<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended
March 31, 2000
Commission file number: 0-30391
MEDIS TECHNOLOGIES LTD.
(Exact Name of Registrant as Specified in its Charter)
Delaware 13-3669062
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
805 Third Avenue
New York, New York 10022
(Address of Principal Executive Officer and Zip Code)
(212) 935-8484
(Registrant's Telephone Number, Including Area Code)
Check whether the registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes | | No |X|
The number of shares of Common Stock, par value $.01 per share, outstanding as
of June 5, 2000 is 10,625,619.
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MEDIS TECHNOLOGIES LTD.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page Number
-----------
<S> <C>
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1999 and March 31, 2000 (Unaudited) 3
Condensed Consolidated Statements of Operations (Unaudited) 4
Three months ended March 31, 1999 and 2000
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31, 1999 and 2000 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 6. Exhibits and Reports on Form 8-K 13
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
------------ ---------
ASSETS 1999 2000
------------ ----
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,842,000 $ 3,621,000
Accounts receivable - other 58,000 74,000
Prepaid expenses 101,000 74,000
------------- -------------
Total current assets 2,001,000 3,769,000
Property and equipment, net 983,000 875,000
Intangible assets, net 7,242,000 6,808,000
------------ ------------
$ 10,226,000 $ 11,452,000
=========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 86,000 $ 39,000
Accounts payable 102,000 103,000
Accrued expenses 730,000 753,000
---------- ----------
Total current liabilities 918,000 895,000
Long-term debt, excluding current maturities 11,000 9,000
Other long-term liabilities 109,000 134,000
-------------- -----------
1,038,000 1,038,000
Minority interest in subsidiary 627,000 1,230,000
Commitments and contingencies
Stockholders' equity
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 10,625,619 issued and
outstanding, at December 31, 1999,and
March 31, 2000, respectively 100,000 106,000
Additional paid-in capital 32,450,000 36,080,000
Accumulated deficit (23,615,000) (25,320,000)
Deferred compensation costs (374,000) (1,682,000)
------------- ---------------
8,561,000 9,184,000
------------ ---------
$ 10,226,000 $ 11,452,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
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MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 2000
---- ----
<S> <C> <C>
Sales $ - $ -
Cost of sales ________- _______-
Gross profit - -
Operating expenses
Research and development costs, net 384,000 781,000
Selling, general and administrative expenses 328,000 830,000
Amortization of intangible assets 611,000 613,000
---------- ----------
Total operating expenses 1,323,000 2,224,000
----------- -----------
Loss from operations (1,323,000) (2,224,000)
Other income (expenses)
Interest and other income 28,000 40,000
Interest expense (3,000) (3,000)
----------- ----------
25,000 37,000
---------- ----------
Loss before minority interest (1,298,000) (2,187,000)
Minority interest in loss of subsidiary 268,000 482,000
---------- ----------
NET LOSS $(1,030,000) $(1,705,000)
------------ ------------
Basic and diluted net loss per share $ (.11) $ (.16)
=== ===
Weighted-average shares outstanding 9,465,649 10,429,000
========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
4
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MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------------------------------
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities
Net loss $(1,030,000) $(1,705,000)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation 85,000 92,000
Amortization of intangible assets 611,000 613,000
Changes in other long-term liabilities 2,000 25,000
Losses of minority interest (268,000) (482,000)
Compensation expense 36,000 188,000
Write-off of acquired in-process research and
development - 50,000
Changes in operating assets and liabilities
Accounts receivable - other (20,000) (16,000)
Inventory (47,000) -
Prepaid expenses (47,000) 27,000
Accounts payable 53,000 1,000
Accrued expenses 12,000 23,000
------ ------
Net cash used in operating activities (613,000) (1,184,000)
--------- -----------
Cash flows from investing activities
Capital expenditures (60,000) (6,000)
Sale of securities and short-term deposits 500,000 -
Proceeds from sale of property and equipment - 22,000
Acquisition by Medis El of shares of More Energy, Ltd. - (50,000)
Acquisition of shares of Medis El - (185,000)
--------- -----------
Net cash provided by (used in)
investing activities 440,000 (219,000)
------- ---------
Cash flows from financing activities
Repayment of long-term debt (49,000) (49,000)
Proceeds from exercise of stock options - Medis El - 336,000
Proceeds from issuance of common stock 804,000 2,895,000
Repayments of short-term credit (8,000) -
--------- -----------
Net cash provided by financing activities 747,000 3,182,000
------- ---------
Net increase in cash and cash equivalents 574,000 1,779,000
Cash and cash equivalents at beginning of period 3,155,000 1,842,000
--------- ---------
Cash and cash equivalents at end of period $ 3,729,000 $ 3,621,000
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ - $ 3,700
Income taxes $ 3,200 $ 3,000
Non-cash investing and financing activities:
Grant of stock options $ - $ 1,430,000
Decrease in inventory through increase in fixed assets $ 197,000 $ -
</TABLE>
The accompanying notes are an integral part of these statements
5
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MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Medis Technologies Ltd., a Delaware corporation, ("MTL" or the
"Company"), is a holding company, which through its majority-owned indirect
subsidiary, Medis El Ltd. ("Medis El"), engages in research and
development activities. Medis El, an Israeli corporation, was formed to
engage in the development, clinical testing and marketing of the CellScan, a
machine that was originally designed to develop diagnostic tests for cancers
and other diseases. By 1997, Medis El evolved into a multi-product company as
it sought out and assisted in the development of advanced technologies in a
number of unrelated fields. Medis El currently owns, in whole or in part, a
number of different technologies in various stages of development. Its
strategy is to become a greenhouse for the development of technology products
to license, sell, or enter into joint ventures with large corporations. In
addition to the CellScan, Medis El's technologies include the Stirling Cycle
Linear System, Fuel Cells, the Toroidal Internal Combustion Engine and
Compressor, Reciprocating Electric Machine, Direct Current Regulating Device
and Water Technologies. Medis El also has an option to jointly develop with
an unaffiliated third party an advanced composite pipe technology.
CDS Distributor, Inc. ("CDS"), a Delaware corporation and a
wholly-owned subsidiary of MTL, has the exclusive right to distribute the
CellScan in the United States for a period expiring twelve years after FDA
approval of the product. CDS also has agency rights for Medis El's other
wholly or partly owned technologies.
The accompanying condensed consolidated financial statements should
be read in conjunction with the following notes and with the consolidated
financial statements for the year ended December 31, 1999 and related notes
included in the Company's Registration Statement, as amended, on Form S-1
filed with the Securities and Exchange Commission. Information in the
accompanying condensed consolidated financial statements for the three months
ended March 31, 2000 and 1999 is unaudited. The condensed consolidated
financial statements as of and for the three months ended March 31, 2000 and
1999 have been prepared in accordance with generally accepted accounting
principles applicable to interim financial information and the rules and
regulations promulgated by the Securities and Exchange Commission.
Accordingly, such condensed consolidated financial statements do not include
all of the information and footnote disclosures required by generally
accepted accounting principles. In the opinion of the Company's management,
the March 31, 2000 and 1999 unaudited condensed consolidated interim
financial statements include all adjustments, consisting of normal recurring
adjustments necessary for a fair presentation of such condensed consolidated
financial statements. The results of operations for the three months ended
March 31, 2000 are not necessarily indicative of the results to be expected
for the entire year.
Certain reclassifications have been made to the 1999 financial
statements to conform to the current year presentation.
NOTE B- CERTAIN TRANSACTIONS
1. ISSUANCE OF COMMON STOCK - In January and February 2000, the Company
completed a private placement of units of its common stock, each unit
consisting of 66,000 shares of its common stock and 25,000 warrants.
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.
2. EXERCISES OF MEDIS EL STOCK OPTIONS - During January and February
2000, employees, including certain officers and a director of Medis
El, exercised an aggregate of 66,100 stock options for
consideration of $336,000.
6
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NOTE B- CERTAIN TRANSACTIONS (continued)
3. ACQUISITION BY MEDIS EL OF MINORITY INTEREST IN MORE ENERGY LTD. -
In January 2000, Medis El purchased an additional 5% of its
majority-owned subsidiary, More Energy Ltd., for an aggregate cash
purchase price of $50,000. Medis El accounted for this acquisition
of a minority interest using purchase accounting. The excess of
purchase price over the book value of the net assets acquired
aggregated $50,000 which was allocated to in-process research and
development, and was charged to research and development costs as
of the date of the acquisition. The project acquired was an
additional interest in the fuel cell technology that More Energy is
developing.
4. INVESTMENT IN MEDIS EL - On February 23, 2000, Medis El issued an
additional 107,759 shares to the Company for $2,500,000.
5. OPTION GRANTS - On February 21, 2000, the Board of Directors granted
an aggregate of 160,000 options under the 1999 Stock Option Plan to
employees of the Company, employees and directors of Medis El and
consultants to Medis El. The options have an exercise price of $5.00
per share. The options vest after two years and expire after four
years.
6. NEW TECHNOLOGY AGREEMENT - On March 26, 2000, the Company entered into
an agreement with an unaffiliated third party giving it the option to
analyze an advanced composite pipe technology developed and owned by
such party and subsequently enter into a joint venture to develop the
technology. If the Company decides to exercise the option, it will
be required to, among other things, finance the operations of the
joint venture for two years at $600,000 per year. The Company paid
$7,500 for the option, which expires on June 24, 2000. The Company has
not yet exercised such option.
7. PURCHASE OF SHARES OF MEDIS EL - During the three months ended
March 31, 2000 the Company exercised its option to repurchase an
aggregate of 30,000 of Medis El's ordinary shares from the designee
of an Argentinean company for an aggregate cash consideration of
$185,000, pursuant to the terms of a settlement agreement entered
into in November 1999 with such Argentinean company. The Company
recorded approximately $179,000 of acquired intangible assets and
goodwill arising from this transaction.
NOTE C - SUBSEQUENT EVENTS
1. EXCHANGE OFFER - On April 24, 2000, the Company commenced an offer
to exchange the approximately 36% of Medis El's ordinary shares not
already owned by it, at a conversion rate of 1.37 shares of the
Company's common stock for each Medis El ordinary share tendered.
The offer, scheduled to expire on May 22, 2000, has since been
extended through June 5, 2000.
2. AGREEMENT WITH PERUVIAN COMPANY - In April and May 2000, pursuant to
the terms of a June 1999 agreement, as supplemented, with a Peruvian
company, the Company transferred payments aggregating $110,000 to such
Peruvian company for the repurchase of a CellScan machine.
3. ACQUISITION BY MEDIS EL OF MINORITY INTEREST IN MORE ENERGY LTD. - In
April 2000, Medis El entered into an agreement to purchase an
additional 6.5% of More Energy for an aggregate purchase price of
$245,000. Such amount was paid in April and June 2000.
4. PURCHASE OF SHARES OF MEDIS EL - As of June 2, 2000, the Company
exercised its option to repurchase 30,000 additional ordinary
shares of Medis El from the designee of the Argentinean company
mentioned in Note B.7. above.
7
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NOTE D - LIQUIDITY
Since inception, the Company has incurred operating losses and has
used cash in its operations. Accordingly, the Company has relied on financing
activities, principally 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. However,
there can be no assurance that the Company will be able to continue to obtain
financing or successfully develop and market its technologies
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Some of the information in this quarterly report contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," and "continue" or similar words.
You should read statements that contain these words carefully because they:
- discuss our future expectations;
- contain projections of our future results of operations or of our
financial condition; or
- state other "forward-looking" information.
We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to accurately
predict or over which we have no control. The risk factors listed in our most
recent registration statement, as well as any cautionary language in this
quarterly report, provide examples of risks, uncertainties and events that
may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. You should be aware that the
occurrence of the events described in these risk factors and elsewhere in
this quarterly report could have a material adverse effect on our business,
operating results and financial condition.
INTRODUCTION
This presentation includes the operations of our wholly and
majority owned subsidiaries, including Medis El, unless we tell you otherwise.
RESULTS OF OPERATIONS
From our inception in April 1992 through March 31, 2000, we have
generated a cumulative net loss of $25,320,000. We expect to incur additional
operating losses during the remainder of 2000 and perhaps beyond, principally as
a result of our continuing anticipated research and development costs, and due
to anticipated limited sales of our technologies. Due to our limited funds
available for such purposes, we do not expect to substantially increase in the
future our research and development expenses beyond current levels until we are
able to generate revenues or receive funds from third parties for research and
development. If our funds continue to decrease due to our current spending
levels and we are unable to generate revenues or receive funds from third
parties for research and development, we expect to curtail development of one or
more technologies. Furthermore, for so long as our technologies remain in the
development or testing phase, we do not expect our selling, general and
administrative expenses to
8
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increase substantially from historical levels. 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 our revenues.
QUARTER ENDED MARCH 31, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
We sustained a net loss of $1,705,000 during the quarter ended
March 31, 2000 compared to $1,030,000 during the same period in 1999. The
increase can primarily be attributed to significant increases in research and
development costs and selling, general and administrative expenses.
Research and development costs increased to $781,000 for the quarter
ended March 31 2000, as compared to $384,000 during the quarter ended March 31,
1999. This increase can be largely attributed to increased research and
development activity pertaining to:
- the further refinement of the CellScan, in which we incurred costs of
approximately $485,000 in the quarter ended March 31, 2000 compared to
approximately $288,000 in the same quarter of 1999; and
- fuel cells, in which we incurred costs of approximately $143,000 in
the quarter ended March 31, 2000, including an expenditure of
$50,000 to acquire an additional 5% interest in Medis El's majority
owned subsidiary, More Energy, which represents acquired in-process
research and development, compared to approximately $38,000 during
the first quarter of 1999.
These increases in research and development were offset by a decline in costs
allocated to the development of the stirling cycle linear technology in the
first quarter of 2000 compared to the same period in 1999 and, during the
first quarter of 1999, the recording as a credit to research and development
expense a payment of $200,000 received under a December 1998 technology
development agreement with The Coca-Cola Company.
Selling, general and administrative expenses for the quarter ended March
31, 2000 were $830,000, compared to $328,000 for the quarter ended March 31,
1999. This increase can be primarily attributed to increases in legal,
accounting and related fees relating to our tender offer which commenced in
April 2000 for Medis El's outstanding ordinary shares not owned by us, higher
personnel costs and non-cash charges related to stock options.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations primarily through the
proceeds of investor equity financing, long-term bank loans, grants 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 a total of 581,004 shares of our common stock and
193,668 warrants for an aggregate of $2,324,000. The proceeds of such offerings
were used:
- for research and development projects with respect to our products
and technologies; and
- for selling, general and administrative expenses.
9
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In 2000, as of June 2, 2000, we issued a total of 637,000 shares of
our common stock and 240,833 warrants for an aggregate of approximately
$2,895,000. We used and intend to use the proceeds of such offering to fund
the further research and development of our products and technologies and for
selling, general and administrative expenses. Additionally, in 2000, as of
June 2, 2000, employees, including Medis El's executive vice president and
vice president-finance, and a director exercised an aggregate of 66,100
options to purchase a like number of Medis El's ordinary shares, for an
aggregate exercise price of approximately $336,000. The proceeds of such
option exercises are similarly being 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, as we intend that all
future financings of Medis El will be effected through Medis Technologies.
As of March 31, 2000, we had bank loans outstanding of $48,000, the
long-term portion of which was $9,000. These loans are guaranteed by the State
of Israel and collateralized by a floating lien on all of Medis El's assets. The
loans are repayable in New Israeli Shekels, linked to the dollar, and bear
interest at the rate of LIBOR plus 2.4% to 2.6% per annum.
For the quarter ended March 31, 2000, we used cash of $1,184,000 in
connection with our operating activities, as compared to $613,000 for the
quarter ended March 31, 1999. The increase was primarily attributable to the
increase in the net loss for the quarter, offset in part by changes in certain
working capital components.
For the quarter ended March 31, 2000, we used ($219,000) of cash in
our investing activities, compared to $440,000 being provided from investing
activities during the quarter ended March 31, 1999. During the quarter ended
March 31, 1999, the cash provided from investing activities was due principally
to the maturity of a short-term investment of $500,000, offset by capital
expenditures of $60,000. During the quarter ended March 31, 2000 the cash used
in investing activities was due to purchases of shares of Medis El and More
Energy aggregating $235,000 and capital expenditures of $6,000 offset by
proceeds from disposals of fixed assets of $22,000.
For the quarter ended March 31, 2000 we had cash provided by financing
activities of $3,182,000 compared to $747,000 for the quarter ended March 31,
2000. The increase was due to an increase in funds raised from private
placements of our securities which aggregated $2,895,000 in 2000 as compared to
$804,000 in 1999. Cash provided from financing activities during the three
months ended March 31, 2000 also included proceeds of $336,000 from the exercise
of Medis El stock options, of which there were none during the first quarter of
1999.
As of June 2, 2000, we had approximately $2,200,000 in cash and cash
equivalents. Our working capital and capital requirements at any given time
depend upon numerous factors, including, but not limited to:
- the progress of research and development programs;
- the status of Medis El's technologies;
- the results of pre-clinical testing and clinical trials;
- the timing and costs involved in obtaining regulatory approvals; and
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- 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 have received non-binding commitments from certain of our
warrant holders, including Mr. Robert K. Lifton, our chairman and chief
executive officer, and Mr. Howard Weingrow, our president, to exercise
outstanding warrants at an aggregate exercise price of approximately
$2,500,000. There can be no assurance that any of our warrant holders will
exercise their respective warrants. Management expects that our present
funds, including funds to be received from the exercise of outstanding
warrants, after one-time costs such as:
- the expected exercise of options, expiring June 30, 2000, representing
an additional 50% of the outstanding shares of New Devices Engineering
A.K.O. Ltd., a privately held company that owns a patent and related
applications to certain of our technologies, for an aggregate of
$60,000; and
- the expected reimbursement of funds aggregating $35,000 for patent
filing costs incurred by a shareholder of New Devices Engineering,
are sufficient to support our present activities for at least 12 months.
However, to the extent we are required to fund the costs necessary to obtain
regulatory approval of the CellScan, or upon our possible exercise of
options, expiring June 24, 2000, to finance the operations of a joint venture
to develop an advanced composite pipe technology, for an aggregate of
$600,000 per year, our current funds will not be sufficient to support our
activities for such time. Beyond such time, or, if we are required within the
next 12 months to fund the regulatory approval of the CellScan or exercise
our option, prior to such time, we will require capital infusions of cash
from investors, whether private investors or through companies or other
organizations assisting in the development of our technologies, to continue
our operations. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURE 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. Most acquisitions and payroll are paid in local currency.
Consideration for virtually all sales and Medis El's bank loans 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 losses in terms of Israeli currency adjusted for
the effects of changes in its purchasing power. In order to help minimize such
losses, Medis El currently invests its liquid funds in both dollar-linked and
Shekel 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:
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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)
During the three years ended December 31, 1991 and the four years ended December
31, 1996, 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 1999,
the rate of Israeli inflation was 1.3% and the NIS appreciated by .17% 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.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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., we commenced in January 2000 the repurchase 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. As of June 2, 2000, we have exercised
our right to repurchase 60,000 shares owned by such shareholder, out of
60,000 shares subject to such option.
In April and May 2000, pursuant to the terms of a June 1999 agreement,
as supplemented, with a Peruvian company, the Company transferred payments
aggregating $110,000 to such Peruvian company for the repurchase of a CellScan
machine.
We are not otherwise 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.
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In January and February 2000, we issued in a private placement an aggregate of
approximately 10 units to existing stockholders and new stockholders who are
accredited investors, each unit consisting of 66,000 shares of our common stock
and 25,000 warrants to purchase one share each of our common stock at an
exercise price of $5.75 per share, at a price of $300,000 per unit. Our net
proceeds from this financing were approximately $2,895,000.
Exemption from registration under the Securities Act of 1933, as amended, in
connection with the foregoing transactions, is claimed under Section 4(2) of
the Securities Act as a transaction by the issuer not involving a public
offering. Each certificate evidencing such shares of common stock bears an
appropriate restrictive legend and "stop transfer" orders are maintained on
our stock transfer records. None of these sales involved participation by an
underwriter or a broker-dealer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 22, 2000, prior to our being subject to the proxy requirements under
Section 14 of the Securities Exchange Act of 1934, as amended, and the rules
promulgated under such Act, stockholders beneficially holding 5,980,958 shares
of our common stock, representing 56.3% of our issued and outstanding shares, by
written consent, approved the filing with the Secretary of State of the State of
Delaware of our Restated Certificate of Incorporation.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized
/s/ ROBERT K. LIFTON
--------------------------
Robert K. Lifton
Chairman and Chief
Executive officer
(Principal Executive Officer)
/s/ ISRAEL FISHER
--------------------------
Israel Fisher
Vice President Finance
(Principal Financial and
Accounting Officer)
Date: June 5, 2000
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