are seeking commercially viable applications
of our toroidal technology in three areas.
o As a compressor for existing refrigeration and air conditioning.
We believe that a toroidal compressor may achieve energy savings
over existing Rankine-cycle cooling systems, which is the system
now used in most refrigeration and air conditioning systems, and
enable manufacturers to meet new energy standards.
o As an internal combustion engine which could be up to one-half
the size and weight of a conventional internal combustion engine
and could increase engine efficiency by as much as 30%.
o As an essential element, together with our electric reciprocating
machine, to develop a stationary power generation system that
would be more efficient than present systems.
We own a basic patent for the toroidal engine and we indirectly own
25% and have options to purchase an additional 50% of a company that
owns other patents to the toroidal technologies. We intend either to
exercise the option prior to its expiration or negotiate for its
extension.
o RECIPROCATING ELECTRICAL MACHINE. Our reciprocating electrical machine
seeks to use the reciprocating motion of energy sources such as wind
or sea waves to convert such energies' motion into electricity, while
achieving cost savings of up to 30%, while also being cleaner and
environmentally safer than traditional power sources. Furthermore, we
are exploring the possibility of applying the technology underlying
the reciprocating electrical machine to advance the development of a
power generation system using our toroidal technology.
o STIRLING CYCLE LINEAR TECHNOLOGY. Our stirling cycle linear technology
is based upon a century-old thermodynamic technique that may be
capable of providing greater energy efficiency for refrigeration and
air-conditioning systems. A major advantage to the stirling cycle
system is that it uses helium as its working gas, which is a natural
gas found in the atmosphere that is environmentally friendly. The use
of a stirling cycle system would therefore replace the use of freon or
freon compounds found in existing refrigeration and air-conditioning
systems. These substances contain chlorofluorocarbons, which are
commonly believed to deplete the atmosphere and contribute to the
"greenhouse effect" and global warming.
MISCELLANEOUS
We also own 25% of a company that owns a patent and other rights to a
technology that switches and regulates direct current, or DC, electricity. Using
existing power lines, the device is expected to enable the transmission of
two-thirds more current than the existing system and would eliminate the need
for alternate current, or AC, power lines and the transformers which convert DC
electricity to AC electricity. Furthermore, we may commence testing of
technologies that, if successfully developed, would be used to generate potable
water from the atmosphere or brackish water. We have no current intention to
develop such technologies due to our inability to commit further limited
resources to such undertakings. We may continue research and development of such
technologies upon our obtaining additional funds for such purposes.
INTELLECTUAL PROPERTY
We rely on a combination of patent, copyright, trademark, trade secret and
contract laws, as well as international treaties, to protect our proprietary
rights to our intellectual property which includes technical know-how, designs,
special materials, manufacturing techniques, test equipment and procedures for
fuel cells, fuel cell components and fuel cell systems, as well as our other
technologies. Our policy is to secure, directly or through licensing
arrangements, patent protection for significant innovations to the fullest
extent practicable.
We have six patents pending on our fuel cell technology in the United
States. Corresponding applications have been filed under the Patent Cooperation
Treaty, which allows us limited protection in all of its 45 member countries for
periods ranging from 24-30 months, during which time patent applications can be
filed in such countries. Although we expect to file patent applications in most
of the larger markets that are member countries, we have not yet ascertained
which of these jurisdictions we will file in. We are contemplating filing a
number of additional patents in the United States and elsewhere as it relates to
our fuel cell technology. Patent applications filed in foreign countries are
subject to laws, rules and procedures which differ from those of the United
States, and even if foreign patent applications issue, some foreign countries
provide significantly less patent protection than the United States.
We have been granted a patent or patents, or we have patents pending
relating to, each of our toroidal technologies, stirling cycle linear system,
reciprocating electrical machine and direct current regulating device.
Furthermore, we are the exclusive worldwide licensee of Bar-Ilan
University's patents, patent applications and any other proprietary rights
relating to the CellScan. Bar-Ilan owns, or has applied for, corresponding
patents in Europe, Japan, Israel, Canada and various other countries, of which
we are the licensees.
In addition to patent protection, we rely on the laws of unfair competition
and trade secrets to protect our licensed or proprietary rights. We attempt to
protect our trade secrets and other proprietary information through agreements
with our collaborators, through confidentiality agreements with employees,
consultants, potential joint ventures and licensees and other security measures.
EMPLOYEES
As of February 1, 2001, we had 33 full time employees, of which
approximately 27 were engineers, scientists and other degreed professionals and
6 were professional, technical, administrative and manufacturing support
personnel. We also employ approximately 14 engineers, scientists and other
degreed professionals as consultants who work with us researching and developing
our technologies on a part time basis. We consider relations with our employees
to be satisfactory.
ITEM 2. PROPERTIES
We presently maintain our U.S. executive offices in premises of
approximately 3,000 square feet at 805 Third Avenue, New York, New York 10022
under a sublease from the Standoff Corporation, which is controlled by Robert K.
Lifton, our chairman and chief executive officer, and Howard Weingrow, our
president. We pay approximately $72,000 for rent per year. The sublease is on a
month to month basis.
Our research laboratory and technology center and Israel-based executive
offices and back office functions are located at a leased facility of
approximately 11,500 square feet in Yehud, Israel. The rental expense for this
lease, which has a term until December 2001 with two one-year options on a
portion of the facilities extending to December 2003, is approximately
US$164,000 per year. We also lease manufacturing facilities of approximately
1,500 square feet in Jerusalem, Israel relating to the CellScan and
approximately 2,000 square feet in Or-Yehuda, Israel relating to the HECPs. The
Jerusalem lease expires on December 31, 2001, with a two year option extending
to December 31, 2003. The annual aggregate rent is approximately US$27,000. The
Or-Yehuda lease expires on December 31, 2001 and has three one-year options
extending to December 31, 2004. The annual aggregate rent is approximately
US$12,000. We have also commenced discussions with the State of Israel to build
a pilot plant in Israel to manufacture the catalyst, electrolytes and the
individual fuel cells. Capital costs for the construction of the pilot plant and
equipping the Or-Yehuda facility is expected to be approximately US$10 million,
with the construction beginning in 2002. We believe our facilities are adequate
for our present purposes.
ITEM 3. LEGAL PROCEEDINGS
We are not party to any material litigation, and we are not aware of any
threatened litigation that would have a material adverse effect on us or our
business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of securityholders during the fourth
quarter of the fiscal year ended December 31, 2000.
PART 2
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Our common stock has been traded on the Nasdaq National Market under the
symbol "MDTL" since October 3, 2000. Prior to that, our common stock was traded
on the Nasdaq SmallCap Market under the same symbol since June 6, 2000, the day
subsequent to the completion of the Medis El exchange offer. Prior to that,
there was no public market for our common stock, but until that date from 1992,
Medis El's ordinary shares were traded on the Nasdaq SmallCap Market.
The closing high and low sales prices of our common stock, as reported by
the Nasdaq National Market and the Nasdaq SmallCap Market, for the quarters
indicated are as follows:
QUARTER ENDED HIGH LOW
------------- ---- ---
June 30, 2000 (from June 6, 2000) 22.750 16.563
September 30, 2000 24.875 14.063
December 31, 2000 22.500 10.250
As of March 27, 2001, there were approximately 110 stockholders of record
of our common stock. Such number does not include beneficial owners holding
shares through nominee names.
We have never declared or paid any dividends on our common stock. We
currently anticipate that we will retain all of our future earnings for use in
the expansion and operation of our business. Thus, we do not anticipate paying
any cash dividends on our common stock in the foreseeable future. Our future
dividend policy will be determined by our board of directors and will depend on
various factors, including our results of operations, financial condition,
capital requirements and investment opportunities. In addition, the terms of our
credit facility restrict our ability to pay dividends on our common stock.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended
December 31, 1996 and 1997 and the selected consolidated balance sheet data as
of December 31, 1996, 1997 and 1998 have been derived from audited financial
statements not included in this report. The selected consolidated statement of
operations data for the years ended December 31, 1998, 1999, and 2000 and the
selected consolidated balance sheet data as of December 31, 1999 and 2000 have
been derived from our audited financial statements included elsewhere in this
report. Such consolidated financial statements include the financial statements
of all of our direct and indirect subsidiaries, including Medis Inc. and Medis
El, beginning on December 15, 1997. Prior to that date, our investment in Medis
Inc. and Medis El had been accounted for using the equity method of accounting.
The data should be read in conjunction with the consolidated financial
statements and the notes to such statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this report.
STATEMENT OF OPERATIONS DATA:
For the Year Ended December 31,
--------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
Revenues......................... $ -- $ -- $ 8,000 $ -- $ --
Cost of sales.................... -- -- 3,000 -- --
------------ ------------ ------------ ------------ ------------
Gross profit..................... -- -- 5,000 -- --
OPERATING EXPENSES
Research and development costs, net -- 1,406,000 1,646,000 2,749,000 4,493,000
Selling, general and administrative
expenses..................... 193,000 1,303,000 1,399,000 2,467,000 5,405,000
Amortization of intangible assets -- 102,000 2,445,000 2,574,000 13,668,000
------------ ------------ ------------ ------------ ------------
Total operating expenses......... 193,000 2,811,000 5,490,000 7,790,000 23,566,000
------------ ------------ ------------ ------------ ------------
Loss from operations............. (193,000) (2,811,000) (5,485,000) (7,790,000) (23,566,000)
Other income (expenses)
Interest and other income........ 9,000 64,000 63,000 150,000 214,000
Interest expense................. (1,660,000) (381,000) (101,000) (22,000) (13,000)
------------ ------------ ------------ ------------ ------------
Loss before minority interest.... (1,844,000) (3,128,000) (5,523,000) (7,662,000) 23,365,000
Equity in net losses of
unconsolidated subsidiaries.. (789,000) -- -- -- --
Minority interest in loss of
subsidiaries................. -- 1,584,000 1,105,000 1,697,000 873,000
------------ ------------ ------------ ------------ ------------
Net loss......................... (2,633,000) (1,544,000) (4,418,000) (5,965,000) (22,492,000)
Value of warrants issued -- -- -- -- 2,971,000
------------ ------------ ------------ ------------ ------------
Net loss attributable to common
stockholders................. $(2,633,000) $(1,544,000) $(4,418,000) $(5,965,000) $(25,463,000)
============ ============ ============ ============ ============
Basic and diluted net loss per share $ (0.71) $ (0.33) $ (0.52) $ (0.61) $ (1.79)
============ ============ ============ ============ ============
Weighted average shares outstanding 3,734,129 4,645,232 8,581,774 9,807,101 14,238,104
============ ============ ============ ============ ============
BALANCE SHEET DATA:
As of December 31,
--------------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
$ $ $
Working capital (deficiency)......... (1,728,000) $ 266,000 3,536,000 1,083,000 $2,522,000
Total assets......................... 3,621,000 14,443,000 14,755,000 10,226,000 87,202,000
Long-term debt, excluding current
maturities........................ 1,000,000 338,000 96,000 11,000 --
Accumulated deficit.................. (11,668,000) (13,232,000) (17,650,000) (23,615,000) (49,078,000)
Total stockholders' equity
(deficiency)......................... (1,645,000) 11,378,000 12,406,000 8,561,000 86,142,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This presentation includes the operations of our wholly and majority owned
subsidiaries, including Medis El, unless we tell you otherwise.
From our inception in April 1992 through December 31, 2000 we have
generated a cumulative net loss of approximately $46,107,000, including
approximately $18.6 million from amortization expense. We expect to incur
additional operating losses during 2001 and possibly thereafter, principally as
a result of our continuing anticipated research and development costs, and the
uncertainty of bringing our fuel cell technology or any of our other
technologies to commercial success. We have increased our research and
development budget since 1999 from approximately $2.7 million annually to
approximately $4.5 million annually; however, we anticipate that our failure to
successfully commercially develop our fuel cell technology or any of our other
technologies will force us to curtail our spending levels until such time, if
ever, as we generate revenues or otherwise receive funds from third party
sources. If we begin to market and sell any of our technologies, we will
increase such expenses to the extent necessary, which we expect to fund out of
revenues.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999
We sustained a net loss of $22,492,000 during the year ended December 31,
2000, compared to $5,965,000 during the year ended December 31, 1999. The
increase in the net losses can primarily be attributed to increases in research
and development costs, selling, general and administrative expenses,
amortization of intangible assets acquired in connection with the acquisition of
shares in the Medis El exchange offer and costs related to the issuances of
stock options and warrants.
Research and development costs increased to $4,493,000 for the year ended
December 31, 2000 as compared to $2,749,000 during the year ended December 31,
1999. The increases can be largely attributed to increased research and
development activity pertaining to:
o Development of our DLM fuel cells, in which we incurred costs of
approximately $1,697,000 during the year ended December 31, 2000
compared to costs of approximately $336,000 during the year ended
December 31, 1999. The increase in costs in 2000 was partially due to:
(i) expenditures aggregating $320,000 to acquire an additional 11.5%
interest in More Energy, which represents acquired in-process research
and development, and (ii) an allocation to fuel cell technologies of
approximately $182,000 of the write-off of acquired in-process
research and development in connection with the Medis El exchange
offer.
o The further refinement of the CellScan, in which we incurred costs of
approximately $2,148,000 during the year ended December 31, 2000,
compared to costs of approximately $1,770,000 during the year ended
December 31, 1999.
o Development of the toroidal compressor, in which we incurred costs of
approximately $126,000 during the year ended December 31, 2000,
compared to none during the year ended December 31, 1999.
o Development of the toroidal engine, in which we incurred costs of
approximately $322,000 during the year ended December 31, 2000,
compared to costs of approximately $236,000 during the year ended
December 31, 1999. The increase in costs in 2000 was due to an
allocation to the toroidal engine of approximately $151,000 of the
write-off of acquired in-process research and development in
connection with the Medis El exchange offer, somewhat offset by
reduced spending on research and development of the toroidal engine.
Selling, general and administrative expenses during the year ended December
31, 2000 amounted to approximately $5,405,000, compared to approximately
$2,467,000 during the year ended December 31,1999. The increase can be primarily
attributed to non-cash charges of approximately $2,789,000 relating to stock
options and warrants issued to officers, employees, consultants and advisory
board members, compared to approximately $125,000 in 1999.
Amortization of intangible assets amounted to $13,668,000 during the year
ended December 31, 2000, compared to $2,574,000 during the year ended December
31, 1999. This increase was primarily the result of amortization expense of
approximately $11,013,000 during the year ended December 31, 2000 relating to
goodwill approximating $81,867,000 and acquired technology assets approximating
$6,071,000 acquired upon the completion of the Medis El exchange offer.
Management believes that, as an additional operational measurement,
earnings (loss) before interest, taxes, depreciation and amortization, or
EBITDA, is useful and meaningful to an understanding of our operating
performance. EBITDA should not be considered in isolation or as a substitution
for net income (loss) or cash flow data or as a measure of our profitability or
liquidity. Items excluded from EBITDA, such as depreciation and amortization,
are significant components in understanding and assessing our financial
performance. All companies do not calculate EBITDA the same way.
The computation of EBITDA for the years ended December 31, 2000 and 1999 is
set forth in the table below:
Year Ended
December 31,
------------------------------
2000 1999
------------- -----------
Net Loss attributable to common
shareholders $(25,463,000) $(5,965,000)
Add: value of warrants issued 2,971,000 --
Add: interest expense 13,000 22,000
Less: interest income (214,000) (150,000)
Add: amortization 13,668,000 2,574,000
Add: depreciation 363,000 388,000
------------ -----------
EBITDA $ (8,662,000) $(3,131,000)
============ ===========
EBITDA includes as an expense non-cash compensation related to the issuance
of stock options and stock purchase warrants of approximately $3,229,000 and
$187,000 for the years ended December 31, 2000 and 1999, respectively.
The increase in loss before interest, taxes, depreciation and amortization
for the year ended December 31, 2000 as compared to the year ended December 31,
1999 occurred due to increases in research and development costs and selling,
general and administrative expenses for the reasons discussed earlier in this
section.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
We sustained a net loss of $5,965,000 during the year ended December 31,
1999 compared to $4,418,000 during the year ended December 31, 1998. The
increase can primarily be attributed to a significant rise in research and
development costs and increased selling, general and administrative expenses,
partially offset by increased interest income due to higher average cash
balances and lower interest expense due to lower debt balances during the year
ended December 31, 1999, as compared to the year ended December 31, 1998.
Research and development costs were up sharply at $2,749,000 for 1999, as
compared to $1,646,000 during the year ended December 31, 1988. This increase
can be largely attributed to increased research and development activity
pertaining to the CellScan, stirling cycle linear technology and fuel cells,
costs aggregating $115,000 to acquire an additional 11.5% interest in More
Energy, depreciation expense of $388,000 as compared to $101,000 for the year
ended December 31, 1998 and costs incurred of $255,000 to write off our
inventory of cell carriers, antigens and neuritors, a technology licensed to
Medis El, to research and development expense. These factors were somewhat
offset by a payment of $200,000 Medis El received under a December 1998
technology development agreement with The Coca-Cola Company in which it:
o paid $100,000 to obtain a right of first refusal to obtain exclusive
rights to use the stirling cycle, fuel cells and other technologies in
its field of business; and
o paid $100,000 to assist in the development of the stirling cycle
technology for use in its field of business.
Such payments aggregating $200,000 were recorded as a credit to research
and development costs for the year ended December 31, 1999.
Selling, general and administrative expenses for the year ended December
31, 1999 were $2,467,000 compared to $1,399,000 for the year ended December 31,
1998. This increase can be primarily attributed to a charge of $437,000 to
selling and general administrative expenses in the fourth quarter of 1999
pursuant to the terms of a settlement agreement with an Argentine company and a
substantial increase to approximately $425,000 in legal and accounting fees and
related expenses primarily relating to the Medis El exchange offer.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations primarily through the proceeds
of investor equity financing, long-term bank loans and grants to Medis El from
the Chief Scientist of the Ministry of Industry and Commerce of Israel with
respect to the CellScan, initial sales of our products and fees from the
granting of exclusive distribution rights.
In 1999, we issued an aggregate of 193,668 units at a purchase price of
$12.00 per unit, or an aggregate of $2,324,000. Each unit consisted of three
shares of our common stock and a warrant to purchase one share of our common
stock at an exercise price of $5.00. A total of 581,004 shares and 193,068
warrants were issued. The proceeds of such offerings were used for research and
development projects with respect to our technologies and for selling, general
and administrative expenses.
In 2000, we issued a total of 1,598,811 shares of our common stock and
warrants to purchase 680,361 shares of common stock for aggregate proceeds of
approximately $7,758,000. We used and intend to use the proceeds of such
offerings to fund the further research and development of our products and
technologies and for selling, general and administrative expenses. Additionally,
in the first quarter of 2000, prior to the Medis El exchange offer, employees,
including Medis El's executive vice president and vice president-finance, and a
director, exercised options to purchase an aggregate of 66,100 ordinary shares
of Medis El, for an aggregate exercise price of approximately $336,000. The
proceeds of such option exercises were similarly used for research and
development and selling, general and administrative expenses. We do not intend
to cause Medis El to issue any more of its shares to third parties, whether
through the exercise of stock options or otherwise, as we intend that all future
financings of Medis El will be effected through us.
For the year ended December 31, 2000, net cash used in operating activities
was $5,418,000, as compared to $3,362,000 for the year ended December 31, 1999.
The increase was primarily attributable to increases in research and development
and selling general and administrative expenses during the period, for the
reasons discussed above.
For the year ended December 31, 2000, net cash used in investing activities
was $1,141,000, compared to $72,000 during the year ended December 31, 1999.
During the year ended December 31, 2000, the cash used in investing activities
was due to purchases of shares of Medis El and More Energy not owned by us
aggregating $718,000 and purchases of property and equipment of $487,000, offset
by proceeds from disposals of fixed assets of $64,000. During the year ended
December 31, 1999, net cash used in investing activities was due to purchases of
shares of Medis El and More Energy not owned by us aggregating $253,000 and
purchases of property and equipment of $330,000, offset by the maturity of a
short-term investment of $500,000 and proceeds from disposals of fixed assets of
$11,000.
For the year ended December 31, 2000, net cash provided by financing
activities was $7,602,000 compared to $2,121,000 for the year ended December 31,
1999. The increase was primarily due to an increase in funds raised from private
placements of our securities and the exercise of our outstanding warrants and
options which aggregated $7,758,000 for the year ended December 31, 2000, as
compared to $2,324,000 for year ended December 31, 1999. The increase was
somewhat offset by direct costs of the Medis El exchange offer of $395,000. In
2000, cash provided from financing activities during year ended December 31,
2000 also included proceeds of $336,000 from the exercise of Medis El stock
options, of which there were none during the December 31, 1999.
On December 29, 2000, we entered into a loan agreement which provides for
borrowings of up to an aggregate of $5 million in the form of a revolving credit
facility that matures on December 29, 2002. We have not used any portion of the
facility at this time.
As of December 31, 2000, we had approximately $2,885,000 in cash and cash
equivalents. Our working capital and capital requirements at any given time
depend upon numerous factors, including, but not limited to:
o the progress of research and development programs;
o the status of our technologies; and
o the level of resources that we devote to the development of our
technologies, patents, marketing and sales capabilities.
Another contributing factor is the status of collaborative arrangements
with businesses and institutes for research and development.
We estimate that we will need approximately $10,000,000 to construct the
pilot plant for the development of our fuel cells, which funds we expect to
obtain from the proceeds of the sale of our securities.
Management expects that, as of December 31, 2000, our available funds,
including our $5,000,000 revolving credit line, are sufficient to support our
operating activities for at least 12 months. Beyond such time, we will require
capital infusions of cash to continue our operations, whether through debt
financing, issuance of shares or from companies or other organizations assisting
in the development of our technologies. To the extent we are unable to acquire
additional funds, we will curtail research and development of one or more
technologies until such time as we acquire additional funds.
TAX MATTERS
As of December 31, 2000, for U.S. federal income tax purposes, we have net
operating loss carry-forwards of approximately $5,299,000. For Israeli income
tax purposes, we have net operating loss carry-forwards of approximately
US$28,847,000. Since our inception, we have not had any taxable income. Also,
neither we nor Medis El have ever been audited by the United States or Israeli
tax authorities since incorporation. Pursuant to United States federal tax
regulations, our ability to utilize the United States net operating loss
carry-forwards may be limited due to changes in ownership, as defined in the
Internal Revenue Code.
GRANTS OBTAINED FROM THE STATE OF ISRAEL
Medis El received approximately $1,800,000 in research and development
grants from the Office of the Chief Scientist of the Ministry of Commerce and
Industry of the State of Israel from its inception to 1997. This is based upon a
policy of the government of Israel to provide grants of between 50% and 66% of
qualifying approved research and development expenditures to promote research
and development by Israeli companies. Medis El received 50% of qualifying
approved research and development expenditures, with $1,629,000 of such funds
being allotted for the CellScan and $167,000 allotted for the neuritor. Pursuant
to the grant arrangement, Medis El is required to pay 3% of its sales of
products developed with the grant funds until the grant amounts are paid in
full. There is no requirement to repay the grants if the products developed with
the grant funds are not sold. If Medis El sells the underlying technology prior
to repaying the grant funds, it must first seek permission from the Israeli
government for such sale. Prior to Medis El receiving grant funds in 1992, Medis
El assumed from Israel Aircraft its obligation relating to the repayment of
grants of approximately $805,000. As of the date of this prospectus, Medis El's
total contingent obligation for the repayment of grants, which includes the
$805,000, is $2,601,000. Medis El is not presently receiving any grants from the
State of Israel.
APPROVED ENTERPRISE
Under the Law for the Encouragement of Capital Investments, 1959, Medis El
was issued a certificate of approval as an "Approved Enterprise." Under the law,
Medis El elected the "combined path," pursuant to which Medis El had the right
to receive a government guaranteed bank loan of 66% of the amount of the
approved investment. In addition, Medis El had the right to receive a grant of
25% of the approved investment, in which case the loan would be reduced by the
amount of the grant. Medis El received investment grants of approximately
$97,000 and loans of approximately $893,000. The investment grants were used to
invest in equipment, furniture and fixtures and commercial vehicles. The loan
proceeds were used for the above as well as to acquire know-how, leasehold
improvements, marketing and working capital. The loans are bank loans from Bank
Leumi Le Israel and are guaranteed by the State of Israel and are secured by
substantially all of Medis El's assets. The loans were paid-off in full during
the year ended December 31, 2000. Additionally, the tax liability in respect of
Medis El's income deriving from its Approved Enterprise activities is calculated
at a rate of 20% of income for a ten-year period, with tax on dividends
distributed of 15%, instead of 25%. These tax benefits can be utilized at least
through 2006.
In July 2000, More Energy applied for Approved Enterprise status relating
to our planned manufacturing facility for our catalyst, electrolytes and the
individual fuel cells in Israel. If approved, More Energy will receive a
complete exemption from the payment of corporate taxes on undistributed income
for a period ranging from 6 to 10 years and other benefits.
RISK FACTORS
WE HAVE NOT BEEN PROFITABLE AND CANNOT PREDICT WHEN WE WILL ACHIEVE
PROFITABILITY
We have experienced net losses since our inception in April 1992 and on a
consolidated basis with Medis El since 1997. We cannot predict when we will
achieve profitability, if ever. Our inability to become profitable may force us
to curtail or temporarily discontinue our research and development programs and
our day-to-day operations. Furthermore, there can be no assurance that
profitability, if achieved, can be sustained on an ongoing basis. As of December
31, 2000, we had an accumulated deficit of approximately $49,078,000. We
anticipate incurring substantial future losses until such time as we
successfully develop our fuel cell technology or one or more of our other
technologies and commercialize, market and sell the developed products.
WE MAY NEVER COMPLETE THE DEVELOPMENT OF COMMERCIALLY VIABLE FUEL CELLS
We do not know when or whether we will successfully complete research and
development of commercially viable DLM fuel cells for any of our target and
prospective markets. We must still develop substantial technological advances to
our DLM fuel cell technology, particularly in the areas of energy density,
operating time and integrating each fuel cell into a seamless power source which
can power various portable electronic devices, before we are able to produce a
commercially viable product.
Developing a technology into a marketable product is a risky, time
consuming and expensive process. You may anticipate that in seeking to develop
our DLM fuel cells and any of our other technologies, we will encounter
setbacks, discrepancies requiring time consuming and costly redesigns and
changes and the possibility of outright failure.
PROBLEMS OR DELAYS IN OUR COLLABORATION EFFORTS COULD HURT OUR REPUTATION AND
THE REPUTATION OF OUR PRODUCTS
We have entered into two and intend to enter into additional agreements
with companies to assist us with developing or marketing our fuel cell
technologies. We also expect to enter into similar agreements with companies
interested in our other technologies. These collaboration agreements contemplate
such companies working with our scientists to test the feasibility of our DLM
fuel cells powering such companies' products. These tests may encounter problems
and delays for a number of reasons, including the failure of our technology, the
failure of the technology of others, the failure to combine these technologies
properly and the failure to maintain and service the test prototypes properly.
Many of these potential problems and delays are beyond our control. In addition,
these collaboration efforts, by their nature, will involve delays and
modifications. Any problem or perceived problem with these collaboration efforts
could hurt our reputation and the reputation of our products.
CUSTOMERS WILL BE UNLIKELY TO BUY OUR FUEL CELL PRODUCTS UNLESS WE CAN
DEMONSTRATE THAT THEY CAN BE PRODUCED AT AFFORDABLE PRICES, OF WHICH THERE CAN
BE NO ASSURANCE
To date, we have focused primarily on research and development and have no
experience manufacturing DLM fuel cells on a commercial basis. Although
ultimately we intend for third parties to manufacture and produce our fuel cell
products, we must first demonstrate that such products can be produced at
affordable prices. There can be no assurance that we will develop efficient,
automated, low-cost manufacturing capabilities and processes with our proposed
pilot manufacturing facility that will enable us to meet the quality, price,
engineering, design and production standards or production volumes required to
successfully mass market our DLM fuel cells. Even if we are successful in
developing manufacturing capability and processes, we do not know whether we
will do so in time to meet our product commercialization schedule or to satisfy
the requirements of potential customers. Our failure to develop such
manufacturing processes and capabilities could have a material adverse effect on
our business and financial results.
The price of DLM fuel cells is dependent largely on material and other
manufacturing costs. We cannot guarantee that we will be able to lower these
costs to the level where we will be able to produce a competitive product or
that any product produced using lower cost materials and manufacturing processes
will not suffer from a reduction in performance, reliability and longevity.
WE MAY NOT MEET OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION MILESTONES
We have established product development and commercialization milestones
that we use to assess our progress toward developing commercially viable DLM
fuel cells. These milestones relate to technology and design improvements as
well as to dates for achieving development goals. If our systems exhibit
technical defects or are unable to meet cost or performance goals, including
power output, useful life and reliability, our commercialization schedule could
be delayed and development partners of our technology and potential purchasers
of our initial commercial products may decline to purchase them or choose to
purchase alternative technologies.
We will be unable to market or sell our DLM fuel cell technology or any of
our other technologies if we are unsuccessful in entering into alliances, joint
ventures or licensing agreements with third parties
As we do not have nor do we intend to develop our own marketing or
widescale manufacturing infrastructure, our ability to market, manufacture and
sell our DLM fuel cell technologies or any of our other technologies will depend
entirely upon entering into alliances, joint ventures or licensing agreements
with third parties possessing such capabilities. There can be no assurance that
we will be successful in entering into such alliances, joint ventures or
agreements. Furthermore, we may enter into agreements the terms of which may not
be entirely beneficial to us. Failure to enter into arrangements or agreements
would prevent us from marketing and selling our technologies if and when ready
for commercial exploitation.
A MASS MARKET FOR OUR DLM FUEL CELLS MAY NEVER DEVELOP OR MAY TAKE LONGER TO
DEVELOP THAN WE ANTICIPATE
A mass market may never develop for our DLM fuel cells or any of our other
technologies, or may develop more slowly than we anticipate. DLM fuel cells
represent an emerging market, and we do not know whether end-users will want to
use them. The development of a mass market for our DLM fuel cell may be affected
by many factors, some of which are out of our control, including:
o the emergence of newer, more competitive technologies and products;
o the future cost of methanol, or any other hydrogen-based fuels
powering our fuel cells;
o regulatory requirements;
o consumer perceptions of the safety of our products; and
o consumer reluctance to try a new product.
If a mass market fails to develop or develops more slowly than we
anticipate, we may be unable to recover the losses we will have incurred in the
development of our products and may never achieve profitability.
OUR EFFORTS TO PROTECT OUR INTELLECTUAL PROPERTY MAY NOT OFFER SUFFICIENT
PROTECTION, WHICH COULD HINDER OUR GROWTH AND SUCCESS
We regard our patents, trade secrets, copyrights and similar intellectual
property rights as essential to our growth and success. We rely upon a
combination of patent, copyright and trademark laws, trade secret protection,
confidentiality and non-disclosure agreements and contractual provisions with
employees and with third parties to establish and protect our proprietary
rights. We own, directly or indirectly through subsidiaries or companies in
which we have an interest, patents for certain technologies and are currently
applying for additional patents. There can be no assurance that we will succeed
in receiving patent and other proprietary protection in all markets we enter,
or, if successful, that such protection will be sufficient. If we successfully
develop and market any or all of our technologies, we expect to face efforts by
larger companies and other organizations or authorities to undermine our patents
by challenging or copying our intellectual property. Moreover, intellectual
property rights are not protected in certain parts of the world. We intend to
vigorously defend our intellectual property against any challenges that may
arise. However, an infringement action by us may be very costly and require the
diversion of substantial funds from our operations and may require management to
expend efforts that might otherwise be devoted to our operations.
CLAIMS BY THIRD PARTIES THAT OUR TECHNOLOGY INFRINGES UPON THEIR PATENTS MAY, IF
SUCCESSFUL, PREVENT US FROM FURTHER DEVELOPING OR SELLING OUR TECHNOLOGIES
Although we do not believe our business activities infringe upon the rights
of others nor are we aware of any pending or contemplated actions to such
effect, we can give no assurance that our business activities will not infringe
upon the proprietary rights of others, or that other parties will not assert
infringement claims against us.
IF WE DO NOT OBTAIN ADDITIONAL FINANCING, WE WILL BE FORCED TO CURTAIL OUR
RESEARCH AND DEVELOPMENT EFFORTS AND OUR OPERATIONS
Our ability to sustain our research and development program and our ongoing
survival will for the immediate future and possibly longer, depend upon our
ability to secure additional funding. As of December 31, 2000, our available
funds, including our $5,000,000 revolving credit line, is sufficient to support
our activities for at least 12 months from such date. After that date, we can
give no assurance that we will be able to secure additional funding, or funding
on terms acceptable to us, to meet our financial obligations, if necessary, or
that a third party will be willing to make such funds available. Our failure to
raise additional funds could require us to delay our research and product
development activities or the development of our pilot manufacturing programs,
including construction of our planned fuel cell manufacturing plant, as well as
default under the repayment terms of our revolving credit facility, if we are
unable to pay back any borrowings under such facility. Furthermore, our failure
to successfully develop or market our DLM fuel cell technologies may materially
adversely affect our ability to raise additional funds. In any event, it is not
possible to make any reliable estimate of the funds required to complete the
development of our DLM fuel cell technology or any of our other technologies.
IF WE WERE TO LOSE MEMBERS OF OUR SENIOR MANAGEMENT AND COULD NOT FIND
APPROPRIATE REPLACEMENTS IN A TIMELY MANNER, OUR BUSINESS COULD BE ADVERSELY
AFFECTED
Our success depends to a significant extent upon Zvi Rehavi, Gennadi
Finkelstain and the scientists, engineers and technicians that seek out,
recognize and develop our technologies, as well as our highly skilled and
experienced management. The loss of the services of Messrs. Rehavi and
Finkelstain, or any of our other technical talent could have a material adverse
effect on our ability to develop our DLM fuel cells into commercial products or
any of our other technologies into commercial products. We possess key-person
life insurance of $245,000 on Mr. Rehavi. Although to date we have been
successful in recruiting and retaining executive, managerial and technical
personnel, there can be no assurance that we will continue to attract and retain
the qualified personnel needed for our business. The failure to attract or
retain qualified personnel could have a material adverse effect on our business.
OUR RIGHT TO ISSUE PREFERRED STOCK MAY FACILITATE MANAGEMENT ENTRENCHMENT WHICH
MAY DELAY, DEFER OR PREVENT A CHANGE IN OUR CONTROL, WHICH MAY NOT BE IN THE
BEST INTERESTS OF OUR STOCKHOLDERS
Our board of directors has the authority to issue up to 10,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of these shares without approval of our
stockholders. Any future issuance of shares of preferred stock could be employed
by our present management to delay, defer or prevent a change in our control or
to discourage bids for our common stock at a premium above its market price
solely to retain their respective management positions, which may not be in the
best interests of our stockholders, generally. We have no present plans to issue
any shares of preferred stock.
OUR CURRENT STOCKHOLDERS WILL CONTINUE TO CONTROL OUR AFFAIRS, WHICH MAY
PRECLUDE OTHER STOCKHOLDERS FROM INFLUENCING OUR CORPORATE DECISIONS
Our five largest stockholders, which includes some of our officers and
directors and a corporation controlled by such officers and directors,
collectively, beneficially own approximately 55% of our outstanding shares of
common stock. These stockholders may be able to effectively exercise control
over all matters requiring approval by our stockholders, including the election
of directors and approval of significant corporate transactions.
THERE MAY BE ADVERSE EFFECTS ON OUR EARNINGS AND OUR STOCK PRICE DUE TO THE
LARGE AMOUNT OF ACQUIRED INTANGIBLE TECHNOLOGY ASSETS AND GOODWILL ON OUR
BALANCE SHEET
At December 31, 2000, our balance sheet showed approximately $83 million of
acquired intangible technology assets and goodwill, which will be charged to
expense over the remaining useful lives of such assets of up to five years. Such
expense and the consequent adverse effect on our earnings may have a material
adverse affect on our stock price.
RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN ISRAEL COULD MATERIALLY ADVERSELY
AFFECT OUR ABILITY TO COMPLETE THE DEVELOPMENT OF OUR DLM FUEL CELL TECHNOLOGY
OR ANY OF OUR OTHER TECHNOLOGIES
Our research and development facilities, planned manufacturing facilities
as well as some of our executive offices and back-office functions, are located
in the State of Israel. We are, therefore, directly affected by the political,
economic and military conditions in Israel. Any major hostilities involving
Israel or the interruption or curtailment of trade between Israel and the United
States or Israel and Europe could have a material adverse effect on our ability
to complete the development of any of our technologies or our ability to supply
our technology to development partners or vendors. Furthermore, any interruption
or curtailment of trade between Israel and any other country in which we have
strategic relationships could similarly adversely affect such relationships. We
are unable to assess what impact, if any, these factors may have upon our future
operations.
In addition, historically, Israel has suffered from high inflation and the
devaluation of its currency, the New Israeli Shekel, or NIS, compared to the
U.S. dollar. Future inflation or further devaluations of the NIS may have a
negative impact on our NIS-based obligations over time upon substantial price
increases caused by inflation.
IT MAY BE DIFFICULT TO SERVE PROCESS ON OR ENFORCE A JUDGMENT AGAINST OUR
ISRAELI OFFICERS AND DIRECTORS, MAKING IT DIFFICULT TO BRING A SUCCESSFUL
LAWSUIT AGAINST US, OR OUR OFFICERS AND DIRECTORS, INDIVIDUALLY OR IN THE
AGGREGATE
Service of process upon our directors and officers, many of whom reside
outside the United States, may be difficult to obtain within the United States.
Furthermore, any judgment obtained in the United States against us may not be
collectible within the United States to the extent our assets are located
outside the United States. This could limit the ability of our stockholders to
sue us based upon an alleged breach of duty or other cause of action. We have
been informed by our Israeli legal counsel that there is doubt as to the
enforceability of civil liabilities under the Securities Act and the Securities
Exchange Act of 1934, as amended, in original actions instituted in Israel.
However, subject to limitation, Israeli courts may enforce United States final
executory judgments for liquidated amounts in civil matters, obtained after a
trial before a court of competent jurisdiction, according to the rules of
private international law currently prevailing in Israel, which enforce similar
Israeli judgments, provided that:
o due service of process has been effected and the defendant was given a
reasonable opportunity to defend;
o the obligation imposed by the judgment is executionable according to
the laws relating to the enforceability of judgments in Israel and
such judgment is not contrary to public policy, security or
sovereignty of the State of Israel;
o such judgments were not obtained by fraud and do not conflict with any
other valid judgments in the same manner between the same parties; and
o an action between the same parties in the same matter is not pending
in any Israeli court at the time the lawsuit is instituted in the
foreign court.
Foreign judgments enforced by Israeli courts generally will be payable in
Israeli currency, which can then be converted into United States dollars and
transferred out of Israel. The judgment debtor may also pay in dollars. Judgment
creditors must bear the risk of unfavorable exchange rates.
WE INTEND TO RETAIN ALL OF OUR FUTURE EARNINGS, IF ANY, FOR USE IN OUR BUSINESS
OPERATIONS AND DO NOT EXPECT TO PAY DIVIDENDS TO OUR SHAREHOLDERS
We have not paid any dividends on our common stock to date and do not
anticipate declaring any dividends until such time as we are profitable. Our
board presently intends to retain all earnings, if any, for use in our business
operations.
THE LARGE NUMBER OF SHARES AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT THE
PRICE OF OUR COMMON STOCK
As of December 31, 2000, options to purchase approximately 1,395,500 shares
of our common stock were outstanding. The weighted average exercise price of
such options was $9.25 per share. Warrants to purchase approximately 1,231,030
shares of common stock were outstanding as of June 30, 2000. The weighted
average exercise price of such warrants was $11.65 per share.
Future sales of any shares represented by outstanding options and warrants,
or the anticipation of such sales, could adversely affect the market price of
our common stock and could materially impair our future ability to raise capital
through an offering of equity securities. Further, any issuance of a substantial
number of these shares could result in increased volatility in the price of our
common stock.
WE CURRENTLY FACE AND WILL CONTINUE TO FACE SIGNIFICANT COMPETITION
Our DLM fuel cells face and will continue to face significant competition.
A large number of corporations, national laboratories and universities in the
United States, Canada, Europe and Japan are actively engaged in the development
and manufacture of fuel cells, both DLM and other types. Each of these
competitors has the potential to capture market share in various markets, which
would have a material adverse effect on our position in the industry and our
financial results.
We expect competition to intensify greatly as the need for new energy
alternatives becomes more apparent and continues to increase. Some of our
competitors are well established and have substantially greater managerial,
technical, financial, marketing and product development resources. Additionally,
companies, both large and small, are entering the markets in which we compete.
There can also be no assurance that current and future competitors will not be
more successful in the markets in which we compete than we have been, or will be
in the future. There can be no assurance that we will be successful in such a
competitive environment.
WE EXPECT TO BE DEPENDENT ON THIRD PARTY SUPPLIERS FOR THE SUPPLY OF KEY
MATERIALS AND COMPONENTS FOR OUR PRODUCTS
When we commence production of our fuel cells, of which there can be no
assurance, we expect to rely upon third party suppliers to provide materials and
components for our DLM fuel cells. A supplier's failure to supply materials or
components in a timely manner, or to supply materials and components that meet
our quality, quantity or cost requirements, or our inability to obtain
substitute sources for these materials and components in a timely manner or on
terms acceptable to us, could harm our ability to manufacture our DLM fuel
cells. We may be unable to obtain comparable materials or components from
alternative suppliers, and that could adversely affect our ability to produce
viable DLM fuel cells or significantly raise our cost of producing DLM fuel
cells.
In addition, platinum is a key component of our DLM fuel cells. Platinum is
a scarce natural resource and we are dependent upon a sufficient supply of this
commodity. While we do not anticipate significant near or long term shortages in
the supply of platinum, such shortages could adversely affect our ability to
produce commercially viable DLM fuel cells or significantly raise our cost of
producing DLM fuel cells.
FORWARD-LOOKING STATEMENTS
You should carefully review the information contained in this Annual
Report, but should particularly consider any risk factors that we set forth in
this Annual Report and in other reports or documents that we file from time to
time with the Securities and Exchange Commission. In this Annual Report, we
state our beliefs of future events and of our future financial performance. In
some cases, you can identify those so-called "forward-looking statements" by
words such as "may," "will," "should," "expects," "plans," anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of those words and other comparable words. You should be aware that those
statements are only our predictions. Actual events or results may differ
materially. In evaluating those statements, you should specifically consider
various factors, including the risks outlined in this Annual Report. Those
factors may cause our actual results to differ materially from any of our
forward-looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
IMPACT OF INFLATION AND DEVALUATION ON RESULTS OF OPERATIONS, LIABILITIES AND
ASSETS
In connection with our currency use, we operate in a mixed environment.
Payroll is paid in our local currency and the local currency of each of our
subsidiaries. Consideration for virtually all sales and Medis El's bank loans,
which have been repaid in full as of December 31, 2000, are either in dollars or
dollar-linked currency. As a result, not all monetary assets and all monetary
liabilities are linked to the same base in the same amount at all points in
time, which may cause currency fluctuation related losses. In order to help
minimize such losses, Medis El currently invests its liquid funds in both
dollar-linked and NIS-based assets.
For many years prior to 1986, the Israeli economy was characterized by high
rates of inflation and devaluation of the Israeli currency against the United
States dollar and other currencies. However, since the institution of the
Israeli Economic Program in 1985, inflation, while continuing, has been
significantly reduced and the rate of devaluation has been substantially
diminished. During 1989 and 1990, the dollar declined in value relative to major
world currencies. Because governmental policies in Israel linked exchange rates
to a weighted basket of foreign currencies of Israel's major trading partners,
the exchange rate between the NIS and the dollar remained relatively stable
during this period. However, Israel effected devaluations of the NIS against the
dollar as follows:
1991 11.5%
1992 21.1
1993 8.0
1994 1.1
1995 3.9
1996 3.7
1997 8.8
1998 17.6
1999 (0.17)
2000 (2.7)
During the three years ended December 31, 1991, the four years ended
December 31, 1996, and in 1999 and 2000, the rate of inflation in Israel
exceeded the rate of devaluation of the NIS against the dollar, but in 1998,
1997 and 1992, the rate of devaluation of the NIS against the dollar exceeded
the rate of inflation in Israel. In 2000, there was no inflation in Israel and
the NIS appreciated by 2.7% against the dollar.
IMPACT OF POLITICAL AND ECONOMIC CONDITIONS
The state of hostility which has existed in varying degrees in Israel since
1948, its unfavorable balance of payments and its history of inflation and
currency devaluation, all represent uncertainties which may adversely affect our
business.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements and corresponding notes thereto
called for by this item appear at the end of this document commencing on page
F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On October 4, 2000, we dismissed Grant Thornton LLP (the "Former Auditor")
as our independent auditor.
The Former Auditor's report on our financial statements for the two years
ended December 31, 1999 (the "Prior Fiscal Period") contained no adverse opinion
and no disclaimer of opinion, nor was such report qualified or modified as to
uncertainty, audit scope, or accounting principles.
Our dismissal of the Former Auditor was approved by our board of directors.
There were no disagreements between us and the Former Auditor on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure ("Disagreements") during either (i) the Prior Fiscal
Period or (ii) the period January 1, 2000 through October 4, 2000 (the "Interim
Period"), which Disagreements, if not resolved to the satisfaction of the Former
Auditor, would have caused the Former Auditor to make reference to the subject
matter of the Disagreement in connection with its report for the Prior Fiscal
Period.
The Former Auditor has expressed no Disagreement or difference of opinion
regarding any of the kinds of events defined as "reportable events" in Item
304(a)(1)(v) of Regulation S-K ("Reportable Events").
We have engaged the firm of Arthur Andersen LLP, Independent Public
Accountants (the "New Auditor"), as our independent auditor for our fiscal year
ending December 31, 2000. We did not consult the New Auditor with respect to
either the Prior Fiscal Period or the Interim Period as regards (i) either the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
our financial statements or (ii) any matter that was either the subject of a
Disagreement or a Reportable Event.
We have authorized and requested the Former Auditor to respond fully to the
inquiries of the New Auditor.
PART 3
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Our executive officers and directors are as follows:
Name Age Position
- ------------------------------ ---- ---------------------------------------
Robert K. Lifton.............. 73 Chairman of the Board, Chief Executive
Officer and Secretary
Howard Weingrow............... 78 President, Treasurer and Director
Zvi Rehavi.................... 66 Executive Vice President
Jacob S. Weiss................ 48 Senior Vice President-Business
Development and Director
Israel Fisher................. 53 Vice President-Finance
Amos Eiran.................... 64 Director
Zeev Nahmoni.................. 60 Director
Jacob E. Goldman.............. 82 Director
Seymour Heinberg.............. 80 Director
Shmuel Peretz................. 61 Director
ROBERT K. LIFTON has been our chairman of the board, chief executive
officer and secretary since our inception. Prior to that, Mr. Lifton was a
director of Medis El since its inception in July 1992. He is principally engaged
in managing his own investments through the Stanoff Corporation, of which he is
a major shareholder and a principal, and other investment vehicles. Mr. Lifton
is a director of Bank Leumi USA, the co-chairman of the U.S.-Middle East Project
of the Council on Foreign Relations, chair of the Public Health Research
Institute and serves on the boards of numerous philanthropic organizations. He
also is an officer and director of a number of privately held companies. From
1988 to 1994, he was president of the American Jewish Congress and is the
founding chairman and chairman emeritus of the Israel Policy Forum. In 1983, he
was a founder of Preferred Health Care Ltd. and served as its president. In
1961, he co-founded with Mr. Weingrow the Transcontinental Investing
Corporation, serving as its president until 1968, when it was listed on the New
York Stock Exchange, and then chairman of the board until its merger in 1972.
Mr. Lifton was an associate attorney with the law firm of Kaye, Scholer,
Fierman, Hays and Handler in 1955 and 1956, after receiving a law degree from
Yale Law School and being admitted to the New York Bar, and has taught at Yale
and Columbia law schools. Mr. Lifton has written extensively on business and
political matters.
HOWARD WEINGROW has been our president, treasurer and one of our directors
since our inception and a director of Medis El since its inception. Mr. Weingrow
is principally engaged in managing his own investments through the Stanoff
Corporation, of which he is a major shareholder and a principal, and other
investment vehicle. Mr. Weingrow is a trustee of the Children's Medical Fund and
the North Shore-Long Island Jewish Health System. He is also a trustee of the
James S. Brady Presidential Foundation and the Nassau County Museum of Art. Mr.
Weingrow is the founder of the Weingrow Family Children's Research Laboratory of
Long Island Jewish Hospital and the Weingrow Collection of Avant Garde Art and
Literature at Hofstra University He was chairman and a director of Mercury
Paging & Communications, Inc. from 1995 until its sale in 1997. In 1961, he
co-founded with Mr. Lifton the Transcontinental Investing Corporation, serving
as its executive vice president until 1968 and then president until its merger
in 1972. Mr. Weingrow served as treasurer of the Democratic National Committee
in 1971 and 1972.
ZVI REHAVI has been our executive vice president since June 2000 and the
executive vice president and General Manager of Medis El since its inception.
Mr. Rehavi is also general manager of More Energy. From 1989 to 1991, he was
manager of development and production of Patriot Missile Sensors, a joint
venture of Israel Aircraft and Martin Marietta. From 1984 to 1989, he was Israel
Aircraft's director of sensors and electro mechanical components. From 1966 to
1974, he was manager, inertial components laboratory at Israel Aircraft. From
1958 to 1966, he served with the Technical Office of the Ministry of Defense of
Israel. He has a Master of Engineering Science from the University of
Pennsylvania. He was a Ph.D. candidate in Applied Physics at Hebrew University,
Jerusalem, and an MBA candidate at the Wharton School.
JACOB S. WEISS has been our senior vice president-business development
since August 2000, one of our directors since December 1997 and one of Medis
El's directors since October 1993. He was also engaged by us in a consulting
capacity from November 1999 through August 2000. Mr. Weiss served as the
corporate vice president and general counsel to Israel Aircraft, from 1996 to
2000. Prior to that, he was deputy general counsel-international division of
Israel Aircraft. Mr. Weiss is also the chief executive officer of ImageSat
International, a company established by Israel Aircraft to commercialize its
remote sensing satellite technology.
ISRAEL FISHER has been our vice president-finance since June 2000 and the
vice president-finance and secretary of Medis El since its inception. Mr. Fisher
is also vice president-finance of More Energy. From 1990 to 1992, he served as
the deputy manager of Israel Aircraft for financial planning and credit
management. From 1987 to 1990, he served as the deputy finance manager of the
Tamam Plant of the Electronics Division of Israel Aircraft. He has a MBA from
the University of Tel Aviv and two BA degrees from Bar-Ilan University: one in
accounting and the other in Economics and Business Administration.
AMOS EIRAN has been one of our directors since December 1997 and one of
Medis El's directors since its inception. Mr. Eiran serves as chairman of the
Industrial Cooperation Authority, the agency in charge of the buy back and
offset program of the State of Israel, for at least the past 5 years. Mr. Eiran
also serves as director for Clal Insurance Group, an Israeli insurance company,
Clal Electronics Pension Fund and serves as chairman of ATUDOT, an Israeli
insurance company. Previously, Mr. Eiran was director general of the Prime
Minister's office during Yitzhak Rabin's first term as Prime Minister and
director general and chairman of Mivtahim, the largest pension fund in Israel.
ZEEV NAHMONI has been one of our directors since December 1997 and one of
Medis El's directors from August 1994 to March 1996 and from October 1996 to
present. Mr. Nahmoni is the vice president and general manager of the
Electronics Group of Israel Aircraft since 1997 and the Deputy General Manager
of the Electronics Group of Israel Aircraft from 1995 to 1997. Prior to that, he
was the general manager of the Tamam Division of the Electronics Group of Israel
Aircraft from 1992 to 1995. Mr. Nahmoni is also a director of ImageSat
International.
JACOB E. GOLDMAN has been one of our directors since September 2000. Dr.
Goldman is chairman of the board and a consultant to Umbanet, Inc., a company
developing software for securing e-mail messages, since April 2000. From 1996 to
1999, he was a consultant to Oxbridge Inc., an investment banking firm. From
1977 to the present, Dr. Goldman has served on the board of directors and as a
member of the executive committee of Bank Leumi USA. From 1983 to 1994, he
founded and served as chairman and chief executive officer of Softstrip, Inc.
From 1968 to 1983 he served as senior vice president and chief technical officer
of Xerox Corporation where he founded and presided over its Palo Alto Research
Center (PARC). Between 1955 and 1968 he served as Director of Ford Motor
Company's scientific research laboratory. Dr. Goldman has served on Boards of
various corporations and institutions including Xerox, GAF, Inc., General
Instrument Corporation, Lex Services PLC, Peerlogic Inc. and United Brands and
was president of the American Technion Society. He received his Ph.D. in physics
from the University of Pennsylvania.
SEYMOUR HEINBERG has been one of our directors since September 2000. Mr.
Heinberg was the founder in 1973 and principal of the accounting firm of Seymour
Heinberg, CPA, P.C. until 1992, when that firm merged with Edward I. Isaacs &
Co. LLP, where he was a retired partner until October 2000 when it merged with
RSM McLadrey, Inc. Mr. Heinberg started his career at the public accounting firm
Escoe and Heinberg, where he served as a general partner form 1951 to 1973. In
1998 he received the first Special Recognition Award from the Foundation for
Accounting Education of the New York State Society of CPAs for his 50 years of
outstanding committee service and tax lectures.
SHMUEL PERETZ has been one of our directors since December 1997 and one of
Medis El's directors since its inception. Mr. Peretz is currently the president
of Israel Aircraft Europe and has served in such capacity since 1997. From 1988
to 1996, he was the corporate vice president-finance of Israel Aircraft. Mr.
Peretz serves as a director of the Israeli corporations Elta Ltd. and Magel,
Ltd.
Messrs. Lifton, Weingrow, Eiran, Weiss and Nahmoni are directors of Medis
Inc. and, with Mr. Peretz, directors of CDS Distributor, Inc., our wholly owned
subsidiaries. Messrs. Lifton, Weingrow and Weiss are also directors of More
Energy, with Messrs. Lifton and Weingrow each entitled to two votes for all
matters coming before the board of directors.
Each director is elected for a one year term at our annual meeting of
shareholders.
AUDIT COMMITTEE
We have appointed an audit committee, which currently consists of Messrs.
Goldman, Eiran and Heinberg (chairman). The responsibilities of the audit
committee include:
o reviewing and recommending to our board the appointment of independent
accountants;
o reviewing the scope of our internal and external audits;
o ensuring the independence of our independent accountants;
o reviewing the adequacy of our internal accounting controls; and
o discussing with management and our independent accountants our draft
annual and quarterly financial statements and key accounting and
reporting matters.
ADVISORY BOARD
We recently appointed a corporate advisory board to assist us with our
business strategy and to build relationships with third parties to assist in the
development of our technologies. The advisory board consists of:
o Lester Crown, the current chairman of the executive and nominating
committees of General Dynamics Corporation, chairman of Material
Service Corporation and president of Henry Crown and Company. Mr.
Crown is also a principal of CVF, LLC, a major stockholder.
o Louis Perlmutter, a retired senior partner and executive managing
director of Lazard Freres & Co., LLC, currently serves as chairman of
the science and technology committee of the Board of Fellows of
Harvard Medical School.
o Fouad M.T. Alghanim, the chairman of Fouad Alghanim & Sons Group of
Companies, consultants to multinational commercial contractors,
chairman of Advanced Technology Company, health-care equipment
suppliers and service providers in Kuwait and chairman of Energy
International Petroleum Projects Company, specialists in the field of
oil exploration and production.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires our directors and executive
officers and persons who own beneficially more than 10% of our common stock to
file reports of ownership and changes in ownership of such common stock with the
Securities and Exchange Commission, and to file copies of such reports with us.
Based solely upon a review of the copies of such reports filed with the Company,
the Company believes that during 2000 such reporting persons complied with the
filing requirements of said Section 16(a) except that Messrs. Zvi Rehavi, Israel
Fisher, Jacob E. Goldman and Seymour Heinberg were not timely in the filing of
their respective Initial Statements of Beneficial Ownership of Securities and
the following were not timely in the filing of monthly reports:
NAME NUMBER OF REPORTS NUMBER OF TRANSACTIONS
---- ----------------- ----------------------
Robert K. Lifton 3 10
Howard Weingrow 3 9
Zvi Rehavi 1 1
Jacob Weiss 1 1
Zeev Nahmoni 1 1
Israel Aircraft Industries Ltd. 1 6
CVF, LLC 1 5
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information with respect to compensation
earned by Robert K. Lifton, our chief executive officer, and Zvi Rehavi and
Israel Fisher, our only other executive officers who earned in excess of
$100,000, for the year ended December 31, 2000.
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
------------------------------------------------ -------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARD(S) OPTIONS
- --------------------------- ---- ------ ----- ------------- -------- -------
Robert K. Lifton
Chief Executive Officer..... 2000 -- -- $183,000(1) -- 300,000
Zvi Rehavi
Executive Vice President.... 2000 $198,000 $87,000 $113,000(2) -- 100,000
Israel Fisher
Vice President-Finance...... 2000 $134,000 $12,000 $32,000(3) -- 15,000
- ---------------
(1) Mr. Lifton is paid as an independent consultant for his services.
(2) Includes a monthly apartment allowance aggregating $44,000, a $30,000
payment for an educational fund and a contribution of $19,700 to a key
person life insurance policy whereby upon termination of employment, Mr.
Rehavi shall receive a lump sum distribution based upon the number of years
of premium payout. Medis El is the death beneficiary of such policy.
(3) Includes a contribution of $23,000 by Medis El to an insurance pension
fund.
We have employment agreements with Zvi Rehavi and Israel Fisher. Mr.
Rehavi's agreement is for a two year term expiring on September 30, 2002 and Mr.
Fisher's agreement is for a one year term expiring on March 23, 2002 with
automatic one year renewal terms commencing on the expiration of such term. Each
of the agreements, in addition to salary, stock options and fringe benefits,
provides for 6 months salary upon notification of resignation or dismissal and
upon a change of ownership of Medis El with subsequent dismissal by the new
owners.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options grants
issued by us in the fiscal year ended December 31, 2000.
PERCENT OF TOTAL
NUMBER OF SECURITIES OPTION GRANTED TO
UNDERLYING OPTION EMPLOYEES IN EXERCISE PRICE PER
Name GRANTED (1) FISCAL YEAR SHARE EXPIRATION DATE
- ---------------------- -------------------- ----------------- ------------------ ---------------
Robert K. Lifton 100,000 10.1 $16.42 June 15, 2002
200,000 20.1 $13.50 December 22, 2004
Zvi Rehavi 100,000 10.1 $13.50 December 22, 2004
Israel Fisher 15,000 1.5 $5.00 February 21, 2004
- -----------
(1) Options to purchase ordinary shares of Medis El held by the named executive
officers were exchanged or we expect to exchange shortly for options to
purchase shares of our commons stock in the following aggregate amounts:
Robert K. Lifton - 89,100; Zvi Rehavi - 109,600; and Israel Fisher -
13,700. The exercise prices of these options were adjusted for the terms of
the Medis El exchange offer. The expiration date and other terms did not
change.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 2000 and the fiscal year
end value of unexercised options.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT FISCAL
SHARES AT FISCAL YEAR-END YEAR-END
ACQUIRED ON VALUE ------------------------------ ------------------------------
Name EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- -------- ----------- ------------- ----------- -------------
Robert K. Lifton 20,550 $353,756 68,550 400,000 753,675 1,882,000
Zvi Rehavi(1) -- -- 0 300,000 0 2,939,000
Israel Fisher(2) -- -- 0 15,000 0 168,750
- -------------------
(1) Mr. Rehavi exercised options to purchase an aggregate of 45,000 ordinary
shares of Medis El in January and February 2000. The value realized was
approximately $763,450. Does not include options to purchase an aggregate
of 80,000 ordinary shares of Medis El granted to Mr. Rehavi prior to the
Medis El exchange offer that will be exchanged for options to purchase
109,600 shares of our common stock upon receipt of certain tax treatment
from the Israeli tax authorities. The value of such options cannot be
ascertained.
(2) Mr. Fisher exercised options to purchase an aggregate of 9,500 ordinary
shares of Medis El in January 2000. The value realized was approximately
$41,750. Does not include options to purchase an aggregate of 10,000
ordinary shares of Medis El granted to Mr. Fisher prior to the Medis El
exchange offer that will be exchanged for options to purchase 13,700
shares of our common stock issued upon receipt of certain tax treatment
from the Israeli tax authorities. The value of such options cannot be
ascertained.
COMPENSATION OF DIRECTORS
Directors receive reimbursement for out-of-pocket expenses or a flat per
diem for each board or committee meeting attended, whether in the United States
or Israel. Directors also receive stock options as fixed by the board of
directors upon becoming a director and each year thereafter, at the discretion
of the board.
We paid Amos Eiran a non-employee director, an aggregate of approximately
$15,000 for consulting services he provided to us during 2000. Additionally, we
paid Jacob Weiss, a director and our senior vice president-business development,
an aggregate of approximately $28,000 for consulting services he provided to us
during 2000 prior to becoming an officer in August 2000.
1999 STOCK OPTION PLAN
We adopted our 1999 stock option plan on July 13, 1999. We have reserved
2,000,000 shares of common stock with respect to which options and stock
appreciation rights may be granted under the plan, subject to stockholder
approval of 1,000,000 of such shares which we will seek at our annual meeting of
stockholders planned for June 2001. The purpose of the plan is to promote our
interests and the interests of our stockholders by strengthening our ability to
attract and retain competent employees, to make service on our board more
attractive to present and prospective non-employee directors and to provide a
means to encourage stock ownership and proprietary interest in Medis
Technologies by officers, non-employee directors and valued employees and other
individuals upon whose judgment, initiative and efforts our financial growth
largely depends.
The plan may be administered by either the entire board or a committee
consisting of two or more members of our board, each of whom is a non-employee
director. The plan is currently administered by our board.
Incentive stock options may be granted only to our and our
subsidiaries' officers and key employees. Nonqualified stock options and stock
appreciation rights may be granted to our officers, employees, directors, agents
and consultants. In determining the eligibility of an individual for grants
under the plan, as well as in determining the number of shares to be optioned to
any individual, the stock option committee takes into account the position and
responsibilities of the individual being considered, the nature and value to us
of his or her service or accomplishments, his or her present or potential
contribution to our success or the success of our subsidiaries, the number and
terms of options and stock appreciation rights already held by an individual and
such other factors as the stock option committee may deem relevant.
The plan provides for the granting of incentive stock options to purchase
our common stock at not less than the fair market value on the date of the
option grant and the granting of nonqualified options and stock appreciation
rights with any exercise price. Stock appreciation rights granted in tandem with
an option have the same exercise price as the related option. The plan contains
certain limitations applicable only to ISOs granted there under. To the extent
that the aggregate fair market value, as of the date of grant, of the shares to
which incentive stock options become exercisable for the first time by an
optionee during the calendar year exceeds $100,000, the option will be treated
as a nonqualified option. In addition, if an optionee owns more than 10% of the
total voting power of all of our capital stock at the time the individual is
granted an incentive stock options the option price per share cannot be less
than 110% of the fair market value per share and the term of the incentive stock
options cannot exceed five years. No option or stock appreciation rights may be
granted under the plan after June 30, 2009, and no option or stock appreciation
rights may be outstanding for more than ten years after its grant.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash, check or, under certain
circumstances, in shares of our common stock, or any combination thereof. Stock
appreciation rights, which give the holder the privilege of surrendering such
rights for the appreciation in the common stock between the time of the grant
and the surrender, may be settled, in the discretion of our board or committee,
as the case may be, in cash, common stock, or in any combination thereof. The
exercise of an stock appreciation rights granted in tandem with an option
cancels the option to which it relates with respect to the same number of shares
as to which the stock appreciation rights was exercised. The exercise of an
option cancels any related stock appreciation rights with respect to the same
number of shares as to which the option was exercised. Generally, options and
stock appreciation rights may be exercised while the recipient is performing
services for us and within three months after termination of such services.
The plan may be terminated at any time by our board, which may also amend
the plan, except that without stockholder approval, it may not increase the
number of shares subject to the plan or change the class of persons eligible to
receive options under the plan.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership of
our common stock as of December 31, 2000 by:
o each beneficial owner of five percent or more of our common stock;
o each of our directors and named executive officers; and
o all of our directors and executive officers as a group.
Unless otherwise indicated, we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially owned by them. A person is deemed to be the beneficial owner of
securities which may be acquired by such person within 60 days from the date on
which beneficial ownership is to be determined, upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage ownership
is determined by assuming that options, warrants and convertible securities that
are held by such person, but not those held by any other person, and which are
exercisable within such 60 day period, have been exercised. Unless otherwise
noted, the address of each holder of five percent or more of our common stock is
our corporate address.
NUMBER OF SHARES
OF COMMON STOCK OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED PERCENTAGE
- -------------------------------------------- ------------------ ----------
Israel Aircraft Industries Ltd. (1)......... 5,528,957 32.9
Robert K. Lifton (2)........................ 1,897,495 11.0
Howard Weingrow (3)......................... 1,713,027 10.0
CVF, LLC (4)................................ 1,346,252 8.0
Zvi Rehavi (5).............................. ___ ___
Israel Fisher (6)........................... ___ ___
All directors and executive officers as a
group (10 persons) (5)(6)(7)............. 3,045,481 17.6%
- -----------
* Less than 1%
(1) Includes 25,000 shares of our common stock underlying warrants held by
Israel Aircraft. Voting control of Israel Aircraft is held by the State of
Israel. Israel Aircraft's address is Ben Gurion International Airport, Tel
Aviv 70100, Israel.
(2) Includes 152,865 shares of our common stock underlying warrants held by Mr.
Lifton and an aggregate of 569,836 shares of our common stock and common
stock underlying warrants held by the Stanoff Corporation, which is
beneficially owned by Messrs. Lifton and Weingrow. Also includes options to
acquire 68,550 shares of our common stock which are currently exercisable.
Does not include an aggregate of 338,000 shares of our common stock held in
trust for relatives of Mr. Weingrow of which Mr. Lifton is a trustee.
(3) Includes 123,698 shares of our common stock underlying warrants held by Mr.
Weingrow and an aggregate of 569,836 shares of our common stock and common
stock underlying warrants held by the Stanoff Corporation, which is
beneficially owned by Messrs. Lifton and Weingrow.
(4) Includes 152,084 shares of our common stock underlying warrants held by
CVF, LLC. CVF is controlled by Lester Crown, a member of our advisory
board, and Charles Goodman, as well as other members of the Crown family
who have interests in, or individually are officers or directors of,
numerous publicly and privately held companies, including energy concerns.
CVF's address is 222 North LaSalle Street, Chicago, IL 60601.
(5) Does not include the expected exchange of options to purchase 109,600
shares of our common stock for options to purchase 80,000 ordinary shares
of Medis El granted to Mr. Rehavi prior to the Medis El exchange offer.
Counting such shares underlying Medis Technologies options, Mr. Rehavi
would own less than 1% of our common stock.
(6) Does not include the expected exchange of options to purchase 13,700 shares
of our common stock for options to purchase 10,000 ordinary shares of Medis
El granted to Mr. Fisher prior to the Medis El exchange offer. Counting
such shares underlying Medis Technologies options, Mr. Fisher would own
less than 1% of our common stock.
(7) Includes our directors and executive officers and a corporation
beneficially owned by some of our officers and directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 2000, we sold in a private placement units, each consisting of
66,000 shares of our common stock and a warrant to purchase 25,000 shares of our
common stock, at a purchase price of $300,000 per unit. The following affiliates
purchased units in this offering:
o Israel Aircraft Industries Ltd. purchased one unit.
o Robert K. Lifton purchased one-quarter of one unit.
o Howard Weingrow purchased one-quarter of one unit.
o CVF, LLC purchased two and one-half units.
o Stanoff Corporation, which is beneficially owned by Messrs. Lifton and
Weingrow, purchased one and one half units.
In February 2000, we purchased from Medis El in a private placement 107,759
of its ordinary shares for an aggregate of $2,500,000.
In January and February 2000, Zvi Rehavi exercised options to purchase an
aggregate of 45,000 ordinary shares of Medis El at an average exercise price of
approximately $4.76 per share, or an aggregate of approximately $215,000.
In January 2000, Israel Fisher exercised options to purchase an aggregate
of 9,500 ordinary shares of Medis El at an exercise price of approximate $7.43
per share, or an aggregate of approximately $70,538.
From January to June 2000, Medis El purchased an aggregate of an additional
11.5% of the outstanding shares of More Energy Ltd. for an aggregate purchase
price of $320,000, giving Medis El a 93% interest in such company. Additionally,
in November 2000, we purchased an option for the remaining 7% of the outstanding
shares of More Energy held by its general manager and director, at an exercise
price of 1,714 shares of our common stock for each More Energy share. The
purchase price of the option is US$500,000, which we are required to pay no
later than July 31, 2001 or the option expires. Furthermore, we paid an
aggregate of US$20,000 as consideration for the right to pay the purchase price
until such date.
In June 2000, Israel Aircraft exercised warrants to purchase 50,000 shares
of our common stock at an average exercise price of approximately $5.38 per
share, or aggregate cash consideration of approximately $269,000. As an
incentive to exercise, Israel Aircraft received 25,000 new warrants that are
exercisable at $16.42 per share until June 15, 2002.
In June 2000, Robert K. Lifton exercised warrants to purchase 60,000 shares
of our common stock at an exercise price of $5.00 per share, or aggregate cash
consideration of approximately $300,000. As an incentive to exercise, Mr. Lifton
received 30,000 new warrants that are exercisable at $16.42 per share until June
15, 2002.
In June 2000, Howard Weingrow exercised warrants to purchase 60,000 shares
of our common stock at an exercise price of $5.00 per share, or aggregate cash
consideration of approximately $300,000. As an incentive to exercise, Mr.
Weingrow received 30,000 new warrants that are exercisable at $16.42 per share
until June 15, 2002.
In June 2000, CVF, LLC exercised warrants to purchase 304,167 shares of our
common stock at an average exercise price of approximately $5.15 per share, or
aggregate cash consideration of approximately $1,568,000. As an incentive to
exercise, CVF received 152,084 new warrants that are exercisable at $16.42 per
share until June 15, 2002.
Medis El is presently included as an additional insured party on Israel
Aircraft's product, casualty, and third party liability coverage. During the
year ended December 31, 2000, Medis El charged IAI approximately $64,000
relating to property loss insurance claims.
On April 24, 2000, we commenced an exchange offer for the approximately 36%
of Medis El we did not already beneficially own, offering 1.37 of our shares of
common stock for each ordinary share tendered. At the expiration of the offer on
June 5, 2000, shareholders of Medis El tendered an aggregate of 3,643,241
ordinary shares, giving us beneficial ownership of approximately 98% of Medis
El's outstanding ordinary shares. The remaining 182,669 shares passed to us
under operation of Israeli law upon the expiration of the exchange offer.
On December 29, 2000, we entered into a $5 million revolving credit line
loan agreement with Fleet National Bank. The loan agreement, which bears
interest on the outstanding balances based on either the LIBOR or Prime Rate and
terminates on December 28, 2002, is collateralized by all cash and other assets
on deposit with the bank at any time and an assignment of certain leases owned
by a partnership in which Robert K. Lifton and Howard Weingrow are partners.
We pay rent of approximately $72,000 per year for the use of office space
in premises occupied by the Stanoff Corporation, which is beneficially owned by
Messrs. Lifton and Weingrow.
Except for affiliates of which we are 100% owners, all ongoing and future
transactions between us and our affiliates will be on terms no less favorable
than can be obtained from unaffiliated parties and will be approved by a
majority of our independent and disinterested directors.
PART 4
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements.
Our financial statements as set forth in the Index to Consolidated
Financial Statements attached hereto commencing on page F-1 are hereby
incorporated by reference.
(b) Exhibits.
The following exhibits, which are numbered in accordance with Item 601 of
Regulation S-K, are filed herewith or, as noted, incorporated by reference
herein:
3.(i) Form of Restated Certificate of Incorporation of Medis Technologies Ltd. (1)
3.(ii) Form of Restated By-Laws of Medis Technologies Ltd., as amended (1)
4.1 Form of certificate evidencing shares of common stock (1)
10.1* Medis Technologies Ltd.'s 1999 Stock Option Plan (1)
10.2 Form of warrant agreement (1)
10.3* Employment Agreement dated November 2, 2000 between Zvi Rehavi and Medis El Ltd.
10.4* Employment Agreement dated March 23, 1999 between Israel Fisher and Medis El Ltd.
10.5 Loan Agreement dated as of December 29, 2000 between Fleet National Bank, as the lender and Medis
Technologies Ltd., as the borrower
10.6 Technology Development Agreement dated as of December 14, 1998 by and between Medis El Ltd. and The
Coca-Cola Company (1)
10.7 Cooperation Agreement dated February 6, 2001 by and between Sagem SA and Medis Technologies Ltd.
10.8 Strategic Agreement dated April 5, 2001 by and between General Dynamics Government Systems
Corporation and Medis Technologies Ltd.
10.9 Option Agreement dated November 9, 2000, by and between Medis Technologies Ltd. and Gennadi
Finkelstain, and amendment thereto
17.1 Letter from Grant Thornton LLP to the Securities and Exchange Commission, dated October 5, 2000 (2)
21.1 Subsidiaries of the Registrant
- ------------------
*Management contract or compensatory plan
(1) Filed as an exhibit to the Registration Statement on Form S-1, as amended
(File No.: 333-83945), of Medis Technologies Ltd.and incorporated
herein by reference.
(2) Filed as an exhibit to the Current Report on Form 8-K dated October 6,
2000 of Medis Technologies Ltd. and incorporated herein by reference.
(c) Reports on Form 8-K:
A Report on Form 8-K was filed on October 6, 2000.
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.
Dated: April 11, 2001 MEDIS TECHNOLOGIES LTD.
By: /S/ ROBERT K. LIFTON
---------------------------------------
Robert K. Lifton
Chairman and Chief Executive Officer
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 AND ON THE DATES INDICATED.
Signature Title Date
- ----------------------------- -------------------------------- ---------------
/S/ ROBERT K. LIFTON Chairman and April 11, 2001
- ----------------------------- Chief Executive Officer, Director
Robert K. Lifton
/S/ ISRAEL FISHER Vice President-Finance April 11, 2001
- ----------------------------- (Principal Financial Officer)
Israel Fisher
/S/ HOWARD WEINGROW President, Treasurer and Director April 11, 2001
- -----------------------------
Howard Weingrow
/S/ JACOB WEISS Senior Vice President-Business April 11, 2001
- ----------------------------- Development and Director
Jacob Weiss
/S/ AMOS EIRAN Director April 11, 2001
- -----------------------------
Amos Eiran
- ----------------------------- Director
Zeev Nahmoni
- ----------------------------- Director
Jacob E. Goldman
- ----------------------------- Director
Seymour Heinberg
/S/ SHMUEL PERETZ Director April 11, 2001
- -----------------------------
Shmuel Peretz
I N D E X
PAGE
----
MEDIS TECHNOLOGIES LTD. FINANCIAL STATEMENTS
- --------------------------------------------
Report of Independent Public Accountants F-2 - F-3
Financial Statements
Consolidated Balance Sheets as of December 31, 1999 and 2000 F-4
Consolidated Statements of Operations for the years
ended December 31, 1998, 1999 and 2000 F-5
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1998, 1999 and 2000 F-6
Consolidated Statements of Cash Flows for the years
ended December 31, 1998, 1999 and 2000 F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Stockholders of
MEDIS TECHNOLOGIES LTD.
We have audited the accompanying consolidated balance sheet of Medis
Technologies Ltd. (a Delaware corporation) and Subsidiaries as of December 31,
2000, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. 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 audit provides 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 Medis Technologies Ltd. and
Subsidiaries as of December 31, 2000, and the results of their operations and
their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
New York, New York
March 13, 2001
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
MEDIS TECHNOLOGIES LTD.
We have audited the accompanying consolidated balance sheets of Medis
Technologies Ltd. and Subsidiaries (a Delaware corporation) as of December 31,
1999, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1999. 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 auditing standards generally accepted
in the United States of America. 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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Medis Technologies Ltd. and Subsidiaries as of December 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the two years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
GRANT THORNTON LLP
New York, New York
March 9, 2000
F-3
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS 1999 2000
------------ ----------
Current assets
Cash and cash equivalents $ 1,842,000 $ 2,885,000
Accounts receivable - other 58,000 228,000
Prepaid expenses and other current assets 101,000 245,000
------------ -----------
Total current assets 2,001,000 3,358,000
Property and equipment, net (Note E) 983,000 1,045,000
Intangible assets, net (Note F) 7,242,000 82,799,000
------------ -----------
Total assets $ 10,226,000 $87,202,000
============ ===========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt (Note G) $ 86,000 $ -
Accounts payable 102,000 139,000
Accrued expenses and other current liabilities 730,000 697,000
------------ -----------
Total current liabilities 918,000 836,000
Long-term debt, excluding current maturities (Note G) 11,000 -
Accrued severance pay 109,000 224,000
------------ -----------
1,038,000 1,060,000
Minority interest in subsidiary 627,000 -
Commitments and contingencies (Note I)
Stockholders' equity (Note H)
Preferred stock, $.01 par value; 10,000 shares
authorized; none issued
Common stock, $.01 par value; 25,000,000 shares
authorized; 9,988,619 and 16,830,991 shares
issued and outstanding, at December 31, 1999
and 2000, respectively 100,000 168,000
Additional paid-in capital 32,450,000 136,819,000
Accumulated deficit (23,615,000) (49,078,000)
Deferred compensation costs (374,000) (1,767,000)
------------ -----------
Total liabilities and shareholders' equity 8,561,000 86,142,000
------------ -----------
$ 10,226,000 $ 87,202,000
============= ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-4
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
----- ---- ----
Sales $ 8,000 $ - $ -
Cost of sales 3,000 - -
----------- ----------- ------------
Gross profit 5,000 - -
Operating expenses
Research and development costs, net 1,646,000 2,749,000 4,493,000
Selling, general and administrative expenses 1,399,000 2,467,000 5,405,000
Amortization of intangible assets 2,445,000 2,574,000 13,668,000
----------- ----------- ------------
Total operating expenses 5,490,000 7,790,000 23,566,000
----------- ----------- ------------
Loss from operations (5,485,000) (7,790,000) (23,566,000)
Other income (expenses)
Interest and other income 63,000 150,000 214,000
Interest expense (101,000) (22,000) (13,000)
----------- ----------- ------------
(38,000) 128,000 201,000
----------- ----------- ------------
Loss before minority interest (5,523,000) (7,662,000) (23,365,000)
Minority interest in loss of subsidiary 1,105,000 1,697,000 873,000
----------- ----------- ------------
NET LOSS (4,418,000) (5,965,000) (22,492,000)
Value of warrants issued to exercising stockholders - - (2,971,000)
----------- ----------- ------------
Net loss attributable to common stockholders $(4,418,000) $(5,965,000) $(25,463,000)
=========== =========== ============
Basic and diluted net loss per share $(.52) $(.61) $(1.79)
==== === ====
Weighted-average shares used in computing basic and diluted net
loss per share 8,581,774 9,807,101 14,238,104
=========== =========== ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-5
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Deferred Total
Common Stock paid-in Accumulated compensation Stockholders'
--------------------------- capital deficit costs Equity
Shares Amount
------------ ------------ ------------ ------------ ------------ ------------
Balance at January 1, 1998 8,257,613 $ 83,000 $ 24,527,000 $(13,232,000) $ - $11,378,000
Net loss - - - (4,418,000) - (4,418,000)
Issuance of common stock 1,150,002 11,000 4,589,000 4,600,000
Compensation expense - - 9,000 - - 9,000
Increase attributable to changes in
a subsidiary's shares outstanding - - 1,549,000 - - 1,549,000
Minority share of an investment in a
subsidiary - - (712,000) - - (712,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 9,407,615 94,000 29,962,000 (17,650,000) - 12,406,000
Net loss - - - (5,965,000) - (5,965,000)
Issuance of common stock 581,004 6,000 2,318,000 - - 2,324,000
Stock options granted to employees
and directors - - 435,000 - (435,000) -
Amortization of deferred compensation - - - - 61,000 61,000
Increase attributable to changes in
a subsidiary's shares outstanding - - 344,000 - - 344,000
Minority share of an investment in a
subsidiary - - (609,000) - - (609,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1999 9,988,619 100,000 32,450,000 (23,615,000) (374,000) 8,561,000
Net loss - - - (22,492,000) - (22,492,000)
Issuance of common stock 1,598,811 16,000 7,742,000 - - 7,758,000
Issuance of common stock in exchange
for minority interest in a
subsidiary 5,243,561 52,000 88,946,000 - - 88,998,000
Stock options granted to employees
and directors - - 2,629,000 - (2,629,000) -
Amortization of deferred compensation - - - - 1,236,000 1,236,000
Stock options and warrants granted
to consultants - - 1,892,000 - - 1,892,000
Value of warrants issued to
exercising stockholders - - 2,971,000 (2,971,000) - -
Increase attributable to equity
transactions of a subsidiary - - 189,000 - - 189,000
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT DECEMBER 31, 2000 16,830,991 $168,000 $136,819,000 (49,078,000) $(1,767,000) $86,142,000
============ ============ ============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
----------------------------------------------------
1998 1999 2000
------------ ---------- ----------
Cash flows from operating activities
Net loss $(4,418,000) $(5,965,000) $(22,492,000)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 132,000 388,000 363,000
Amortization of intangible assets 2,445,000 2,574,000 13,668,000
Changes in accrued severance payable 33,000 48,000 115,000
Losses of minority interest (1,105,000) (1,697,000) (873,000)
Non-cash compensation expense 61,000 187,000 3,229,000
Non-cash settlement costs - 437,000 -
Loss (gain) from sale of property and equipment 10,000 5,000 (2,000)
Charge of inventory to research and
development expense - 255,000 -
Write-off of acquired in-process research and
development - 117,000 884,000
Changes in operating assets and liabilities
Accounts receivable - other 21,000 8,000 (170,000)
Inventory 113,000 (47,000) -
Prepaid expenses and other current assets (43,000) (12,000) (144,000)
Accounts payable (42,000) (11,000) 37,000
Accrued expenses and other current liabilities 134,000 351,000 (33,000)
------------ ------------ ------------
Net cash used in operating activities (2,659,000) (3,362,000) (5,418,000)
------------ ------------ ------------
Cash flows from investing activities
Capital expenditures (134,000) (330,000) (487,000)
Sale of securities and short-term deposits - 500,000 -
Proceeds from disposition of property and equipment 17,000 11,000 64,000
Purchases of short-term deposits (500,000) - -
Acquisition by a subsidiary of additional shares of a
majority-owned subsidiary - (115,000) (320,000)
Acquisition of shares of its majority-owned subsidiary - (138,000) (398,000)
------------ ------------ ------------
Net cash used in investing activities (617,000) (72,000) (1,141,000)
------------ ------------ ------------
Cash flows from financing activities
Repayment of long-term debt (342,000) (195,000) (97,000)
Proceeds from long-term debt 45,000 - -
Proceeds from issuance of common stock and exercise of
stock options of a majority-owned subsidiary 1,350,000 - 336,000
Proceeds from issuance of common stock 4,600,000 2,324,000 7,758,000
Proceeds from (repayments of) short-term credit 6,000 (8,000) -
Direct costs of exchange of shares - - (395,000)
------------ ------------ ------------
Net cash provided by financing activities 5,659,000 2,121,000 7,602,000
------------ ------------ ------------
Net INCREASE (DECREASE) in
cash and cash EQUIVALENTS 2,383,000 (1,313,000) 1,043,000
Cash and cash equivalents at beginning of year 772,000 3,155,000 1,842,000
------------ ------------ ------------
Cash and cash equivalents at end of year $ 3,155,000 $ 1,842,000 $ 2,885,000
============ ============ ============
F-7
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31,
-----------------------------------
1998 1999 2000
------------ ------------ -----------
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 305,000 $ 12,000 $ 13,000
Income taxes $ 4,000 $ 7,000 $ 2,000
Non-cash investing and financing activities:
Acquisition of minority interest through exchange of
shares (see Note C), comprised of the following: $ - $ - $ 89,393,000
Goodwill $ 81,867,000
Acquired technology assets $ 6,071,000
In-process research and development $ 561,000
Value of net tangible assets acquired $ 894,000
Decrease in long-term debt through the issuance
of common stock $ 650,000 $ - $ -
Value of warrants issued to exercising stockholders
(See Note H-1) $ - $ - $ 2,971,000
Decrease in inventory through increase in
fixed assets $ 429,000 $ 197,000 $ -
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-8
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999 and 2000
NOTE A - NATURE OF BUSINESS AND GENERAL MATTERS
Medis Technologies Ltd. ("MTL"), a Delaware corporation, is a holding
company, which through its wholly-owned subsidiary, Medis El Ltd. ("Medis
El"), engages in research and development of technology products to
license, sell, or enter into joint ventures with large corporations. The
Company's primary focus is the development and commercialization of direct
liquid methanol (DLM) fuel cells and the refueling cartridges for such fuel
cells, for use in portable electronic devices using as their power source
rechargeable or disposable batteries including cell phones, personal
digital assistants (PDAs), laptop computers and certain military devices.
The Company's other technologies, which are in various stages of
development, include highly electrically conductive polymers, the CellScan,
the toroidal compressor and internal combustion engine, stirling cycle
linear system and reciprocating electrical machine.
Since inception, the Company has incurred operating losses and has used
cash in its operations. Accordingly, the Company has relied on external
financing, principally through the sale of its stock, to fund its research
and development activities. The Company believes this dependence will
continue unless it is able to successfully develop and market its
technologies. On December 29, 2000, the Company entered into a $5,000,000
revolving credit line loan agreement with a bank. The loan agreement, which
bears interest on the outstanding balances based on either the LIBOR or
Prime Rate and terminates on December 28, 2002, is collateralized by all
cash and other assets on deposits with the bank at any time and the
mortgage and assignment of certain leases owned by a partnership in which
the Company's chairman and chief executive officer and its president and
treasurer are partners. The Company believes its cash resources together
with financing available by the line of credit will be sufficient to meet
the Company's needs at least through December 31, 2001.
NOTE B - SIGNIFICANT ACCOUNTING POLICIES
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MTL and
its wholly-owned and majority-owned subsidiaries from their dates of
acquisition (collectively, the "Company"). All significant intercompany
transactions and balances have been eliminated. Minority interest
represents the minority shareholders' proportionate share in the equity
or income of Medis El prior to the completion of the Company's exchange
offer of June5, 2000 (see Note C).
F-9
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE B (CONTINUED)
2. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, certificates of deposit,
money market funds and highly liquid investments with an original
maturity of three months or less. As of December 31, 1999 and 2000,
cash and cash equivalents included $211,000, and $67,951, respectively,
of balances denominated in Israeli currency ("NIS").
3. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
Grants received by Medis El from the State of Israel related to
CellScan and Neuritor research and development and contractual
participation were offset against research and development costs.
4. REVENUE RECOGNITION
Revenue from sales is recognized upon delivery of product to the
customer.
5. WARRANTY COSTS
The Company grants a one-year warranty on products sold and provides
for estimated warranty costs.
6. USE OF ESTIMATES
In preparing the Company's financial statements in conformity with
generally accepted accounting principles, management is required to
make estimates and assumptions that affect the reported amounts of
assets and liabilities, the 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.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the
Company's long-term debt at December 31, 1999 approximates the carrying
value. Furthermore, the carrying value of all other financial
instruments potentially subject to valuation risk (principally
consisting of cash and cash equivalents) also approximates fair value.
F-10
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE B (CONTINUED)
8. TRANSLATION OF FOREIGN CURRENCIES
The financial statements of the Company and its subsidiaries have been
prepared in U.S. dollars, as the dollar is the Company's functional
currency.
Non-dollar transactions and balances were remeasured into dollars in
accordance with Statement of Financial Accounting Standards No. 52
("SFAS No. 52"), "Foreign Currency Translation."
9. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost (net of investment grants
from the state of Israel). Depreciation is provided on the
straight-line basis over the estimated useful lives of such assets.
Leasehold improvements are amortized over the lives of the respective
leases or useful lives of the improvements, whichever is shorter.
The annual depreciation rates are as follows:
ANNUAL RATES
------------
Machinery and equipment 10% - 33%
Computers 20% - 33%
Furniture and office equipment 7% - 15%
Vehicles 15%
10. STOCK-BASED COMPENSATION
The Company has adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
As permitted under SFAS No. 123, the Company has elected to follow
Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting
for Stock Issued to Employees", and related interpretations in
accounting for its employee stock options. The Company has provided
the necessary pro forma disclosure as if the fair value method had
been applied (see Note H). Under APB No. 25, when the exercise price
of employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is
recorded. However, with respect to options granted to other than
employees or directors, the Company records expense equal to the fair
value of the option, as required by SFAS No. 123. To the extent that
compensation expense is recognized with respect to stock options
issued to employees or directors, such expense is amortized over the
vesting period of such options.
F-11
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE B (CONTINUED)
11. INTANGIBLE ASSETS, LONG-LIVED ASSETS AND IMPAIRMENT OF LONG-LIVED
ASSETS
Intangible assets, consisting of acquired technology assets and
goodwill, are being amortized on a straight-line basis over three and
five year periods, respectively. The Company's policy is to review all
long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable, the Company
will estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. Future cash flows are the
future cash inflows expected to be generated by an asset less the
future cash outflows expected to be necessary to obtain those inflows.
If the sum of the expected future cash flows (undiscounted and without
interest charges) is less than the carrying amount of the asset, the
Company would recognize an impairment loss.
12. NET LOSS PER SHARE
The Company computes net loss per share in accordance with Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share." Under the provisions of SFAS No. 128, basic net loss per
share is computed by dividing the net loss for the period by the
weighted- average number of common shares outstanding during the
period. Diluted net loss per share is computed by dividing the net
loss for the period by the weighted-average number of common and
common equivalent shares outstanding during the period. However, as
the Company generated net losses in all periods presented, common
equivalent shares, composed of incremental common shares issuable upon
the exercise of warrants and stock options, are not reflected in
diluted net loss per share because such shares are antidilutive.
13. OTHER COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income." SFAS No. 130 establishes standards
for reporting comprehensive income and its components in financial
statements. Other comprehensive income, as defined, includes all
changes in equity during a period from non-owner sources. To date, the
Company has not had any material transactions that are required to be
reported as other comprehensive income.
F-12
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE B (CONTINUED)
14. SEGMENT INFORMATION
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 ("SFAS No. 131"), "Disclosures About
Segments of an Enterprise and Related Information," which establishes
standards for the way companies report information about operating
segments in annual financial statements. It also establishes standards
for related disclosures about products and services, geographic areas
and major customers. The Company has determined that it does not have
any separately reportable business segments, but does operate in two
geographic areas, the United States and Israel.
15. INCOME TAXES
Deferred income taxes are provided for differences between financial
statement and income tax basis of assets and liabilities using enacted
tax rates in effect in the years in which the differences are expected
to reverse. The Company provides a valuation allowance on net deferred
tax assets when it is more likely than not that such assets will not
be realized.
16. RECENT PRONOUNCEMENTS
In September 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives,
requires that all derivatives be carried at fair value, and provides
for hedge accounting when certain conditions are met. The company will
adopt the provisions of SFAS No. 133, as amended by SFAS 138, on
January 1, 2001. The adoption of this statement will have no material
impact on the Company's financial position or results of operations.
NOTE C - EXCHANGE OFFER AND ACQUISITION OF MINORITY INTERESTS
On April 24, 2000, MTL commenced an offer for the approximately 36% of
Medis El it did not already beneficially own, offering 1.37 of its shares
of common stock for each ordinary share tendered (the "Exchange Offer"). At
the expiration of the offer on June 5, 2000, shareholders of Medis El
tendered an aggregate of 3,643,241 ordinary shares, giving MTL ownership of
approximately 98% of Medis El's outstanding ordinary shares. The remaining
182,669 shares passed to MTL by operation of Israeli law upon the
expiration of the exchange offer. The Company accounted for the exchange
using the purchase method. The Company calculated the purchase price of the
3,825,910 shares and 184,000 options of Medis El not owned by it based on
the market price of Medis El ordinary shares. Such purchase price was
F-13
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE C (CONTINUED)
$89,393,000. Based on an independent appraisal performed on December 20,
1999, the Company allocated the excess of purchase price over net assets
acquired to goodwill ($81,867,000), acquired technology assets ($6,071,000)
and in-process research and development, which was charged to research and
development expense on the acquisition date ($561,000). The Company intends
to amortize the acquired technology assets over their remaining useful
lives of three years and the goodwill over five years. During the year
ended December 31, 2000, the Company recorded amortization expense
aggregating approximately $11,013,000 related to this transaction. The
following unaudited pro-forma information gives effect to the Exchange
Offer as if it had occurred at the beginning of each of the periods
presented:
YEAR ENDED DECEMBER 31,
-----------------------
1998 1999 2000
---- ---- ----
Net loss $(24,481,000) $(26,620,000) $(30,749,000)
Net loss attributable to common
shareholders $(24,481,000) $(26,620,000) $(33,720,000)
Net loss per common share $(1.77) $(1.77) $(2.07)
On February 23, 2000, MTL acquired from Medis El 107,759 of its ordinary
shares for an aggregate of $2,500,000. The Company accounted for the
acquisition using the purchase method. Based on an independent appraisal,
the Company allocated the excess of the purchase price over net assets
acquired to goodwill ($810,000) and acquired technology assets ($99,000).
The Company intends to amortize the acquired technology assets over their
remaining useful lives of three years and the goodwill over five years.
During the year ended December 31, 2000, the Company purchased an aggregate
of 60,000 shares of Medis El from the designee of an Argentinean company,
pursuant to the terms of a settlement agreement entered into in November
1999 ("November Settlement"). On June 8, 2000, the Company commenced an
action entitled Medis Technologies Ltd. v. Cellscan Argentina, S.A., in the
Supreme Court of the State of New York, County of New York, upon CellScan
Argentina's refusal to transfer 18,000 of such shares. The June 8, 2000
action alleged that the failure to transfer the 18,000 shares was a
material breach of the November Settlement. In August 2000, the parties
entered into a stipulation and order of settlement (the "Stipulation"),
dismissing with prejudice the action. Pursuant to the Stipulation, the
Company purchased the remaining 18,000 shares pursuant to the terms of the
November Settlement and granted certain "piggy-back" registration rights to
Cellscan Argentina with respect to 30,000 shares of the Company's common
stock underlying warrants issued to Cellscan Argentina pursuant to the
November Settlement. The Company paid aggregate cash consideration of
approximately $398,000 in exchange for the 60,000 ordinary shares of Medis
El. The excess of purchase price over net assets acquired on these
acquisitions was approximately $383,000, which was allocated to CellScan
F-14
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE C (CONTINUED)
technology assets ($92,000), in-process R&D for the Fuel Cell, Stirling
Cycle and Toroidal Engine Projects ($4,000), and goodwill ($287,000).
During the year ended December 31, 1999, the Company purchased an aggregate
of 24,500 shares (or approximately 0.24%) of Medis El on the open market
(i.e., from the minority shareholders). These purchases were treated as an
acquisition of minority interest of the Company. The excess of purchase
price over net assets acquired was approximately $139,000, which was
allocated to CellScan technology assets ($37,000), in-process R&D for the
Fuel Cell and Stirling Cycle Projects ($3,000), and goodwill ($99,000).
At December 31, 1999, MTL owned 100% of the common stock of Medis Inc.,
which in turn owned 5,925,000 shares, or 56.49%, of Medis El. Additionally,
MTL owned 742,681 shares of Medis El, or an additional 7.08%. The minority
shareholders (including public shareholders) owned 36.43% of Medis El's
common stock.
Through December 15, 1997, MTL owned 60% of Medis Inc. while Israel
Aircraft Industries Ltd. ("IAI") owned 40% of Medis Inc. Through a
shareholders' agreement in effect during that time, control of Medis Inc.
was shared as the board of directors of Medis Inc. and Medis El each
consisted of six directors, of which three were designated by MTL and three
were designated by IAI. As neither party had control of Medis Inc., MTL had
accounted for its investment in Medis Inc. (and therefore Medis El) under
the equity method of accounting.
As of December 15, 1997, MTL acquired IAI's 40% interest in Medis Inc., for
aggregate consideration of 3,600,457 shares of MTL stock. As this was an
acquisition of a minority interest, the Company accounted for this
transaction using purchase accounting. The purchase price was valued based
on the value of Medis Inc.'s investment in Medis El, using the quoted
market price of Medis El shares as of December 15, 1997. The aggregate
purchase price was valued at $13,125,000. Acquired intangible technology
assets, consisting primarily of patents, know-how and other
technology-related assets, aggregated $2,975,000, of which $2,814,000
related to the CellScan technology. Goodwill, which represented the excess
of the purchase price over the value of the acquired tangible and
intangible technology assets, aggregated $9,252,000. Intangible assets,
including goodwill, are being amortized over a five-year period. The
operations of Medis Inc. and Medis El are included in results of operations
of the Company from the date of acquisition.
F-15
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE C (CONTINUED)
From January to June 2000, Medis El purchased an additional 11.5% of the
outstanding shares of More Energy Ltd., giving Medis El a 93% interest in
such company, for an aggregate purchase price of $320,000. Medis El
accounted for these acquisitions of minority interests using purchase
accounting. The excess of purchase price over the book value of the net
assets acquired aggregated $320,000. This excess purchase price was
allocated to in-process research and development and, therefore, was
charged to research and development costs as of the dates of the
acquisitions. Additionally, In November 2000, the Company purchased an
option for the remaining 7% of the outstanding shares of More Energy held
by its general manager and director, at an exercise price of 1,714 shares
of the Company's common stock for each More Energy share, aggregating to a
total of 120,000 shares of the Company's common stock. The purchase price
of the option is $500,000, which the Company is required to pay no later
than April 15, 2001 or the option terminates. The Company paid an
additional $10,000 upon execution of the option agreement as consideration
for the right to pay the purchase price until April 15, 2001. The Company
paid an additional $10,000 to extend the purchase price obligations of the
option until July 31, 2001. Subject to the termination provision, the
option expires in November 2004 and provides for a maximum exercise as to
25% of the shares in each of the four 12 month periods following the date
of the agreement - with any unexercised amount being carried over to the
following twelve month period.
NOTE D - INVENTORIES
On June 30, 1999, the Company charged its inventory of cell carriers and
antigens and Neuritors, a technology that the Company is no longer
developing or selling, aggregating $255,000 to research and development
expense.
NOTE E - PROPERTY AND EQUIPMENT, NET
Property and equipment consists of the following:
DECEMBER 31,
----------------------------------
1999 2000
---------- ----------
Machinery and equipment $1,106,000 $1,329,000
Computers 187,000 224,000
Furniture and office equipment 94,000 109,000
Vehicles 154,000 145,000
Land - 110,000
Leasehold improvements 300,000 186,000
---------- ----------
1,841,000 2,103,000
Less accumulated depreciation 858,000 1,058,000
---------- ------------
Property and equipment, net $ 983,000 $1,045,000
========== ============
F-16
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE E - PROPERTY AND EQUIPMENT, NET (CONTINUED)
Machinery and equipment at December 31, 1999 and 2000 includes 9 and 10
CellScan machines, in the amounts of $711,000 and $796,000, respectively.
Such machines are classified as property and equipment, as the Company uses
its CellScans as a marketing and research and development tool to
demonstrate and promote the CellScan technology and to develop new research
applications.
NOTE F - INTANGIBLE ASSETS, NET
Intangible assets consist of the following:
DECEMBER 31,
-----------------------------------
1999 2000
------------ ------------
CellScan technology assets $ 2,851,000 $ 9,113,000
Goodwill 9,351,000 92,314,000
----------- ------------
12,202,000 101,427,000
Accumulated amortization 4,960,000 18,628,000
---------- -----------
$ 7,242,000 $ 82,799,000
=========== ============
During 1999, the Company charged the remaining unamortized balance of
acquired technology assets relating to the Neuritor (or an additional
$128,000) to amortization of intangible assets. Such amount represents the
write-off of an impaired technology assets.
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
----------------------------
1999 2000
-------- --------
Bank debt - Israel $ 97,000 $ -
Less current portion (86,000) -
-------- --------
$ 11,000 $ -
======== ========
F-17
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE G (CONTINUED)
Bank Debt - Israel represents Medis El's borrowings of bank loans that are
linked to the dollar, which bore interest at the LIBOR plus 2.4% to 2.6%
per annum and were guaranteed by the State of Israel. Such loans, which
were paid-off in full during the year ended December 31, 2000, were
collateralized by a floating lien on all of the assets of Medis El.
NOTE H - STOCKHOLDERS' EQUITY
1. MEDIS TECHNOLOGIES LTD. COMMON STOCK
Each stockholder is entitled to one vote for each share of common stock
owned by that stockholder on all matters properly submitted to the
stockholders for their vote. Stockholders owning or controlling more
than 50% of the shares can elect all of the directors. Subject to the
dividend rights of holders of preferred stock, if any, holders of
common stock are entitled to receive dividends when, as and if declared
by the board of directors out of funds legally available for this
purpose. In the event of liquidation, dissolution or winding up, the
holders of common stock are entitled to receive on a pro rata basis any
assets remaining available for distribution after payment of
liabilities and after provision has been made for payment of
liquidation preferences to all holders of preferred stock. Holders of
common stock have no conversion or redemption provisions or preemptive
or other subscription rights.
In March 1998, the Company offered its existing stockholders the
opportunity to acquire 216,667 units at a price of $12 per unit, each
unit consisting of three shares of MTL common stock and one warrant to
purchase one share of MTL common stock at an exercise price of $5.00
per share. In September 1998, 181,426 units were issued to existing
stockholders for approximately $2,177,000.
In November 1998, the Company offered an additional 176,908 units with
the same terms and conditions as the units mentioned above. The
proceeds of this offering were approximately $2,123,000. In December
1998, the Company sold an additional 25,000 units with the same terms
and conditions as mentioned above. The aggregate proceeds were
$300,000.
During the year ended December 31, 1999, the Company issued an
aggregate of 193,668 units (of which 25,000 were to IAI) with the same
terms as those issued in 1998. Proceeds from such issuances aggregated
F-18
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
approximately $2,324,000. The purpose of the issuance of such units
was to generate additional cash to purchase shares of Medis El in
order to fund the research and development activities of Medis El and
for the Company's working capital.
In January and February 2000, the Company completed a private placement
of units, each unit consisting of 66,000 shares of its common stock and
25,000 warrants (of which one unit was purchased by IAI). Each warrant
is exercisable into one share of common stock and has an exercise price
of $5.75 per share. An aggregate of 637,000 shares and 240,833 warrants
were issued for aggregate cash proceeds of approximately $2,895,000.
In June 2000, the Company issued 5,243,561 shares of its common stock
(including 1,712,500 to IAI) in connection with the Exchange Offer.
In June 2000, the Company issued 859,544 shares of its common stock and
429,781 warrants (the "June Warrants") (including 50,0000 shares and
25,000 warrants to IAI) upon exercise of existing warrants for an
aggregate exercise price of approximately $4,441,000. The June Warrants
were issued as an inducement to the Company's existing warrant holders
to exercise their respective then outstanding warrants, at the rate of
one June Warrant for every two then outstanding warrants exercised. The
June Warrants are exercisable at $16.42 per share until June 15, 2002.
The Company estimated the value of the June Warrants to be $2,887,000.
In July 2000, the Company issued an additional 19,500 shares of its
common stock and 9,750 warrants pursuant to the same offering for an
aggregate exercise price of approximately $98,000. The Company
estimated the value of such warrants issued in July 2000 to be $84,000.
Also in July 2000, the Company issued an additional 33,000 shares of
its common stock upon the exercise of a like number of then outstanding
warrants, for an aggregate exercise price of approximately $165,000.
In October 2000, warrant holders exercised warrants to purchase 8,667
shares of the Company's common stock, for an aggregate exercise price
of approximately $142,000. Also in October 2000, certain officers of
the Company's exercised options to purchase a total of 41,100 shares of
the Company's common stock, for an aggregate exercise price of
approximately $16,900. Such options, which were contemplated as part of
the Exchange Offer (see Note C) were issued in October 1999 in
substitution for certain options to purchase ordinary shares of Medis
El held by such officers (See Note H-3)
F-19
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
2. MEDIS TECHNOLOGIES LTD. WARRANTS
MTL warrants outstanding are summarized below:
Weighted-
average exercise
Shares Price
------------ -------------
Balance at January 1, 1998 489,525 $ 5.00
Granted 533,334 $ 5.00
Cancelled (11,762) $ 5.00
-----------
Balance at December 31, 1998 1,011,097
Granted 193,668 $ 5.00
----------
Balance at December 31, 1999 1,204,765 $ 5.00
Granted 946,976 $ 13.90
Exercised (920,711) $ 5.26
----------
BALANCE AT DECEMBER 31, 2000 1,231,030 $ 11.65
----------
In March 1998, as consideration for providing guarantees on Company
debt, the Company granted warrants to purchase an aggregate of 100,000
shares of the Company's common stock exercisable at $5.00 per share to
two officers. Additionally, during 1998, warrants to purchase 50,000
shares of the Company's common stock were issued to a non employee
consultant. The Company recorded approximately $9,000 of compensation
expense relating to the above grants, which represented management's
estimate of the fair value of such warrants. The fair value of such
warrants was estimated using a Black-Scholes model with the following
assumptions: a 5% risk-free interest rate and 0% volatility (since the
Company was not a public company at the time), 0% dividend yield and an
expected life of 1-2 years.
On June 8, 1999, the Company extended the expiration date of its
outstanding warrants which were scheduled to expire on January 1, 2000,
June 30, 2000 and December 31, 2000 through June 30, 2002. In
connection with such modification, the Company recorded an additional
$41,000 of compensation expense during the year ended December 31,
1999, relating to the above warrants that were issued to employees in
exchange for guarantees and to the consultant. The fair value of such
F-20
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
warrants was estimated using a Black-Scholes model with the following
assumptions: a 5% risk-free interest rate; 0% dividend yield, expected
life of 1-2 years, 0% volatility (since the Company is not a public
company at the time).
On July 15, 2000, the Company issued a five-year warrant, which vests
immediately, to purchase an aggregate of 100,000 shares of common stock
at an exercise price of $20.48 per share, as payment under the terms of
a June 12, 2000 agreement with CIBC World Markets Corp. ("CIBC") for
capital markets and financial and strategic advisory services. Also, on
October 15, 2000, pursuant to the terms of said agreement, the Company
issued a five-year warrant to purchase 50,000 shares of common stock at
an exercise price of $20.62 per share. The agreement, which commenced
on July 15, 2000 (the "Commencement Date") and was subsequently
amended, has a term of one year and may be terminated by either party
upon 30 days written notice. Additionally, if the Company requests CIBC
to pursue a financing transaction, an additional fee would be paid
based on a schedule included in such agreement. The Company has
estimated the fair value of such warrants issued on July 15, 2000 and
October 15, 2000 to be $581,000 and $257,000, respectively, and has
recorded approximately $652,000 as expense during year ended December
31, 2000 related to such warrants.
On July 12, 2000, the Company issued warrants to purchase an aggregate
of 25,000 shares of its common stock to each of the three members of
its corporate advisory board, which the Company appointed on the same
date to assist it with its business strategy and to build relationships
with third parties to assist in the development of its technologies.
The warrants may be exercised at $20.00 per share, vest immediately and
expire after three years. The Company has estimated the fair value of
such warrants to be $526,000 and has recorded this amount as expense
during the year ended December 31, 2000.
See Note H-1 for discussion of warrants issued in connection with the
issuance of the Company's common stock.
3. MEDIS TECHNOLOGIES LTD. STOCK OPTIONS
On July 13, 1999, the Company's Board of Directors approved the 1999
Stock Option Plan, and reserved 1,000,000 shares of common stock for
issuance as stock options or stock appreciation rights pursuant to the
plan. The plan provides for the issuance of both incentive and
nonqualified stock options. On October 11, 2000, the Company's Board of
directors increased the number of shares of its common stock reserved
under the 1999 Stock Option Plan to 2,000,000, subject to stockholder
approval.
F-21
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
On November 2, 1999, the Company granted to officers and a consultant
of the Company options to purchase 450,000 shares of common stock at
$2.93 per share, which is the Company's good faith determination of 80%
of the fair market value on the date of grant. Such options have a
four-year life, and vest after two years. In August 2000, the
consultant became an officer of the Company. During the year ended
December 31, 2000 the Company recorded expense of approximately
$1,023,000 relating to such options.
On February 21, 2000, the Board of Directors of the Company granted
options to purchase an aggregate of 165,000 shares of common stock
under its 1999 Stock Option Plan to employees, officers and consultants
of the Company. The options, which may be exercised at $5.00 per share,
vest after two years and expire after four years. Deferred compensation
of approximately $1,468,000, which will be charged to expense ratably
over the vesting period, was recorded for such options issued to
employees and officers. As of December 31, 2000, the Company estimates
the fair value of such options issued to consultants to be
approximately $527,000. During the year ended December 31, 2000,
compensation expense of approximately $612,000 was recorded relating to
such options granted to employees and compensation expense of
approximately $220,000 was recorded relating to such options granted to
consultants. In June 2000, the Company cancelled options issued to
consultants to purchase an aggregate of 8,000 shares of common stock.
In October 2000, as contemplated as part of the Exchange Offer (See
Note C), the Board of Directors of the Company granted under its 1999
Stock Option Plan options to purchase 41,100 shares of common stock to
certain officers of the Company, in substitution for certain options to
purchase ordinary shares of Medis El held by such officers. Such
options, which are vested and have an exercise price of $.410, were on
terms consistent with the Exchange Offer. Accordingly, new options to
purchase 1.37 shares of the Company's common stock were granted for
each option to purchase an ordinary share of Medis El held by such
officer. Additionally, in October 2000, the Board of Directors of the
Company granted under its 1999 Stock Option Plan options to purchase
68,550 shares of common stock to its chairman and chief executive
officer in substitution for certain additional options to purchase
ordinary shares of Medis El granted to such officer prior to
the Exchange Offer. Such options, which are vested and have an
exercise price of approximately $5.26, were also granted on terms
consistent with the Exchange.
F-22
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
On October 15, 2000, the Board of Directors of the Company granted,
under the 1999 Stock Option Plan, options to purchase 400,000 shares of
common stock to certain officers of the Company. Such stock options
vest on June 15, 2001, and may be exercised at a price of $16.42 per
share until June 15, 2002. Deferred compensation of approximately
$366,000, which will be charged to expense ratably over the vesting
period, was recorded for such options. During the year ended December
31, 2000, compensation expense of approximately $114,000 was recorded
relating to such options. Also on October 15, 2000, the Board of
Directors of the Company granted, under the 1999 Stock Option Plan,
options to purchase 10,000 shares of common stock to each of the two
new members of its Board of Directors. These options vest on September
1, 2002 and may be exercised at $20.50 until September 1, 2004. Since
the exercise price of the options was greater than the market price of
the Company's common stock on the date of the grant, under the
intrinsic value method of accounting for stock options, neither
deferred compensation nor compensation expense was recorded relating to
such options.
On December 22, 2000, the Board of Directors of the Company granted,
under the 1999 Stock Option Plan, options to purchase 500,000 shares of
common stock to certain officers of the Company. Such stock options
vest on December 22, 2002 and may be exercised at a price of $13.50 per
share until December 22, 2004. Since the exercise price of the option
was equal to the market price of the Company's common stock on the date
of the grant, under the intrinsic value method of accounting for stock
options, neither deferred compensation nor compensation expense was
recorded relating to such options.
F-23
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
The Company's option activity and options outstanding are summarized as
follows:
Options
------------------------------
Weighted-
average
exercise
Shares price
------ --------
Options outstanding at January 1, 1999 - -
Granted 450,000 $ 2.93
------- --------
Options outstanding at December 31, 1999 450,000 $ 2.93
Granted 994,600 $ 11.71
Exercised (41,100) $ 0.41
Cancelled or forfeited (8,000) $ 5.00
-------
OPTIONS OUTSTANDING AT DECEMBER 31, 2000 1,395,500 $ 9.25
========= ========
EXERCISABLE 68,550 $ 5.26
========= ========
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------- ----------------------------------------- -------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED-
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICE 2000 LIFE PRICES 2000 PRICES
- ---------- -------------- ----------- --------- ------------- ---------
$ 2.93 450,000 2.82 $ 2.93 - -
5-5.26 225,500 2.18 5.08 68,550 5.26
13.5 500,000 3.98 13.5 - -
16.42 200,000 1.79 16.42 - -
20.5 20,000 3.66 20.5 - -
---------- ---------
1,395,500 68,550
========== =========
As of December 31, 2000, 555,400 options were available for grant pursuant
to the plan.
F-24
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
Compensation costs charged to operations which the Company recorded for
options granted to employees and directors at exercise prices below the
fair market value at the date of grant and for options granted to
consultants aggregated $3,229,000 in 2000 and $20,000 in 1999.
Deferred compensation for employee and director stock options was
determined by calculating the difference between the exercise price and
the fair market value of such options on the date of grant. The
deferred compensation is charged to operations ratably over the
vesting period of such options. Compensation expense for options
granted to consultant was estimated using a Black-Scholes Option
Valuation model and the assumptions are disclosed in Note H-6.
See Note H-6 for discussion of pro forma effects of applying SFAS No.
123 to these employee stock options.
4. MEDIS EL
The following table reconciles the gains recognized by the Company
through transactions in Medis El stock:
Year ended December 31,
----------------------------------------
1998 1999 2000
----------- ---------- -----------
Gain on Medis El private placement $ 796,000 $ - $ -
Gain on Medis El's issuance of shares to CellScan
Argentina for settlement of litigation - 268,000 -
Gain on exchange of shares of Medis El owned
by Medis Inc. for the Company's outstanding
debt 540,000 - -
Gain on exercises of Medis El stock options 37,000 76,000 189,000
Contribution of interest payment to Medis El 176,000 - -
---------- --------- ---------
Amount reflected in statement of
stockholders' equity $1,549,000 $ 344,000 $ 189,000
========= ========= =========
5. MEDIS EL SHARE OPTION PLAN
In October 1993, the Board of Directors of Medis El adopted a share
option plan (the "Share Option Plan") pursuant to which 500,000 shares
were reserved for issuance upon the exercise of options to be granted
to key employees and consultants of Medis El. The Share
F-25
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
Option Plan is administered by the Board of Directors, which designates
the quantities, dates and prices of the options granted. Unless
otherwise determined by the Board of Directors, the exercise price of
options will be the market price of the Ordinary Shares on the date of
grant. As of June 5, 2000 (the date of the completion of the Exchange
Offer), Medis El no longer granted options under its share Option Plan.
Options granted under the Share Option Plan will expire after a
four-year period, but will be exercisable only after the second
anniversary of the grant date and then only if the option holder is
still an employee or consultant of Medis El.
On May 3, 1998, the Board of Directors of Medis El granted options to
purchase Medis El's shares under the Share Option Plan adopted in
October 1993 (see details of issuance below). Pursuant to the grant,
certain employees, a director, and a consultant of Medis El received
119,000 options (of which 50,000 were granted to a director) which are
convertible into shares on a one-to-one ratio at $7.20, which was 80%
of the market price on the date of the grant ($9.00).
On November 4, 1998, the Board of Directors of Medis El granted options
to purchase Medis El's shares under the Share Option Plan adopted in
October 1993 (see details of issuance below). Pursuant to the grant,
the executive vice-president of Medis El received 30,000 options, which
are convertible into shares on a one-to-one ratio at $6.00. The market
price on the date of the grant was $7.188.
During 1999, the Board of Directors of Medis El extended the expiration
date of the options issued on February 14, 1994 for an additional
one-year period until February 14, 2000. The extension pertains only to
options held by persons who were in the employ of Medis El on the date
the extension was adopted.
During the year ended December 31, 1999, Medis El issued an additional
56,150 shares upon exercise of stock options by employees.
In January and February 2000, certain employees and a director of Medis
El, exercised options to purchase an aggregate of 66,100 ordinary
shares of Medis El. Such exercise generated aggregate cash proceeds to
Medis El of approximately $336,000. The Company recorded a credit of
approximately $189,000 to additional paid in capital, representing the
increase in Medis El's book value attributable to the Company from the
exercise of the options.
F-26
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
The following table summarizes Medis El's option plan activity for the
three years ended December 31, 2000:
Weighted-
Number average
of exercise
options price
------------- ---------------
Balance at January 1, 1998 235,750 $3.12
Granted 196,400 7.07
Exercised (29,650) 0.66
Cancelled (87,950) 7.42
-------
Balance at December 31, 1998 314,550 4.61
Granted 43,600 7.42
Exercised (56,150) 0.56
Cancelled (46,900) 7.42
-------
BALANCE AT DECEMBER 31, 1999 255,100 5.47
=======
Granted - -
Exercised (66,100) 5.09
Cancelled or forfeited (45,000) 1.30
--------
BALANCE AT DECEMBER 31, 2000 144,000 $6.95
=======
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------- ----------------------------------------- ------------------------
WEIGHTED -
NUMBER AVERAGE WEIGHTED - NUMBER WEIGHTED -
OUTSTANDING AT REMAINING AVERAGE OUTSTANDING AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
2000 LIFE PRICES 2000 PRICES
-------- -------------- ----------- ---------- -------------- ---------
$ 6.0 30,000 1.81 $ 6.0 30,000 $ 6.0
7.2 114,000 1.47 7.2 114,000 7.2
-------- -------
144,000 144,000
======== =======
F-27
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
Compensation costs charged to operations which Medis El recorded for
Medis El stock options granted below the fair market value at the date
of grant were $23,000, $126,000 and $65,000 in 1998, 1999 and 2000,
respectively. Compensation expense was determined by calculating the
difference between the exercise price and the fair market value of such
options on the date of grant. The expense is charged to operations over
the vesting period of such options.
6. EFFECT OF SFAS NO. 123 ON MEDIS EL SHARE OPTIONS AND ON THE
COMPANY'S OPTIONS
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its and Medis El's stock options under the fair value
method of that Statement. The fair value for these options was
estimated at the date of grant using a Black-Scholes Option Valuation
model with the following weighted-average assumptions:
MEDIS EL MEDIS EL MTL MEDIS EL MTL
OPTIONS OPTIONS OPTIONS OPTIONS OPTIONS
1998 1999 1999 2000 2000
-------- -------- ------- -------- -------
Dividend yield 0% 0% 0% 0% 0%
Risk-free interest rate 5.00% 6.00% 5.40% 6.00% 6.00%
Expected life in years
after vesting period 1 - 2 1 - 2 2 1 - 2 1 - 2
Volatility 10% 40% 0.0% 95% 95%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of the traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions, including
the expected stock price volatility. Because the Company's and Medis
El's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimates, in
management's opinion, existing models do not necessarily provide a
reliable single measure of the fair value of its stock options.
For purposes of pro forma disclosure, the estimated fair value of the
options is amortized as an expense over the vesting period of the
options. The Company's pro forma information is as follows:
F-28
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE H (CONTINUED)
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1999 2000
------------- ------------- -----------
Net loss for the year as reported $(4,418,000) $ (5,965,000) $ (22,492,000)
Pro forma net loss (4,592,000) (6,002,000) (22,811,000)
Net loss attributable to common
shareholders (4,418,000) (5,965,000) (25,463,000)
Pro forma net loss attributable to
common shareholders (4,592,000) (6,002,000) (25,782,000)
Net loss per share as reported (.52 ) (.61) (1.79)
Pro forma net loss per share (.54 ) (.61) (1.81)
The weighted average fair value of MTL options granted during the years
ended December 31, 1999 and 2000 was $4.91 and $9.67, respectively.
The weighted average fair value of Medis El options granted during the
years ended December 31, 1998, and 1999 was $1.89 and $0.96,
respectively. Medis El did not grant any options during the year ended
December 31, 2000.
The total compensation expense for employees included in the pro forma
information for 1998, 1999 and 2000 is $174,000, $138,000 and
$1,491,000, respectively.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. CELLSCAN LICENSE - Medis El acquired the rights to the Cell Scan in
August 1992 by assignment from IAI of a license from Bar Ilan
University to IAI. Medis El paid IAI $1,000,000 in consideration of the
assignment of the license and for certain tooling and equipment. The
license is a perpetual worldwide license to develop, manufacture and
sell the CellScan, and to sublicense the right to manufacture and sell
the device. The license includes all rights to the University's
CellScan patents, know-how and inventions including any subsequently
acquired, and all improvements thereto. Medis El is obligated to pay
the University a royalty for a twenty-year period beginning in 1995.
For the first ten years, the royalty is at the rate of 6.5% of proceeds
of sales (after deducting sales commissions and other customary
charges) and 4.5% on any fees received from granting territorial
rights. The royalty for the second ten-year period is 3.5% on all
revenues whether from sales or fees. In addition to such royalty
payments, the Company is required to grant $100,000 to the University
during the first year that the Company's after-tax profits exceed
$300,000. No royalties were required to be paid during the three years
ended December 31, 2000.
F-29
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE I (CONTINUED)
2. NEURITOR LICENSE - In consideration of grants by the State of Israel,
Medis El is obligated to pay royalties for a license from Imexco
General Ltd. ("Imexco"), for which assignment Medis El paid $500,000.
An additional sum of $125,000 was paid in December 1995. In 1996, Medis
El relinquished its exclusive right to market the Neuritor in
consideration of relief of its obligation to pay minimum royalties.
Medis El has to pay Imexco royalties at rates ranging from 2% to 7% of
the revenue generated by the sale of the Neuritor.
3. OTHER ROYALTIES - In consideration of grants by the State of Israel,
Medis El is obligated to pay royalties of 3% of sales of products
developed with funds provided by the State of Israel until the
dollar-linked amount equal to the grant payments received by Medis El
is repaid in full. All grants received from the State of Israel related
to the CellScan and Neuritor technologies. Total grants received, net
of royalties paid as of December 31, 2000, aggregate $2,601,000, which
includes those received by IAI relating to such technologies of
$805,000. No royalties were required to be paid during the three years
ended December 31, 2000.
4. LEASE COMMITMENTS - MTL's office space is provided to MTL for an annual
rental fee of approximately $72,000, by a company which is controlled
by the chairman and chief executive officer and the president and
treasurer of MTL.
Medis El is committed under leases at three locations for office space,
laboratory and manufacturing facilities, as well as its pilot
production plant. Its corporate headquarters and technology center
facility leases, which have terms until November and December 2001 and
two one-year options on a portion of the facility, provide for annual
aggregate rental of approximately $164,000. Its manufacturing facility
lease has an initial term until December 31, 2001, a two-year option
extending to December 31, 2003, and provides for an annual aggregate
rental of approximately $27,000. Additionally, its pilot production
plant lease has an initial term until December 31, 2001, three one-year
options extending to December 31, 2004, and provides for an annual
aggregate rental of approximately $12,000.
5. AGREEMENT WITH PERUVIAN COMPANY - In April and May 2000, the Company
transferred payments aggregating $110,000 to a Peruvian company
("Peru") for the repurchase of a CellScan machine. In June 1999, Medis
El reached an agreement with Peru which owned a CellScan machine,
whereby, in consideration of Medis El upgrading the CellScan system at
its cost, Peru relinquished any future claims against Medis El, except
for an option to require Medis El to repurchase the CellScan system
for $100,000. Such option expired on January 14, 2000. In February
2000, Medis El granted Peru a new option to require Medis El to
repurchase the CellScan machine for $110,000 which was exercised by
Peru, via a letter dated February 23, 2000.
F-30
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE I - (CONTINUED)
SETTLEMENT OF LITIGATION - Pursuant to a settlement agreement dated
November 22, 1999 dismissing with prejudice an action pending in the
Supreme Court of the State of New York, County of New York, entitled
CellScan Argentina, S.A. v. Medis El Ltd., et. al., the Company
commenced in January 2000 pursuant to a put/call provision in the
settlement agreement, the purchase of 3,000 of Medis El's ordinary
shares per week from a designee of the plaintiff, initially at $6.00
per share, and increasing by $.50 per share every month thereafter
beginning March 1, 2000. Pursuant to the settlement agreement, the
Company exercised its right to repurchase 60,000 of such shares, of
which 18,000 shares Cellscan Argentina refused to transfer.
Consequently, on June 8, 2000, the Company commenced an action entitled
Medis Technologies Ltd. v. Cellscan Argentina, S.A., in the Supreme
Court of the State of New York, County of New York, alleging that
Cellscan Argentina's refusal to transfer to the Company 18,000 of such
shares pursuant to the put/call provision was a material breach of the
settlement agreement.
In August 2000, the Company entered into a stipulation and order of
settlement with Cellscan Argentina dismissing the action with
prejudice, which requires Cellscan Argentina to comply with the terms
of the original settlement agreement and sell to the Company 18,000
shares of Medis El for payment of $109,000. As part of the stipulation,
the Company substituted for the ordinary shares of Medis El underlying
warrants originally granted to CellScan Argentina pursuant to the
original settlement agreement, the common stock of the Company at the
same exchange rate as shares of stock in the exchange offer. The
Company granted certain "piggy-back" registration rights to Cellscan
Argentina with respect to such shares of the Company's common stock
underlying these warrants.
NOTE J - RELATED PARTY TRANSACTIONS
1. INSURANCE - Medis El is presently included as an additional insured
party on IAI's product, casualty, and third party liability coverage.
During the year ended December 31, 2000, IAI charged Medis El
approximately $5,000 for insurance premiums, and Medis El charged IAI
approximately $64,000 relating to property loss insurance claims.
F-31
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE K - INCOME TAXES
The following represents the components of the Company's pre-tax losses for
each of the three years in the period ended December 31, 2000.
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1998 1999 2000
--------- -------- -------
Domestic $(2,556,000) $(3,001,000) $(17,245,000)
Foreign (1,862,000) (2,964,000) (5,247,000)
---------- ---------- ----------
$(4,418,000) $(5,965,000) $(22,492,000)
========== ========== ===========
The Company files a consolidated Federal income tax return, which includes
MTL, Medis Inc., and CDS. At December 31, 2000, the Company has a net
operating loss ("NOL") carryforward for United States Federal income tax
purposes of approximately $5,299,000, expiring through 2020.
Pursuant to United States Federal income tax regulations, the Company's
ability to utilize this NOL may be limited due to changes in ownership, as
defined in the Internal Revenue Code.
The Company, through Medis El, has net operating losses, for Israeli tax
purposes, aggregating approximately $28,847,000, which, pursuant to Israeli
tax law, do not expire.
Deferred income tax assets arising mainly from NOL carryforwards have been
reduced to zero through a valuation allowance. The Company continually
reviews the adequacy of the valuation allowance and will recognize deferred
tax assets only if a reassessment indicates that it is more likely than not
that the benefits will be realized.
Medis El is an Israeli corporation and is subject to income taxes under the
relevant Israeli tax law. Medis El has been issued a certificate of
approval as an "Approved Enterprise," which allows Medis El to have lower
tax rates under Israeli tax law. Such rates include a corporate tax on
income derived from Approved Enterprise activities at a rate of 20% and a
tax rate on distributed dividends of 15%. These benefits may be in force
through at least 2006.
No tax expense has been recorded in the financial statements of the
Company, as the Company has a loss in the current year, in each tax-paying
jurisdiction.
F-32
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE K (CONTINUED)
Temporary differences that give rise to deferred tax assets are as follows
DECEMBER 31,
------------------------
1999 2000
----------- -----------
Net operating loss carryforwards - United States $ 1,964,000 $ 2,221,000
Net operating loss carryforwards - Israel 8,496,000 10,385,000
Other (82,000) (1,447,000)
----------- ===========
10,378,000 11,159,000
Valuation allowance (10,378,000) (11,159,000)
----------- ===========
Deferred tax assets, net of valuation
Allowance $ - $ -
=========== ============
A reconciliation of the income tax benefit computed at the United States
Federal statutory rate to the amounts provided in the financial statements
is as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1999 2000
---------- ----------- -----------
Income tax benefit computed at
Federal statutory rate (34%) $(1,502,000) $(2,028,000) $(7,647,000)
Effect of Foreign Income Taxes 261,000 415,000 (105,000)
Effect of permanent differences 831,000 875,000 4,842,000
Valuation allowance 410,000 738,000 2,910,000
----------- ----------- -----------
$ - $ - $ -
============ ========== ===========
F-33
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE L - INFORMATION ABOUT GEOGRAPHIC AREAS
The following lists the long-lived assets held in the Company's country of
domicile and in all foreign countries:
DECEMBER 31,
------------------------------------
1999 2000
------- -------
United States $ - $ -
Israel
Property and equipment, net 983,000 1,045,000
Intangible assets, net 7,242,000 82,799,000
--------- ------------
$ 8,225,000 $ 83,844,000
=========== ============
F-34
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE M - CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter ended March 31 June 30 September 30 December 31
- --------------------------------- ------------- ------------- ------------- ------------
Fiscal 2000
Loss from operations
As originally reported $(2,224,000) $(5,637,000) $(8,312,000) $(7,682,000)
Effect of correction (*) 164,000 170,000 (45,000) -
----------- ----------- ----------- ------------
As restated $(2,060,000) $(5,467,000) $(8,357,000) $(7,682,000)
------------
Loss before minority interest
As originally reported $(2,187,000) $(5,606,000) $(8,234,000) $(7,627,000)
Effect of correction (*) 164,000 170,000 (45,000) -
----------- ----------- ----------- ------------
As restated $(2,023,000) $(5,436,000) $(8,279,000) $(7,627,000)
----------- ----------- ----------- ------------
Net Loss
As originally reported $(1,705,000) $(5,215,000) $(8,234,000) $(7,627,000)
Effect of correction (*) 164,000 170,000 (45,000) -
----------- ----------- ----------- ------------
As restated $(1,541,000) $(5,045,000) $(8,279,000) $(7,627,000)
----------- ----------- ----------- ------------
Net loss attributable to common
stockholders
As originally reported $(1,705,000) $(8,102,,000) $(8,318,000) $(7,627,000)
Effect of correction (*) 164,000 170,000 (45,000) -
----------- ----------- ----------- ------------
As restated $(1,541,000) $(7,932,000) $(8,363,000) $(7,627,000)
Basic and diluted net loss per share
As originally reported $(.16) $(.63) $(.50) $(.45)
Effect of correction (*) .01 .01 . - -
=== === === ====
As restated $(.15) $(.62) $(.50) $(.45)
====== ====== ====== ======
Weighted-average shares used in
computing basic and diluted net
loss per share 10,429,000 12,869,226 16,771,767 16,825,794
=========== =========== ============ ===========
(*) Represents certain transactions incurred during the year that were adjusted
at year end (mainly issuance costs in connection with the exchange offer that is
reflected as a reduction of equity rather than an expense).
F-35
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1999 and 2000
NOTE M - (CONTINUED)
Quarter ended March 31 June 30 September 30 December 31
- --------------------------------------------------- --------------- ------------- ------------- --------------
Fiscal 1999
Loss from operations $ (1,323,000) $ (1,941,000) $ (1,882,000) $ (2,644,000)
============ ============ ============ ============
Loss before minority interest $(1,298,000) $(1,901,000) $(1,845,000) $(2,618,000)
============ ============ ============ ============
Net Loss $(1,030,000) $(1,483,000) $(1,498,000) $(1,954,000)
============ ============ ============ ============
Net loss attributable to common stockholders $(1,030,000) $(1,483,000) $(1,498,000) $(1,954,000)
============ ============ ============ ============
Basic and diluted net loss per share $(.11) $(.15) $(.15) $(.20)
====== ====== ====== ======
Weighted-average shares used in computing basic and
diluted net loss per share 9,465,649 9,816,531 9,949,165 9,988,619
========= ========= ========= =========
**********************
F-36