<PAGE>
As filed with the Securities and Exchange Commission on February 11, 2000
Registration No. 333-83945
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
MEDIS TECHNOLOGIES LTD.
(Exact name of registrant as specified in its charter)
DELAWARE 8999 13-3669062
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Identification
Incorporation Code Number) Number)
or Organization)
805 Third Avenue
New York, New York 10022
(212) 935-8484
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
---------------------
ROBERT K. LIFTON, Chairman of the Board
MEDIS TECHNOLOGIES LTD.
805 Third Avenue
New York, New York 10022
(212) 935-8484
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent for Service)
---------------------
Copy to:
ELLIOT BRECHER, ESQ.
STEPHEN E. FOX, ESQ.
COOPERMAN LEVITT WINIKOFF LESTER & NEWMAN, P.C.
800 Third Avenue
New York, New York 10022
(212) 688-7000
Fax: (212) 755-2839
---------------------
Approximate date of commencement of proposed sale to the public: As soon
as possible after this Registration Statement becomes effective.
<PAGE>
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box. -
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering./ /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate offering registration
securities to be registered registered per share price fee
<S> <C> <C> <C> <C>
Common Stock, $.01 par value ............ 5,174,914 shs. (1) N/A $26,795,292.81(2) $7,450.00
Common Stock, $.01 par value............. 89,050 shs. (3) N/A $388,050.00(4) $102.45
Common Stock, $.01 par value............. 76,857 shs. (5) N/A $1,651,584.00(6) $436.02
Total.......................... 5,340,821 shs. N/A $28,834,926.81 $7,988.47(7)
</TABLE>
- ---------
(1) Represents the maximum number of shares of our common stock issuable upon
the consummation of the exchange offer for outstanding ordinary shares of
Medis El Ltd. issued as of July 28, 1999, based upon an exchange ratio of
1.37 of our shares of common stock for each Medis El ordinary share not
beneficially owned by us, assuming all Medis El
shareholders validly tender their Medis El ordinary shares.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(f)(1) under the Securities Act. Market value was based
upon the maximum number of the ordinary shares of Medis El issued as of
July 28, 1999 to be received by us in the exchange offer (3,777,310 shares)
multiplied by the average of the bid and asked price for an ordinary share
of Medis El as of the close of business on July 26, 1999, as provided under
Rule 457(c) ($7.09 per share).
(3) Represents the maximum number of shares of our common stock issuable upon
the consummation of the exchange offer for outstanding shares of Medis El
Ltd. issued subsequent to July 28, 1999 but not later than December 29,
1999, based upon an exchange ratio of 1.37 of our shares of common stock
for each Medis El ordinary share not beneficially owned by us, assuming all
Medis El shareholders validly tender their Medis El ordinary shares.
(4) Estimated solely for purpose of determining the registration fee
pursuant to Rule 457(f)(1) under the Securities Act. Market value was
based upon the maximum number of the ordinary shares of Medis El issued
subsequent to July 28, 1999 but not later than December 29, 1999, to be
received by us in the exchange offer (65,000 shares) multiplied by the
average of the bid and asked price for an ordinary share of Medis El as
of the close of business on December 27, 1999, as provided under Rule
457(c) ($5.97 per share).
(5) Represents the maximum number of shares of our common stock issuable upon
the consummation of the exchange offer for outstanding shares of Medis El
Ltd. issued subsequent to December 29, 1999, based upon the exchange ratio
of 1.37 of our shares of common stock for each Medis El ordinary share not
beneficially owned by us, assuming all Medis El shareholders validly tender
their Medis El ordinary shares.
(6) Estimated solely for purpose of determining the registration fee pursuant
to Rule 457(f)(l) under the Securities Act. Market value was based upon the
maximum number of the ordinary shares of Medis El issued subsequent to
December 31, 1999 to be received by us in the exchange offer (56,100
shares) multiplied by the average of the bid and asked price for an
ordinary share of Medis El as of the close of business on February 8, 2000,
as provided under Rule 457(c)
($29.44 per share).
(7) $7,552.45 already paid.
--------------
PURSUANT TO RULE 416(a), THIS REGISTRATION STATEMENT ALSO COVERS AN
INDETERMINATE NUMBER OF ADDITIONAL SHARES THAT MAY BECOME ISSUABLE AS A RESULT
OF ANTI-DILUTION ADJUSTMENTS DEEMED NECESSARY OR EQUITABLE BY OUR BOARD OF
DIRECTORS UPON STOCK SPLITS, STOCK DIVIDENDS OR OTHER SIMILAR CHANGES IN
CAPITALIZATION.
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
<PAGE>
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY
BE CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS
PRELIMINARY PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES IT SEEK
OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS
NOT PERMITTED.
--------------
<PAGE>
Subject to Completion, dated February 11, 2000
PROSPECTUS
MEDIS TECHNOLOGIES LTD.
--------------
This is an offer to exchange shares of our common stock for outstanding
ordinary shares of Medis El Ltd. We presently beneficially own approximately 63%
of Medis El's outstanding ordinary shares.
--------------
TERMS OF THIS EXCHANGE OFFER:
- - Each Medis El shareholder validly tendering his or her ordinary shares will
receive 1.37 shares of our common stock for each ordinary share tendered.
- - We will issue an aggregate of 5,298,352 shares of our common stock if all
outstanding Medis El ordinary shares not already owned by us are properly
tendered and not withdrawn.
- - This exchange offer will expire 5:00 p.m., New York City time,
on , 2000, unless extended.
- - You may withdraw any ordinary shares tendered by you at any time prior to
the expiration date of this exchange offer.
Please see the other important terms of this exchange offer under "The Exchange
Offer" which, together with the accompanying letter of transmittal,
set forth all of the terms of this exchange.
--------------
FOR A DISCUSSION OF THE RISKS THAT YOU SHOULD CONSIDER BEFORE TENDERING
YOUR MEDIS EL LTD. ORDINARY SHARES IN THIS EXCHANGE OFFER, PLEASE READ THE RISK
FACTORS BEGINNING ON PAGE 10.
--------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. It is illegal for any person to tell you
otherwise.
--------------
There is currently no public market for any of our securities. We
intend to have our common stock listed on the Nasdaq SmallCap Market under the
symbol MDTL upon the completion of this exchange offer.
--------------
, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
Prospectus Summary...............................................................................................1
Risk Factors....................................................................................................10
Determination of Exchange Ratio................................................................................ 20
The Exchange Offer............................................................................................. 24
Dividend Policy................................................................................................ 31
Price Range of Our Common Stock................................................................................ 31
Price Range of Medis El's Ordinary Shares...................................................................... 32
Capitalization................................................................................................. 33
Selected Consolidated Financial Data........................................................................... 34
Selected Consolidated Financial Data of Medis El............................................................... 35
Management's Discussion and Analysis of Financial Condition and Results of Operations.......................... 37
Business....................................................................................................... 45
Management..................................................................................................... 66
Principal Stockholders......................................................................................... 71
Certain Transactions........................................................................................... 74
Description of Our Securities.................................................................................. 76
Description of Medis El's Securities........................................................................... 77
Comparison of Rights of Stockholders of Medis Technologies
and Shareholders of Medis El................................................................................. 78
United States Federal Income Tax Consequences.................................................................. 86
Legal Matters.................................................................................................. 88
Experts........................................................................................................ 88
Where You Can Find More Information............................................................................ 88
Index to Financial Statements..................................................................................F-1
</TABLE>
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this
prospectus and may not contain all the information that is important to you. To
understand our business and this exchange offering fully, you should read this
entire prospectus carefully, including the financial statements and related
notes beginning on page F-1.
MEDIS TECHNOLOGIES LTD.
We serve as agent or distributor of technologies owned wholly or in
part by Medis El Ltd., an Israeli corporation of which we beneficially own
approximately 63%. Our goal, working in conjunction with Medis El, is to become
a greenhouse for the development of highly advanced, innovative proprietary
technology products. Our business strategy is to seek out "cutting edge"
technologies, acquire rights to such technologies, patent them and develop them
in-house to the point that a working prototype can be developed. We will then
offer to third parties the opportunity, as a joint venturer or licensee, to
participate in the continuing research and development necessary to
commercialize the product and bring it to market or seek an outright sale of the
technology. Our beliefs and estimates as to the feasibility of our technologies
are based upon the understanding of and expectations relating to such
technologies by the technical advisors and scientists employed by Medis El,
whose views may not prove to be accurate.
These technologies, which are in varying stages of development,
presently include:
- - CELLSCAN
The CellScan is a patented technology designed for the viewing
and testing of cells, which we believe has or potentially will have
diagnostic applications in the detection of breast, prostate and
gynecological cancers, as well as other diseases such as
atherosclerosis and tuberculosis, in addition to facilitating the
development of individualized chemotherapy for cancer patients. We also
believe the CellScan has potential research applications in gene
therapy and drug and vaccine development.
- - FUEL CELLS
Medis El is developing fuel cells, based upon proprietary
technology, with a special focus on portable electronics, to power cell
phones, laptop computers and camcorders, which we believe will be more
efficient, cost less to manufacture and last longer than currently
available fuel cell technology.
- - TOROIDAL ENGINE AND COMPRESSOR
The patented toroidal engine is an internal combustion engine
that is designed to be one-half the size and weight and, we believe, at
least 30% more efficient than currently available
<PAGE>
internal combustion engines. Medis El is also applying the principles
of the toroidal engine to develop a toroidal compressor for use in
refrigeration units, air conditioning units and for other applications
that we expect to be substantially smaller and more efficient than
currently available compressors.
- - STIRLING CYCLE LINEAR TECHNOLOGY
The stirling cycle linear technology is a patented
refrigeration and air conditioning system that, if successfully
developed, is expected to provide greater energy efficiency and
environmental sensitivity than current refrigeration and air
conditioning systems, thereby potentially saving considerable energy
costs and reducing emissions which may harm the environment.
- - RECIPROCATING ELECTRICAL MACHINE
The patented reciprocating electrical machine, if and when
developed, will utilize the back-and-forth motion of energy sources
such as wind or sea waves to convert that energy into electricity. We
believe the machine can reduce the cost of generating electricity by up
to 30% over conventional power sources.
- - DIRECT CURRENT REGULATING DEVICE
The patented direct current regulating device, if and when
developed, will enable the transmission of high levels of direct
current electrical energy without the need to convert such current into
alternate current electricity which, we believe, will eliminate the
need for AC power lines and will allow the transmission of electric
currents two-thirds higher than the current system.
- - WATER TECHNOLOGIES
- DEVICE FOR EXTRACTING WATER FROM THE ATMOSPHERE. Medis El is
seeking proprietary protection for what may prove to be an
efficient, low-cost device that would possess the capability
to generate sufficient water from the atmosphere to
satisfy an average household's daily needs.
- DESALINATION. Medis El is seeking proprietary protection for
what may prove to be a new method to reduce the energy
required for water desalination, thus reducing the cost of
generating potable water.
Our offices are located at 805 Third Avenue, New York, New York 10022,
and our telephone number is (212) 935-8484. We were incorporated in Delaware on
April 7, 1992 and changed our name to Cell Diagnostics Inc. in May 1992. We
changed our name to Medis Technologies Ltd. on July 7, 1999. Medis El's offices
and research and development facilities are
2
<PAGE>
located in Yehud, Israel. It also maintains a facility for production of certain
aspects of the CellScan in the high-tech community known as Har Hotzvim
Industrial Park in Jerusalem, Israel. Its Internet site can be accessed at
http://www.medisel.com.
3
<PAGE>
OWNERSHIP STRUCTURE
The following charts illustrate our ownership structure prior to and
subsequent to the proposed exchange:
PRIOR TO EXCHANGE
------------ -------------------- ------------
ISRAEL AIRCRAFT PUBLIC AND
PRIVATE INDUSTRIES LTD. --- PRIVATE
STOCKHOLDERS (Israel Corporation) | SHAREHOLDERS
------------ -------------------- | ------------
| 63% | 35.5% | |
----------------------- | |
MEDIS TECHNOLOGIES LTD. | |
(Delaware Corporation) | |
----------------------- | |
| | | |
--------------------- | 100% | 12% | 25%
| 100% ---------------------- | |
- ---------------------- MEDIS INC. | |
CDS DISTRIBUTOR, INC. (Delaware Corporation) | |
(Delaware Corporation) ---------------------- | |
- ---------------------- | 63% | |
---------------------- | |
MEDIS EL LTD. | |
(Israel Corporation) ------- |
PUBLIC COMPANY ------------------
---------------------
| 86.5%
---------------------
MORE ENERGY LTD.
(Israel Corporation)
---------------------
SUBSEQUENT TO EXCHANGE
(assuming all Medis El
ordinary shares are tendered)
------------ --------------------
PUBLIC AND ISRAEL AIRCRAFT
PRIVATE INDUSTRIES LTD.
STOCKHOLDERS (Israel Corporation)
------------ --------------------
| 65.5% | 34.5%
-----------------------
MEDIS TECHNOLOGIES LTD.
(Delaware Corporation)
PUBLIC COMPANY
-----------------------
| |
--------------------- | 100%
| 100% |
- ---------------------- ----------------------
CDS DISTRIBUTOR, INC. MEDIS INC.
(Delaware Corporation) (Delaware Corporation)
- ---------------------- ----------------------
| 100%
--------------------
MEDIS EL LTD.
(Israel Corporation)
--------------------
| 86.5%
--------------------
MORE ENERGY LTD.
(Israel Corporation)
--------------------
4
<PAGE>
THE EXCHANGE OFFER
Terms of the exchange offer...... We are offering to exchange shares of
our common stock for Medis El ordinary
shares at an exchange rate of 1.37 of our
shares of common stock for each Medis El
ordinary share validly tendered. To be
eligible to receive our common stock
pursuant to this exchange offer, you must
validly tender and not withdraw your Medis
El ordinary shares on or prior to
____________, 2000. If all outstanding
Medis El ordinary shares not currently
beneficially owned by us are exchanged
pursuant to this exchange offer, a maximum
of 5,298,352 shares of our common stock
will be exchanged for a maximum of
3,867,410 of Medis El's ordinary shares,
based on the number of Medis El ordinary
shares outstanding on February 9, 2000.
This offering is conditioned on the tender
and acceptance for exchange of at least
1,758,394 of Medis El's ordinary shares.
All Medis El ordinary shares tendered in
this exchange will be acquired by and owned
by Medis Inc., our wholly-owned subsidiary.
We also intend upon the successful completion
of this exchange offer to grant to each of the
current holders of options under Medis El's
stock option plan an option to purchase a
number of our shares based upon the same
exchange rate as this exchange offer. Each
grant is conditional upon such option holder's
agreement to forfeit his or her existing Medis
El options.
Determination of exchange ratio.. Our board of directors has determined the
exchange ratio of 1.37 based upon our internal
valuation of Medis El's technologies and our
business, which is primarily the value of our
distribution rights to the CellScan and agency
rights to the stirling cycle linear
technology. We then arbitrarily lowered the
valuation of our business, thus raising the
number of shares of our stock exchanged for
each Medis El share tendered, based upon
Israel Aircraft's disagreement with such
valuation and our desire to make the offer
more attractive to Medis El shareholders. We
are not making a recommendation to Medis El
shareholders as to whether or not to accept
this exchange offer due to the overlap of our
and Medis El's board of directors and the
non-arms-length nature of this transaction.
5
<PAGE>
Expiration date; extension;
amendments....................... The exchange offer and withdrawal rights will
expire at 5:00 P.M., New York City time, on ,
2000, unless we extend the offer in our sole
discretion .
We will make a public announcement as promptly
as practicable upon any extension, termination
or amendment of this exchange offer. If we
extend our offer, we will make an appropriate
public announcement regarding the extension no
later than 9:00 a.m., New York City time, on
the next business day after the previously
scheduled expiration date. In the event of a
fundamental change in the information set
forth in this prospectus, we shall amend the
registration statement of which this
prospectus is a part and recirculate this
prospectus.
Procedures for tendering
Medis El ordinary shares......... If you wish to accept this exchange offer, you
must complete, sign and date the letter of
transmittal which accompanies this prospectus
and deliver the letter of transmittal together
with certificate(s) representing the tendered
shares, if required, and any other required
documentation, to American Stock Transfer and
Trust Company, as exchange agent. If you hold
your shares through The Depository Trust
Company and wish to accept this exchange
offer, you may do so through DTC's Automated
Tender Offer Program, by which each tendering
participant will agree to be bound by the
accompanying letter of transmittal.
Special procedures for
beneficial owners................ If your Medis El ordinary shares are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee and you wish to tender such shares in
this exchange offer, you must:
- contact such registered holder promptly
and instruct such registered holder to
tender on your behalf; or
- prior to completing and executing the
letter of transmittal and delivering
your Medis El ordinary shares, either
make appropriate arrangements to
register ownership of your Medis El
shares in your own name or obtain a
properly completed stock power from
6
<PAGE>
the registered holder.
The transfer of registered ownership may
take considerable time and may not be able
to be completed prior to the expiration
date.
Guaranteed delivery
procedures....................... If you wish to tender your Medis El ordinary
shares but you are not immediately available
or you otherwise cannot deliver your shares,
the letter of transmittal or any other
documents required by the letter of
transmittal to the exchange agent prior to the
expiration date, you must tender your shares
according to the guaranteed delivery
procedures set forth in the section of this
prospectus entitled "The Exchange
Offer-Guaranteed Delivery Procedures."
Acceptance of Medis El's
ordinary shares and delivery of
our common stock................. Subject to the satisfaction or waiver of the
conditions to this exchange offer, we will
accept for exchange, through Medis Inc., any
and all Medis El ordinary shares which are
properly tendered prior to the expiration date
of this exchange offer. We will deliver our
shares of common stock on the earliest
practicable date following the expiration
date.
Withdrawal rights................ Subject to certain conditions, you may
withdraw your tendered shares at any time
prior to the expiration date of this exchange
offer.
No fractional shares ............ We will not distribute fractional shares to
any Medis El shareholder otherwise entitled to
receive a fractional share of our common
stock. Fractional shares of our common stock
shall be rounded up or down to the nearest
whole number, or to the higher whole number if
exactly one-half share.
United States federal
income tax consequences of
the exchange offer .............. You may be subject to certain United States
federal income tax consequences relating to
the exchange of our common stock for your
Medis El ordinary shares. Please see the
section of this prospectus entitled " United
States Federal Income Tax Consequences" for a
discussion of such consequences. We are not
including in this prospectus any discussion of
Israeli tax consequences which may be
7
<PAGE>
applicable to Medis El shareholders who are
Israeli citizens or an Israeli company.
Exchange agent................... American Stock Transfer and Trust Company, 40
Wall Street, New York, New York 10005, is
serving as the exchange agent in connection
with this exchange offer.
Failure to exchange your Medis El
ordinary shares ................. We will issue our common stock in exchange for
Medis El's ordinary shares only after timely
receipt by the exchange agent of such Medis El
shares, a properly completed and duly executed
letter of transmittal and all other required
documents. Therefore, if you desire to tender
your shares in exchange for our common stock,
you should allow sufficient time to ensure
timely delivery. Although we intend to notify
Medis El's shareholders of any defects or
irregularities with respect to their tender we
are not under any duty to do so. You will
experience, among other things, a lack of a
public trading market and subsequent lack of
liquidity of your Medis El ordinary shares if:
- you fail to tender your ordinary shares
for exchange; and
- we successfully complete this exchange
offer and delist Medis El's ordinary
shares from the Nasdaq SmallCap Market.
Any questions you have regarding the exchange offer, including
tendering procedures for your Medis El ordinary shares, should be directed to
American Stock Transfer and Trust Company as follows:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
(800) 937-5449 ext. 6820
8
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth our summary consolidated financial data
and should be read in conjunction with the consolidated financial statements and
related notes appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
(in thousands except per share data)
For the nine months
For the year ended December 31, ended September 30,
------------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1998 1999
--------- ---------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ -- $ -- $ -- $ -- $ 8 $ 8 $ --
Loss from operations.... (236) (231) (193) (2,811) (5,485) (3,945) (5,146)
Net loss................ (1,846) (1,623) (2,633) (1,544) (4,418) (3,281) (4,011)
Basic and diluted loss
per share............... (0.56) (0.47) (0.71) (0.33) (0.52) (0.39) (0.41)
Weighted average shares
outstanding.......... 3,287 3,460 3,734 4,645 8,582 8,444 9,743
<CAPTION>
BALANCE SHEET DATA:
(in thousands)
As of December 31, As of September 30,
------------------------------------------------------------ -------------------------------------------
1994 1995 1996 1997 1998 Actual As Adjusted (1) As Adjusted
--------- ---------- ---------- --------- ---------- ---------- ---------------- ------------
(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Working capital
(deficiency)......... $ 663 $ (686) $ (1,728) $ 266 $ 3,536 $ 2,705 $ 2,705 $ 2,705
Total assets............ 5,522 3,819 3,621 14,433 14,755 12,173 22,160 34,124
Long term debt,
excluding current
maturities........... 6,473 2,000 1,000 338 96 12 12 12
Accumulated deficit..... (7,536) (9,117) (11,688) (13,232) (17,650) (21,661) (21,836) (22,046)
Total stockholders'
(deficiency) equity.. (1,399) (2,980) (1,645) 11,378 12,406 10,196 22,160 33,257
</TABLE>
- -------------------
(1) As adjusted to reflect our acquisition in the exchange offer of 80% of Medis
El's ordinary shares not owned by us, and the issuance of 2,408,998 shares of
our common stock in exchange for these shares. Also gives effect to acquired
intangible technology assets and goodwill of $9,987,000 (net of $175,000 of
in-process research and development costs to be charged to expense on the date
of acquisition) resulting from the exchange. See Note A to our unaudited pro
forma consolidated balance sheet assuming 80% of the shares are tendered.
(2) As adjusted to reflect our acquisition in the exchange offer of 100% of
Medis El's ordinary shares not owned by us, and the issuance of 5,298,352 shares
of our common stock in exchange for these shares. Also gives effect to acquired
intangible technology assets and goodwill of $21,951,000 (net of $385,000 of
in-process research and development costs to be charged to expense on the date
of acquisition) resulting from the exchange. See Note A to our unaudited pro
forma consolidated balance sheet assuming 100% of the shares are tendered.
9
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, as well as
the other information contained in this prospectus, before exchanging your Medis
El ordinary shares for our common stock. Unless otherwise noted, the risk
factors set forth below apply to us and Medis El, and affect you whether you are
our stockholder or Medis El's shareholder, as we have conducted all of our
operating activities through Medis El and we beneficially own approximately 63%
of Medis El. To the extent Medis El's business and operating results are
materially adversely affected, our business and operating results will be
similarly affected.
RISKS RELATED TO OPERATIONAL MATTERS
WE HAVE NOT BEEN PROFITABLE AND MAY NOT BECOME PROFITABLE, IN WHICH EVENT WE MAY
BE UNABLE TO FUND FURTHER RESEARCH AND DEVELOPMENT OF OUR TECHNOLOGIES OR
CONTINUE TO CARRY ON DAY-TO-DAY OPERATIONS
We have experienced net losses since our inception in April 1992 and on
a consolidated basis with Medis El since 1997. There can be no assurance that we
will ever achieve profitability if Medis El is unable to successfully develop
and market one or more of its technologies or if they fail to achieve widespread
acceptance. 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 September 30, 1999, we had
an accumulated deficit of approximately $21,661,000. We anticipate incurring
substantial future losses until such time as:
- - Medis El successfully develops one or more of its technologies; and
- - it enters into license, sales or joint venture agreements with third
parties pursuant to which such third parties successfully
commercialize, market and sell the developed products.
We do not expect this to happen, if at all, until, at a minimum, 15
months from the date of this prospectus.
MEDIS EL'S TECHNOLOGIES, MANY OF WHICH ARE IN EARLY STAGES OF DEVELOPMENT, MAY
NOT BE CAPABLE OF COMMERCIAL EXPLOITATION DUE TO CONCEPTUAL ERRORS OR
TECHNOLOGICAL SETBACKS, WHICH WOULD PREVENT US FROM GENERATING REVENUES
Developing a technology into a marketable product is a risky, time
consuming and expensive process. You may anticipate that in seeking to develop
our technologies, we will encounter setbacks, discrepancies requiring time
consuming and costly redesigns and changes and the possibility of outright
failure. Each of our development stage technologies and the further refinement
of the CellScan is subject to these risks.
10
<PAGE>
WE WILL BE UNABLE TO MARKET OR SELL ANY OF OUR 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
capabilities, our ability to market and sell our 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, and failure would prevent us from marketing and selling our
technologies if and when ready for commercial exploitation.
IF THE MARKET REJECTS THE USE OF OUR TECHNOLOGIES, MANY OF WHICH ARE UNFAMILIAR,
WE WILL BE UNABLE TO GENERATE REVENUES
We, together with Medis El, are developing products that represent
alternatives to traditional products and methods, and as a result, our products
may be slow to achieve, or may not achieve, market acceptance since potential
customers may seek further validation of the efficiency and efficacy of the
products before making an investment. This is particularly true where the
technology underlying the product is untried and where implementation of the
technology requires a significant capital commitment, such as with our
reciprocating electrical machine and direct current regulating device.
OUR EFFORTS TO PROTECT MEDIS EL'S INTELLECTUAL PROPERTY MAY NOT OFFER SUFFICIENT
PROTECTION, WHICH COULD HINDER OUR GROWTH AND SUCCESS
We regard Medis El's patents, trade secrets, copyrights and similar
intellectual property rights as essential to our growth and success. Medis El
relies 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 its
proprietary rights. Medis El owns, directly or indirectly through subsidiaries
or companies in which it has an interest, patents for certain technologies and
is currently applying for additional patents. There can be no assurance that
Medis El will succeed in receiving patent and other proprietary protection in
all markets it enters, or, if successful, that such protection will be
sufficient. If Medis El successfully develops and markets any or all of its
technologies, we expect to face efforts by larger companies and other
organizations or authorities to undermine Medis El's patent by challenging or
copying its intellectual property. Moreover, intellectual property rights are
not protected in certain parts of the world. We intend to vigorously defend
Medis El's 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
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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, WHICH WE HAVE NO ASSURANCE OF
OBTAINING, WE MAY 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 may depend upon continuous outside funding of
operations. As of February 1, 2000, we and Medis El had cash and cash
equivalents of approximately $4,300,000, which we expect to be sufficient to
support our activities for at least 12 months from such date after possible
one-time charges such as the repurchase of a CellScan machine and purchase of
additional shares of our non-wholly-owned subsidiaries. We have historically
been a major source of funds for Medis El, having lent or invested in Medis
El approximately $10,340,000 since its inception. There can be no assurance
that we will have the required funds on hand or commitments for such funds to
meet Medis El's future financial obligations, if necessary, or that a third
party will be willing to make such funds available. Our and Medis El's
failure to raise additional funds could require us to curtail development of
one or more of our technologies. Furthermore, Medis El's failure to
successfully develop or market its technologies may materially adversely
affect its or 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 each of the technologies, or of the funds required to
establish or otherwise procure adequate manufacturing capacity or to market
the products on a worldwide basis. If available funds should prove
insufficient, there can be no assurance that we or Medis El will be able to
procure the required additional funding, which would curtail development of
one or more of Medis El's technologies.
OUR ABILITY TO MARKET THE CELLSCAN MAY BE LIMITED BY UNITED STATES AND FOREIGN
GOVERNMENT REGULATIONS AND WE MAY INCUR SUBSTANTIAL COSTS IN OBTAINING APPROVAL
AND IN MAINTAINING COMPLIANCE WITH SUCH REGULATIONS
We believe that we will be unable to market or sell the CellScan in
the United States other than for limited research or investigational use, as
defined in the FDA's regulations, unless and until the FDA has exempted the
CellScan from its market clearance requirements or, if not so exempted, until
the FDA either clears a notification under Section 510(k) of the Federal
Food, Drug and Cosmetics Act or approves an application for premarket
approval. We believe it may take more than 2 years to obtain either 510(k)
clearance or premarket approval, which approval can be expensive to obtain and
uncertain. We do not intend to apply for such clearance or premarket approval
ourselves. Rather, we expect our marketing partner or a purchaser of the
technology to apply for, acquire and maintain regulatory compliance. However,
we are required under our distribution arrangement with Medis El to fund up
to $1,500,000 of the costs necessary to obtain regulatory approval, which
funds we may not be able to obtain.
There can be no assurance that the CellScan, if and when submitted to
the FDA, will ultimately receive clearance for use as a diagnostic device.
Nations other than the United States have varying patterns of regulation
governing the use of medical diagnostic devices, some of which require clearance
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or approval comparable to the regulatory pattern in the United States. In those
jurisdictions where more than perfunctory clearance or approval is required, the
CellScan will not be able to be marketed unless and until the required clearance
or approval is obtained.
IF WE WERE TO LOSE MEMBERS OF OUR SENIOR MANAGEMENT AND COULD NOT FIND
APPROPRIATE REPLACEMENTS IN A TIMELY MANNER, WE MAY HAVE DIFFICULTY SEEKING NEW
PRODUCTS FOR DEVELOPMENT AND MARKETING SUCH PRODUCTS FOR COMMERCIAL EXPLOITATION
Our and Medis El's success depends to a significant extent upon Zvi
Rehavi and the scientists, engineers and technicians that seek out, recognize
and develop Medis El's technologies and to a lesser extent on a number of
management and technical personnel employed by Medis El. The loss of the
services of Mr. Rehavi or any of Medis El's technical talent could have a
material adverse effect on Medis El's ability to seek new products for
development and market such products for commercial exploitation. Medis El
possesses key-person life insurance of $245,000 on Mr. Rehavi. Although all of
Medis El's employees are subject to employment agreements with Medis El, the
majority of which are automatically renewable on an annual basis, either party
may terminate such agreement upon notice to the other. The length of such notice
varies depending upon the individual, from 30 days to 180 days in length. Our
future success will depend to a great extent upon Medis El's and our continued
ability to attract and retain highly skilled technical, managerial and marketing
personnel. Competition for such personnel is intense and we cannot assure
investors that Medis El or we will be able to attract and/or retain such
personnel.
WE MAY BE EXPOSED TO PRODUCT LIABILITY RISKS IF OUR TECHNOLOGIES ARE
SUCCESSFULLY COMMERCIALIZED AND MARKETED, WHICH MAY CAUSE SUBSTANTIAL ADDITIONAL
EXPENSE AND POSSIBLE ADVERSE PUBLICITY
The sale of any of our products, especially the CellScan as a medical
diagnostic device, in the marketplace may expose us to potential liability risks
and adverse publicity with respect to such products. Although we have product
liability insurance for the CellScan, there can be no assurance that a product
liability claim would not exceed the amount of coverage under such insurance
which could cause substantial additional out-of-pocket expense to defend against
or to pay damages.
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 shareholders. 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.
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THE LARGE AMOUNT OF ACQUIRED INTANGIBLE TECHNOLOGY ASSETS AND GOODWILL ON OUR
BALANCE SHEET WILL BE CHARGED AS AN EXPENSE AGAINST FUTURE EARNINGS AND
ADVERSELY AFFECT STOCKHOLDERS EQUITY, WHICH COULD CAUSE OUR STOCK PRICE TO DROP.
On December 15, 1997, we acquired the 40% share of Medis Inc. not owned
by us for an aggregate purchase price of $13,125,000, of which $12,227,000 was
allocated to acquired technology assets and goodwill. At September 30, 1999, the
unamortized balance of such technology assets and goodwill aggregated
$7,727,000. Such balance will be charged to expense over the remaining useful
lives of such assets, which is three years, in equal amounts of approximately
$2,500,000. Such expense and the consequent adverse effect on our stockholders'
equity may have a material adverse effect on our stock price.
Additionally, upon the successful completion of this exchange offer, we
will acquire either an additional 17% interest in Medis El, if 80% of Medis El
shares are tendered, or 37% interest in Medis El, if 100% of Medis El shares are
tendered. Consequently, we will acquire technology assets and goodwill
aggregating $9,987,000 if 80% of Medis El shares are tendered and technology
assets and goodwill aggregating $21,951,000 if 100% of Medis El shares are
tendered. Acquired technology assets, which relate to the CellScan technology,
will be charged to expense over its remaining useful life at the date of
acquisition, which is approximately three years as of December 31, 1999.
Goodwill acquired in this exchange offer will be charged to expense over its
useful life of five years. Additional charges to expense relating to these
assets may have the same effect on our stock price as discussed above.
RISKS ASSOCIATED WITH FOREIGN COUNTRIES
HOSTILITIES WITH NEIGHBORING COUNTRIES OR THE INTERRUPTION OR CURTAILMENT OF
TRADE BETWEEN ISRAEL AND ANY OF ITS TRADING PARTNERS COULD MATERIALLY ADVERSELY
AFFECT MEDIS EL'S ABILITY TO COMPLETE EACH TECHNOLOGY'S DEVELOPMENT OR ITS
ABILITY TO SUPPLY JOINT VENTURE PARTNERS OR LICENSEES
Medis El's offices and most of its manufacturing, research and
development facilities are located in the State of Israel. Medis El and
consequently we are 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 Medis El's ability to complete
the development of any of the technologies or its ability to supply the
technology to development partners or vendors. Furthermore, any interruption or
curtailment of trade between Israel and any other country in which Medis El has
strategic relationships could similarly adversely affect such relationships. In
addition, all male adult permanent residents of Israel under the age of 54,
unless exempt, are obligated to perform up to 44 days of military reserve duty
annually and are subject to being called to active duty at any time under
emergency circumstances. Some of Medis El's employees are currently obligated to
perform annual reserve duty. We are unable to assess what impact, if any, these
factors may have upon our future operations.
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In addition, high inflation and the devaluation of Israel's currency,
the New Israeli Shekel, compared to the U.S. dollar may have a negative impact
on Medis El's NIS-based obligations over time upon substantial price increases
caused by inflation.
RUSSIA'S POLITICAL AND ECONOMIC INSTABILITY COULD MATERIALLY ADVERSELY AFFECT
MEDIS EL'S ABILITY TO COMPLETE DEVELOPMENT OF THE TOROIDAL ENGINE AND TOROIDAL
COMPRESSOR
The development of the toroidal engine and compressor are taking place
in Russia. Russia has experienced and is continuing to experience both political
and economic instability, including, recently, the sudden resignation of
President Boris Yeltsin and subsequent appointment of Vladimir Putin as acting
president, the successive turnover of persons holding the positions of prime
minister and other upper level government ministers, the devaluation of the
ruble and problems affecting the bailout of Russia's economy by the
International Monetary Fund. In addition, recent terrorist bombings in populated
areas and armed conflicts involving separatist groups in Chechnya and elsewhere
in the former Soviet Empire has resulted in widespread demands for the return to
a more autocratic government structure. We are unable to assess what impact, if
any, these factors may have upon the continued development of the toroidal
engine and compressor.
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, MEDIS EL OR OUR OFFICERS AND DIRECTORS, INDIVIDUALLY OR IN
THE AGGREGATE
Service of process upon our and Medis El's 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
Medis El may not be collectible within the United States to the extent Medis
El's assets are located outside the United States. This could limit the ability
of our stockholders to sue us or Medis El 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:
- - due service of process has been effected and the defendant was given a
reasonable opportunity to defend;
- - 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;
- - 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
- - 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.
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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.
RISKS RELATED TO THIS OFFERING
OUR CURRENT STOCKHOLDERS WILL CONTINUE TO CONTROL OUR AFFAIRS, WHICH MAY
PRECLUDE OTHER STOCKHOLDERS FROM INFLUENCING OUR CORPORATE DECISIONS
Upon completion of this exchange offer, our five largest current
stockholders, which includes some of our officers and directors and a
corporation controlled by such officers and directors, collectively, will
beneficially own approximately 43% of the then issued and outstanding shares of
our 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.
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, which
we estimate to be, at a minimum, fifteen months from the date of this
prospectus. Our board presently intends to retain all earnings, if any, for use
in our business operations.
IF WE ARE UNABLE TO DEVELOP A PUBLIC MARKET FOR OUR SHARES, OUR STOCKHOLDERS MAY
HAVE DIFFICULTY SELLING OR TRADING OUR COMMON STOCK
Prior to this offering, there has been no public market for our common
stock, and there can be no assurance that such a market will develop at the
conclusion of this offering or, if such a market should develop, that it will be
sustained. Even though we believe our strategies, successes and failures
parallel those of Medis El, the historical market for Medis El's ordinary shares
may not be indicative of the future market for our common stock. The lack of a
sustainable trading market may make it difficult for our stockholders to sell or
otherwise trade their common stock.
OUR INABILITY TO ACHIEVE A NASDAQ LISTING FOR OUR COMMON STOCK COULD ADVERSELY
AFFECT BOTH THEIR LIQUIDITY AND MARKET PRICE
If we do not satisfy the initial listing requirements of the Nasdaq
SmallCap Market, we expect our common stock to be traded in the over-the-counter
market. We anticipate that they will be quoted on the OTC Bulletin Board, an
NASD sponsored and operated inter-dealer automated quotation system for equity
securities not included in the Nasdaq Stock Market, as well as in the NQB Pink
Sheets. The liquidity and prices of our securities may be adversely affected if
our common stock is quoted on the OTC Bulletin Board and the NQB Pink Sheets
instead of the Nasdaq SmallCap Market.
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FAILURE TO LIST OUR COMMON STOCK ON THE NASDAQ SMALLCAP MARKET WOULD SUBJECT US
TO THE SEC'S "PENNY STOCK RULES" IF OUR COMMON STOCK FALLS BELOW $5.00 PER
SHARE, WHICH MAY DISCOURAGE BROKER-DEALERS FROM EFFECTING TRANSACTIONS IN OUR
COMMON STOCK
If we are unable to list our common stock on the Nasdaq SmallCap Market
upon the completion of this exchange offer and the trading price of our common
stock were to fall below $5.00 per share, trading in our securities would be
subject to the requirements of the SEC's penny stock rules. These rules require
the delivery prior to any penny stock transaction of a disclosure schedule
explaining the penny stock market and all associated risks and impose various
sales practice requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors, which are generally
defined as institutions or an investor with a net worth in excess of $1,000,000
or annual income exceeding $200,000 or $300,000 together with a spouse. For
these types of transactions the broker-dealer must make a special suitability
determination for the purchaser and have received the purchaser's written
consent to the transaction prior to sale. In addition, broker-dealers must
disclose commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities they offer. The
additional burdens imposed upon broker-dealers by such requirements may
discourage broker-dealers from effecting transactions in our common stock which
could severely limit its market price and liquidity.
WE ARE CONCURRENTLY REGISTERING, OR SHORTLY INTEND TO REGISTER, ALL OF OUR
SHARES OF OUR COMMON STOCK UNDERLYING OUTSTANDING OPTIONS AND WARRANTS, AS WELL
AS A SIGNIFICANT NUMBER OF OUR CURRENTLY OUTSTANDING SHARES OF COMMON STOCK TO
PERMIT THEIR OFFER AND SALE BY THEIR RESPECTIVE OWNERS UPON THE CLOSING OF, AND
PROMPTLY AFTER THE CLOSING OF, THIS EXCHANGE OFFER, WHICH COULD ADVERSELY AFFECT
THE PRICE OF OUR PUBLICLY TRADED COMMON STOCK
We have filed a registration statement covering 9,175,330 shares of our
common stock for the respective accounts of certain persons named therein,
including certain of our officers and directors and their affiliates, which,
when declared effective, will permit such persons to publicly offer all or
lesser portions of such shares for public sale.
We also intend to file an additional registration statement covering
shares of stock issuable upon exercises of options granted under our stock
option plan promptly after the closing of this exchange offer. Based on the
number of outstanding options as of the date of this prospectus, subsequent
to the successful completion of this exchange offer, we expect the number of
such shares to approximate 722,630, which number includes options to be
issued to Medis El option holders at an exchange rate of 1.37 subsequent to
the successful completion of this exchange offer.
Future sales of substantial amounts of our common stock in the public
market, or even the ability of our stockholders to sell substantial amounts of
stock, could adversely affect the market price for our common stock and could
impair our future ability to raise capital through the sale of our equity
securities.
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WE INTEND, IF THIS EXCHANGE OFFER IS SUCCESSFUL, TO DELIST MEDIS EL FROM THE
NASDAQ SMALLCAP MARKET, IN WHICH CASE MEDIS EL'S SHAREHOLDERS WHO DO NOT TENDER
THEIR SHARES WILL LIKELY FIND IT DIFFICULT TO DISPOSE OF, OR TO OBTAIN
QUOTATIONS AS TO THE PRICE OF, MEDIS EL'S ORDINARY SHARES
The successful completion of this exchange offer will reduce the number
of holders of Medis El's ordinary shares and the number of such shares that
might otherwise trade publicly, and will adversely affect the liquidity and
market value of the remaining shares held by the public. We intend, after the
successful completion of this exchange offer, to delist Medis El's ordinary
shares from the Nasdaq SmallCap Market. In such event, Medis El's non-tendering
shareholders would likely find it more difficult to dispose of, or to obtain
quotations, as to the price of Medis El's ordinary shares.
OUR LARGE NUMBER OF WARRANTS AND OPTIONS OUTSTANDING, IF EXERCISED, AND FUTURE
SALES, IF ANY, OF OUR EQUITY SECURITIES WILL CAUSE OUR INVESTORS TO INCUR
IMMEDIATE DILUTION IN FUTURE EARNINGS PER SHARE, IF ANY, AND IN EACH
NON-EXERCISING STOCKHOLDER'S PERCENTAGE OWNERSHIP OF OUR STOCK
Upon the completion of this exchange offer and the concurrent exchange
in accordance with the exchange ratio of options to acquire our common stock for
those covering Medis El ordinary shares, we will have warrants and options
outstanding to purchase approximately 2,565,420 shares of our common stock
which, if exercised, will cause our stockholders to incur substantial dilution
in future earning per share, if any, and in our non-exercising stockholders'
percentage ownership of such common stock. Additionally, future sales of our
equity, if any, will also cause our stockholders to incur substantial dilution
in future earnings per share, if any, and in their respective percentage
ownership of our stock.
NON-UNITED STATES CITIZENS EXCHANGING THEIR ORDINARY SHARES FOR OUR SHARES OF
COMMON STOCK MAY CAUSE SUCH HOLDERS OF ORDINARY SHARES ADVERSE TAX CONSEQUENCES.
We have not included in this prospectus a discussion of the tax
consequences that may affect non-U.S. Medis El shareholders upon the exchange of
their Medis El ordinary shares for shares of our common stock. Tendering Medis
El ordinary shares in this exchange offer may cause the holders of such shares
adverse tax consequences. We advise all of Medis El's shareholders to consult
such holders' own tax advisor as to the specific tax consequences of this
exchange offer to such holder.
FORWARD LOOKING STATEMENTS FOUND IN THIS PROSPECTUS MAY NOT BE ACCURATE
INDICATORS OF OUR FUTURE PERFORMANCE
This prospectus contains certain forward-looking statements and
information relating to Medis Technologies Ltd. and Medis El Ltd. We identify
forward-looking statements in this prospectus using words such as the following
and other similar statements:
"believes" "intends" "plans" "expects"
"predicts" "may" "will" "would"
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"should" "contemplates" "anticipates"
These statements are based on our beliefs as well as assumptions we
made using information currently available to us by Medis El and others. Because
these statements reflect our current views concerning future events as they
relate to us and Medis El, these statements involve certain risks, uncertainties
and assumptions which may be significantly more adverse than the results or
expectations discussed in the forward-looking statements.
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DETERMINATION OF EXCHANGE RATIO
The determination of the exchange ratio was arrived at in a series of
meetings and telephonic discussions among:
- - Robert K. Lifton, our chairman and chief executive officer, who is also
Medis El's chairman;
- - Howard Weingrow, our president, treasurer and a director, who is also a
director of Medis El; and
- - Jacob Weiss, the corporate vice president and general counsel of Israel
Aircraft Industries Ltd., our single largest stockholder, which is also
an approximately 12% shareholder of Medis El. Mr. Weiss is also a
director of both us and Medis El.
In determining the exchange ratio, we considered the use of
conventional valuation criteria such as comparable company analysis, comparable
market price analysis and comparable book value analysis, but concluded that the
use of these modalities would be inappropriate. We do not believe that there are
any comparable companies to either Medis Technologies or Medis El and since we
were not a public company, a comparable market price analysis would have been
inappropriate. A comparative book value analysis at March 31, 1999 reflected
$3,369,000 for Medis El and $3,112,000 for us after eliminating our equity
interest in Medis El, yielding a ratio of 1.08 to 1.00. We did not believe,
however, that such a comparison was appropriate because it did not take into
account the value of the shares of Medis El owned by us. Furthermore, other
conventional valuation criteria such as comparing discounted cash flow were
believed to be inappropriate given that both we and Medis El had negligible
current cash flow and future cash flows could not reasonably be estimated from
operations.
Instead, we based our determination of the exchange ratio upon the
assumption that the value of our business can be indirectly derived from the
market value of Medis El's stock, which we presumed reflected the market's
perception of the value of Medis El's technologies.
We assumed in determining the value of our business that the CellScan,
being the most commercially advanced of Medis El's technologies, and upon which
Medis El had spent the most money to develop, represented 75% of Medis El's
total market value. Medis El's market capitalization at that time was
approximately $72,000,000, based upon a then $7.00 per share market price. The
CellScan therefore represented $54,000,000 of the then market value of Medis El.
We then sought to value our U.S. distribution rights to the CellScan technology.
Based on :
- - our understanding of the industry for the closest comparable
technologies to the CellScan such as flow cytometer, we believed that
the U.S. would represent approximately 50% of the potential world
market for the CellScan; and
- - our expectations in accordance with our distribution agreement that our
distribution relationship with Medis El would result in a profit equal
to 50% of the manufacturer's net profit upon each sale of a CellScan
and a test kit,
we valued the distribution rights as equal to 25% of the total value of the
CellScan technology. Based
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upon such valuation, we concluded the then value of our distribution rights to
the CellScan technology to be $13,500,000.
We then sought to value our agency rights to our stirling cycle linear
technology. We assumed that based on the linear technology's proximity to
commercialization and sums spent for development thus far, this technology
should be valued at 10% of Medis El's market capitalization of $72,000,000, or
$7,200,000. Using 10% as a starting point, which represents our agency fees upon
the sale of a finished product pursuant to our exclusive agency agreement with
Medis El, we arbitrarily valued the agency rights, net of anticipated costs such
as:
- - developing and implementing marketing campaigns;
- - locating potential licensees and coordinating the preparation and
negotiation of licensing arrangements; and
- - maintaining sufficient facilities and staff to implement the terms of
the agency,
as equal to 8% of the total value of the linear technology. Based upon such
valuation, we concluded the then value of our agency rights to the stirling
cycle linear technology to be approximately $576,000.
Therefore, the value we attributed to our business based on our
distribution and agency rights was $14,076,000. We then added the value of
our ownership in Medis El to our business value, which was obtained by taking
6,643,000, the number of Medis El's ordinary shares we owned, and multiplying
that number by Medis El's per share market price at that time of $7.00, giving a
market value to our ownership of Medis El at $46,501,000. We then added the
market value of our ownership in Medis El to the value of our assumed
distribution and agency rights, resulting in an assumed business value of
$60,577,000.
We then arbitrarily reduced our assumed business value by $2,500,000 to
$58,077,000, to reflect the following considerations:
- - the fact that Medis El's cash position at March 31, 1999 exceeded our
cash position by approximately $1,745,000; and
- - the fact that we are required to contribute $1,500,000 towards the cost
of applying for regulatory clearance pursuant to our distribution
rights agreement.
Dividing such value by our then outstanding 9,900,000 shares, we
arrived at a per share value of $5.87 per share of our common stock.
We then calculated an initial exchange ratio by dividing Medis El's
then market price, $7.00, by $5.87, yielding an exchange ratio of 1.19.
We presented all of these factors to Israel Aircraft, who expressed the
view that the values we assigned to our business should be reduced, which
consequently would increase the number of our shares to be offered for each
Medis El share tendered and, in particular, increase the number of our
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shares to be issued to Israel Aircraft. Based on these discussions with Israel
Aircraft, we then arbitrarily lowered the value of our business to $50,501,000,
which raised the proposed exchange ratio to 1.37 shares of our common stock for
each ordinary share of Medis El tendered. Medis El shareholders would therefore
receive more of our shares for each Medis El share tendered which would make our
offer more attractive to Medis El shareholders.
Upon the conclusion of these discussions, the feasibility of the
exchange offer compared to other alternatives, such as merging Medis El into a
U.S. company created for such purpose and then doing an initial public offering,
and the proposed exchange ratio were presented to the other members of our board
of directors, who are also members of Medis El's board of directors. The full
board of directors reviewed the feasibility of the exchange offer and the
determination of the proposed exchange ratio and determined:
- - the exchange offer to be the most feasible alternative based on cost
factors, timing and Israeli law issues; and
- - the determination of the exchange ratio to be fair and equitable.
Based upon Israel Aircraft's key role in the discussions, we believe
that it will tender its Medis El ordinary shares, although Israel Aircraft made
no binding commitment to such effect.
While we attempted to be both objective and fair in placing a value on
Medis El's technologies and our distribution and agency rights with respect to
such technologies, we did not use conventional means of valuation modalities.
Further, because of the overlapping nature of both boards, the negotiations to
establish the exchange ratio must be viewed as non-arms-length. Consequently,
the exchange ratio may be deemed to have been arbitrarily determined. We did not
obtain an opinion from an investment banker concerning the fairness from a
financial point of view of the terms of this exchange offer from the perspective
of a Medis El shareholder nor did we or Medis El appoint and fund a special
committee of our board to help determine the exchange ratio, as we had limited
funds available to implement this exchange offer and the sums needed for such
purposes, in our judgment, were better spent on our operations. The board of
directors of Medis El, which is the same as our board of directors, is not
making a recommendation as to whether or not to accept this exchange offer in
view of the non-arms- length nature of this transaction. You, as a Medis El
shareholder, should make your own determination based upon your own investment
objectives, following careful consideration of the information contained in this
prospectus.
As a result of this transaction, the respective equity interests of
Messrs. Lifton and Weingrow and Israel Aircraft in Medis Technologies will be
reduced and the respective equity interests of Messrs. Weiss, Eiran and Nahmoni
in Medis Technologies will increase from no interest to less than 1%. For a
table setting forth the exact number and percentage of shares owned by our
officers, directors and affiliates prior to and upon completion of this exchange
offer, please see the section of this prospectus entitled "Principal
Stockholders."
22
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
We are offering to exchange 1.37 of our shares of common stock for each
properly tendered Medis El ordinary share. Only whole shares of our common stock
will be issued in exchange for Medis El ordinary shares. If any fractional share
is called for upon the exchange of any Medis El ordinary share, such fractional
share shall be rounded up or down to the nearest whole number, or to the higher
whole number if exactly one-half share. We will not issue certificates or scrip
representing fractional shares of our common stock.
As of the date of this prospectus, Medis El had 10,545,081 ordinary
shares outstanding. As of the same date, we beneficially owned 6,677,671, or
approximately 63%, of such ordinary shares. We intend to offer our shares in
this exchange through Medis Inc., our wholly-owned subsidiary. All Medis El
ordinary shares tendered in this exchange will be acquired by and held
by Medis Inc.
If all outstanding Medis El ordinary shares not currently beneficially
owned by us are exchanged pursuant to this exchange offer, approximately
5,298,352 shares of our common stock will be exchanged for a maximum of
3,867,410 of Medis El's ordinary shares outstanding, based upon the number of
Medis El ordinary shares outstanding as of the date of this prospectus.
PURPOSE OF THE EXCHANGE OFFER
We are offering to exchange our common stock for all outstanding Medis
El ordinary shares for the purpose of increasing our ownership of Medis El. We
believe that our status as a domestic United States corporation with a readily
understandable and familiar capital and corporate governance structure, which
has rights not only to the Medis El technologies, but also to the distribution
and commercialization of the technologies, will enhance our ability to serve as
an effective financing vehicle for the further development of Medis El's
technologies.
Our board of directors determined to commence this exchange offer at
this time after Medis El's recent acquisition of the technologies underlying
the fuel cells, toroidal engine and compressor, reciprocating electrical
machine, direct current regulating device and water technologies. We
concluded after such acquisitions that a publicly held American company
could more effectively serve as a financing vehicle for the further
development of such technologies than if Medis El remained the public entity.
ACCEPTANCE OF MEDIS EL SHARES
This offering is conditioned upon:
- - the exchange of at least 1,758,394 of Medis El's ordinary shares so
that we beneficially own at least 80% of such shares; and
24
<PAGE>
- - our common stock being registered pursuant to Section 12 of the
Securities Exchange Act of 1934.
PROCEDURES FOR TENDERING MEDIS EL SHARES
This prospectus, the letter of transmittal and other relevant materials
will be mailed to registered Medis El shareholders and will be furnished to
brokers, dealers, commercial banks, trust companies and similar persons whose
names, or the names of whose nominees, appear on Medis El's shareholder list
kept with American Stock Transfer and Trust Company, its transfer agent, or, if
applicable, who are listed as participants in a clearing agency's security
position listing.
Only a registered Medis El shareholder may tender his or her shares in
this exchange offer. To tender, a shareholder must complete, sign and date the
letter of transmittal accompanying this prospectus, guarantee the signatures if
required, and mail or otherwise deliver the letter of transmittal to American
Stock Transfer and Trust Company, our exchange agent, prior to the expiration
date. In addition, either:
- - certificates for such Medis El shares must be received by the exchange
agent along with the properly completed and duly executed letter of
transmittal and any other required documents;
- - a timely confirmation of a book-entry transfer of such Medis El shares,
if such procedure is available, into the exchange agent's account at
The Depository Trust Company pursuant to the procedure for book-entry
transfer described below, together with the letter of transmittal or a
properly transmitted agent's message, as described below, must be
received by the exchange agent prior to the expiration date; or
- - the holder must comply with the guaranteed delivery procedures
described below.
Each tender will constitute an agreement between such tendering shareholder and
us in accordance with the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal.
We shall be deemed to have accepted validly tendered Medis El ordinary
shares when, as and if we have given oral or written notice of such to the
exchange agent. The exchange agent will act as agent for the tendering holders
of Medis El ordinary shares for the purposes of:
- - receiving our common stock from us; and
- - transmitting such common stock to tendering shareholders.
Under no circumstances will interest be paid by us by reason of any delay in
making such exchange.
The method of delivery of Medis El ordinary shares, the letter of
transmittal and all other required documents to the exchange agent, or delivery
through the book entry transfer facility, is at the election and risk of the
holder. Instead of delivery by mail, it is recommended that you use an overnight
or hand delivery service, properly insured. If delivery is by mail, registered
mail with return receipt requested, properly insured, is recommended. In all
cases, sufficient time should be allowed to assure
25
<PAGE>
delivery to the exchange agent before the expiration date. Delivery will be
deemed made only when actually received by the exchange agent. No letter of
transmittal or certificate representing Medis El ordinary shares should be sent
to us. You may request your broker, dealer, commercial bank, trust company or
nominee to effect the above transactions on your behalf.
If your Medis El ordinary shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and you wish to
tender such shares in this exchange offer, you should:
- - contact such registered holder promptly and instruct such registered
holder to tender on your behalf; or
- - prior to your completing and executing the letter of transmittal and
delivering your Medis El shares, either make appropriate arrangements
to register ownership of such Medis El shares in your name or obtain a
properly completed stock power from the registered holder.
The transfer of registered ownership may take considerable time and may not be
able to be completed prior to the expiration date. You are advised to allow for
sufficient time to make all appropriate arrangements.
SIGNATURES
Signatures on a letter of transmittal must be guaranteed by a member
firm of a registered national securities exchange or of the National Association
of Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act which is a member of
one of the recognized signature guarantee programs identified in the letter of
transmittal, unless the tendered Medis El ordinary shares are tendered:
- - by a registered shareholder who has not completed the box entitled
"Special Delivery Instructions" on the letter of transmittal; or
- - for the account of an institution listed above that may guarantee a
letter of transmittal.
If the letter of transmittal is signed by a person other than the
registered shareholder, such shares must be endorsed or accompanied by a
properly completed stock power, properly signed by the registered shareholder.
If the letter of transmittal or any shares or stock powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by us, evidence
satisfactory to us of their authority to so act must be submitted with the
letter of transmittal.
26
<PAGE>
AUTOMATED TENDER OFFER PROGRAM
American Stock Transfer and Trust Company and DTC have confirmed that
any financial institution that is a participant in DTC's system may utilize
DTC's Automated Tender Offer Program to tender your ordinary shares.
Accordingly, participants in such program may, instead of physically completing
and signing the letter of transmittal and delivering it to the exchange agent,
electronically transmit their acceptance of this exchange offer by causing DTC
to transfer the shares to the exchange agent in accordance with DTC's program
procedures for transfer. DTC will then send an agent's message, as defined
below, to the exchange agent.
The term "agent's message," as used above, means a message transmitted
by DTC, received by the exchange agent prior to the expiration date and forming
part of the book-entry confirmation, which states that DTC has received an
express acknowledgment from a participant in the DTC program that such
participant is tendering Medis El ordinary shares which are the subject of such
book entry confirmation, that such participant has received and agrees to be
bound by the applicable notice of guaranteed delivery, and that the agreement
may be enforced against such participant.
All questions as to the validity, form, eligibility, including time of
receipt, and acceptance of tendered Medis El ordinary shares will be determined
by us in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all shares not properly tendered or
any shares our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular shares. Our interpretation of the terms
and conditions of the exchange offer and the instructions in the letter of
transmittal will be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Medis El shares must be cured
within such time as we shall determine. Although we intend to notify Medis El
shareholders of any defects or irregularities with respect to their respective
tenders of Medis El shares, neither we, the exchange agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Medis El's ordinary shares will not be deemed to have been made until such
defects or irregularities have been cured or waived.
While we have no present plan to acquire any Medis El shares which are
not tendered in the exchange offer, we reserve the right in our sole discretion
to purchase or make offers for any Medis El shares that remain outstanding
subsequent to the expiration date or to terminate this exchange offer and, to
the extent permitted by applicable law, purchase Medis El shares in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
could differ from the terms of this exchange offer.
EXPIRATION DATE; EXTENSION; AMENDMENTS
The expiration date shall be 5:00 p.m., New York City time, on
________________, 2000 unless we, in our sole discretion, extend the exchange
offer, in which case the expiration date shall be the latest date and time to
which we extend this exchange offer.
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<PAGE>
We reserve the right, in our sole discretion:
- - to delay accepting any Medis El shares;
- - to extend the exchange offer; or
- - to terminate this exchange offer,
by giving notice of such delay, extension or termination to the exchange agent.
Any such delay, extension or termination will be followed by our notification to
the exchange agent and registered Medis El shareholders of any delay, extension
or termination, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled expiration date. If the exchange
offer is amended in a manner determined by us to constitute a material change,
we will distribute a prospectus supplement with such amendment, and we will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment, applicable securities laws, and the
manner of disclosure to the registered holders, if the exchange offer would
otherwise expire during such five to ten business day period. Without limiting
the manner in which we may choose to make a public announcement of any delay,
extension, amendment or termination of the exchange offer, and subject to
applicable law, we shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely release
to an appropriate news agency.
RETURN OF MEDIS EL SHARES
If less than 1,758,394 of Medis El's ordinary shares are tendered in
this exchange or we do not accept tendered Medis El ordinary shares for any
valid reason pursuant to the terms and conditions of this exchange offer,
certificates for such tendered shares will be returned without expense to the
tendering shareholder, or, in the case of shares tendered by book-entry transfer
into the exchange agent's account at DTC pursuant to the book-entry transfer
procedures described below, such shares will be credited to an account
maintained with DTC as promptly as practicable.
BOOK-ENTRY TRANSFER
The exchange agent will make, within two business days after the date
of this prospectus, a request to establish an account with respect to Medis El
shares at DTC, and any financial institution that is a participant in DTC's
systems may make book-entry delivery of Medis El shares by causing DTC to
transfer such Medis El shares into the exchange agent's account at DTC in
accordance with DTC's procedures for transfer. However, although delivery of
Medis El shares may be effected through book-entry transfer at DTC, the letter
of transmittal, with any required signature guarantees and any other required
documents, must, in any case, be transmitted to and received by the exchange
agent on or prior to the expiration date or pursuant to the guaranteed delivery
procedures described below.
GUARANTEED DELIVERY PROCEDURES
Medis El shareholders who wish to tender their shares and whose shares
are not immediately available or who cannot deliver their shares, the letter of
transmittal or any other required documents to
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<PAGE>
the exchange agent prior to the expiration date, may nonetheless effect a tender
of their ordinary shares if:
- - the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities
Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the U.S. or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of
one of the recognized signature guarantee programs identified in the
letter of transmittal;
- - prior to the expiration date, the exchange agent receives from any of
the above such institutions a properly completed and duly executed
notice of guaranteed delivery substantially in the form provided by us
setting forth:
- the name and address of the shareholder;
- the certificate number(s) of such shares; and
- the aggregate number of shares tendered,
stating that such holder is tendering his or her shares and
guaranteeing that, within five business days after the expiration date,
the letter of transmittal together with the certificate(s) representing
the shares in proper form for transfer or a book-entry confirmation, as
the case may be, and any other documents required by the letter of
transmittal, will be deposited by any of the above institutions with
the exchange agent, or the exchange agent receives a properly
transmitted message from DTC regarding the acknowledgment by such
shareholder of certain conditions of tendering; and
- - such properly executed letter of transmittal or a properly transmitted
agent's message, as well as the certificate(s) representing all
tendered shares in proper form for transfer or a book-entry
confirmation and all other documents required by the letter of
transmittal, are received by the exchange agent within five business
days after the expiration date.
Upon request to the exchange agent, you will be sent a notice of
guaranteed delivery if you wish to tender your shares according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL RIGHTS
You may withdraw your tendered Medis El ordinary shares prior to the
expiration date of this exchange offer upon submitting to the exchange agent a
written notice of withdrawal specifying your name, the number and amount of
securities withdrawn and the name or names in which the securities are so
registered, if registered in a name other than the tendering security holder.
The signature(s) on the notice of withdrawal must be guaranteed
pursuant to the same guarantee procedures for letters of transmittal as set
forth above in "Procedures for Tendering Medis El Shares," unless such shares
have been tendered for the account of an eligible institution listed in such
section.
29
<PAGE>
If Medis El ordinary shares have been tendered pursuant to the
procedures for book-entry tender, any notice of withdrawal must specify the name
and number of the account at the book-entry transfer facility to be credited
with the withdrawn ordinary shares and must otherwise comply with such
book-entry transfer facility's procedures. If certificates have been delivered
or otherwise identified to the exchange agent, the name of the registered holder
and the serial numbers of the particular certificates evidencing the ordinary
shares withdrawn must also be furnished to the exchange agent prior to the
physical release of such certificates.
All questions as to the form and validity, including time of receipt,
of any notice of withdrawal will be determined by us, in our sole discretion,
which determination shall be final and binding. Neither we, the exchange agent
nor any other person will be under any duty to give notification of any defects
or irregularities in any notice of withdrawal or will incur any liability for
failure to give any such notification. Any ordinary shares properly withdrawn
will be deemed not to have been validly tendered for purposes of this exchange
offer. However, withdrawn ordinary shares may be retendered by following one of
the procedures described in this prospectus at any time prior to the expiration
date.
ACCEPTANCE OF MEDIS EL SHARES AND DELIVERY OF COMMON STOCK
Our common stock issued pursuant to this exchange offer will be
delivered to Medis El shareholders who properly tendered their ordinary shares
on the earliest practicable date following the expiration date, assuming all
conditions to this exchange offer have been satisfied or waived.
EXCHANGE AGENT
American Stock Transfer and Trust Company has been appointed exchange
agent for the exchange offer. Questions and requests for assistance, requests
for additional copies of this prospectus or of the letter of transmittal and
requests for the notice of guaranteed delivery should be directed to American
Stock Transfer and Trust Company addressed as follows:
40 Wall Street
New York, NY 10005
Telephone Number: (800) 937-5449 ext. 6820
By Facsimile Transmission: (718) 236-4588
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal
solicitation is being made by mail; however, additional solicitation may be made
by telegraph, telephone or in person by our and our affiliates' officers and
regular employees.
American Stock Transfer and Trust Company, as exchange agent, will
receive reasonable and customary compensation for its services and will be
indemnified against certain liabilities and expenses in connection with its
services, including certain liabilities under the federal securities laws. We
will not
30
<PAGE>
pay any fees or commissions to any broker or dealer or other persons for
soliciting tenders of shares pursuant to this exchange offer. Brokers, dealers,
commercial banks and trust companies will be reimbursed by us for reasonable
expenses incurred by them in forwarding material to their customers.
The cash expenses to be incurred in connection with this exchange offer
will be paid by us and are estimated in the aggregate to be approximately
$535,000. Such expenses include registration fees, fees and expenses of the
exchange agent, accounting and legal fees and printing costs, among others.
We will pay all transfer taxes, if any, which are not based on income,
applicable to the exchange of Medis El's ordinary shares pursuant to this
exchange offer. If, however, a transfer tax is imposed for any reason other than
the exchange of Medis El's ordinary shares pursuant to this exchange offer, then
the amount of any such transfer taxes, whether imposed on the registered
shareholder or any other persons, will be payable by the tendering shareholder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering shareholder.
Participation in this exchange offer is voluntary. Medis El
shareholders are urged to consult their financial and tax advisors in making
their own decisions on what action to take.
DIVIDEND POLICY
Neither we nor Medis El have paid dividends on our capital stock to
date. Our payment of future dividends, if any, will be contingent upon our
revenues and earnings, if any, capital requirements and general financial
condition. The payment of any such dividends will be within the discretion of
our board of directors. Our board presently intends to retain all earnings, if
any, for use in our business operations. Accordingly, we do not anticipate
declaring any dividends in the foreseeable future.
PRICE RANGE OF OUR COMMON STOCK
We do not have an established public trading market for our common
stock. We are therefore unable to estimate the price of our stock if and when it
is listed on the Nasdaq SmallCap Market upon which we have applied for listing
subject to the successful completion of this exchange offer. Whether we own all
or less than all of Medis El's ordinary shares, the historical market for Medis
El's ordinary shares may not be indicative of the future market for our common
stock.
In order for our common stock to qualify for initial quotation on the
Nasdaq SmallCap Market, we, among other things, must have:
- - at least $4,000,000 in net tangible assets, a $50,000,000 market
capitalization or $750,000 in net income in the latest fiscal year or
two of the last three fiscal years; and
- - $5,000,000 in market value of our public float; and
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<PAGE>
- - a minimum bid price of $4.00 per share.
We currently satisfy the net tangible asset requirement and expect to
satisfy the remaining initial listing requirements upon the successful
completion of this exchange offer.
For continued listing we, among other things, must have either:
- - at least $2,000,000 in net tangible assets, a $35,000,000 market
capitalization or $500,000 in net income in the latest fiscal year or
two of the last three fiscal years; and
- - $1,000,000 in market value of our public float; and
- - a minimum bid price of $1.00 per share.
If we are unable to satisfy the Nasdaq SmallCap Market's maintenance
criteria in the future, our common stock may be delisted from the Nasdaq
SmallCap Market. As a consequence of such delisting, a stockholder would likely
find it more difficult to dispose of, or to obtain
quotations as to, our common stock.
PRICE RANGE OF MEDIS EL'S ORDINARY SHARES
Medis El's ordinary shares have traded on the Nasdaq SmallCap Market
under the symbol MDSLF since the effective date of its initial public offering
on December 21, 1993. The closing high and low sales prices of its ordinary
shares, as reported by Nasdaq, for the quarters ended March 31, June 30,
September 30 and December 31, 1997, 1998 and 1999 were as follows:
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
March 31, 1997................................... $8.875 $5.375
June 30, 1997.................................... 6.750 5.000
September 30, 1997............................... 8.150 5.250
December 31, 1997................................ 7.000 4.750
March 31, 1998................................... 9.250 5.000
June 30, 1998.................................... 9.050 6.563
September 30, 1998............................... 7.438 3.875
December 31, 1998................................ 8.125 3.875
March 31, 1999................................... 8.000 6.000
June 30, 1999.................................... 7.500 6.125
September 30, 1999............................... 7.688 6.000
December 31, 1999................................ 7.000 5.188
</TABLE>
32
<PAGE>
As of February 1, 2000, there were 74 record holders and approximately
645 beneficial owners of Medis El's ordinary shares. Based upon information
furnished by American Stock Transfer and Trust Company, the transfer agent of
Medis El's ordinary shares, we believe that, as of such date, approximately 83%
of Medis El's ordinary shares are held by at least 510 beneficial holders who
are United States shareholders, which percentage includes our shareholdings. The
high and low closing price of Medis El's ordinary shares on _________, 2000, the
last full trading day before we announced this exchange offer, was $____ per
share.
Following the successful completion of this exchange offer, we intend
to terminate registration under the Exchange Act upon application to the SEC and
delist Medis El's ordinary shares from the Nasdaq SmallCap Market. Termination
of registration of Medis El's ordinary shares under the Exchange Act would
reduce the information required to be furnished by Medis El to its shareholders,
the SEC and the public and would make certain provisions of the Exchange Act,
such as filing an annual report, no longer applicable. Upon delisting, Medis
El's shareholders who have not exchanged their shares would likely find it more
difficult to dispose of, or to obtain quotations, as to the price of such
shares. It is possible that Medis El's ordinary shares would be traded in the
over-the-counter market, or through the National Association of Securities
Dealers, Inc. OTC Bulletin Board or by other sources. The extent of the public
market for Medis El's ordinary shares and the availability of such quotations
would, however, depend upon the number of holders and/or the aggregate market
value of the shares remaining at such time, the interest in maintaining a market
in the shares on the part of securities firms, the termination of registration
of Medis El's ordinary shares under the Exchange Act and other factors.
CAPITALIZATION
The following table sets forth our capitalization as of September 30,
1999 and as adjusted to give effect to (1) the issuance of 2,408,998 shares of
our common stock assuming our acquisition of 80% of the outstanding shares of
Medis El pursuant to this exchange offer or (2) the issuance of 5,298,352 shares
of our common stock assuming our acquisition of 100% of the outstanding shares
of Medis El pursuant to this exchange offer. This table should be read in
conjunction with our consolidated financial statements and the notes to such
statements and the other financial information included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
September 30, 1999
---------------------------------------------
Actual As Adjusted (1) As Adjusted (2)
------------ ------------ ------------
<S> <C> <C> <C>
Short term borrowings ............................... $ 143,000 $ 143,000 $ 143,000
--------- ------- -------
--------- ------- -------
Long term debt-excluding current maturities ......... $ 12,000 $ 12,000 $ 12,000
Minority interest in subsidiary ..................... 1,110,000 612,000 -
Stockholders' equity:
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C> <C>
Common Stock, $.01 par value shares authorized;
issued and outstanding: 9,988,619 shares actual;
12,397,617 and 15,286,971 shares as adjusted .. 100,000 124,000 153,000
Additional paid in capital .......................... 31,757,000 42,393,000 55,150,000
Accumulated deficit ................................. (21,661,000) (21,836,000) (22,046,000)
---------- ---------- ----------
Total stockholders' equity ...................... 10,196,000 20,681,000 33,257,000
---------- ---------- ----------
Total capitalization ................................ $ 11,318,000 $ 21,305,000 $ 33,269,000
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the years
ended December 31, 1994 and 1995 and the selected consolidated balance sheet
data as of December 31, 1994, 1995 and 1996 have been derived from audited
financial statements not included in this prospectus. The selected consolidated
statement of operations data for the years ended December 31, 1996, 1997, and
1998 and the selected consolidated balance sheet data as of December 31, 1997
and 1998 have been derived from our audited financial statements included
elsewhere in this prospectus. Such consolidated financial statements include the
financial statements of 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 selected consolidated statement
of operations data for the nine months ended September 30, 1998 and 1999 and the
selected consolidated balance sheet data as of September 30, 1999 are derived
from unaudited condensed consolidated financial statements included elsewhere in
this prospectus that have been prepared on the same basis as the audited
consolidated financial statements and, in the opinion of management, contain all
adjustments, consisting only of normal recurring adjustments, necessary for the
fair presentation of our consolidated operating results for such periods and our
financial condition as of such periods and date. The historical results are not
necessarily indicative of results to be expected for any future period. 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 prospectus.
STATEMENT OF OPERATIONS DATA:
<TABLE>
<CAPTION>
For the nine months ended
For the Year Ended December 31, September 30,
----------------------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues ....................... $ -- $ -- $ -- $ -- $ 8,000 $ 8,000 $ --
Cost of sales .................. -- -- -- -- 3,000 3,000 --
----- ----- ------
Gross profit ................... -- -- -- -- 5,000 5,000 --
</TABLE>
Operating expenses
34
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Research and development
costs, net ................... -- -- -- 1,406,000 1,646,000 1,086,000 1,914,000
Selling, general and
administrative expenses ...... 236,000 231,000 193,000 1,303,000 1,399,000 1,030,000 1,279,000
Amortization of intangible
assets .................... -- -- -- 102,000 2,445,000 1,834,000 1,953,000
----------- ----------- ----------- ----------- ----------- ----------- -------------
Total operating expenses ....... 236,000 231,000 193,000 2,811,000 5,490,000 3,950,000 5,146,000
----------- ----------- ----------- ----------- ----------- ----------- -------------
Loss from operations ........... (236,000) (231,000) (193,000) (2,811,000) (5,485,000) (3,945,000) (5,146,000)
Other income (expenses)
Interest and other income .... 53,000 85,000 9,000 64,000 63,000 20,000 120,000
Interest expense ............. (499,000) (535,000) (1,660,000) (381,000) (101,000) (125,000) (18,000)
----------- ----------- ----------- ----------- ----------- ----------- -------------
Loss before minority interest .. (682,000) (681,000) (1,844,000) (3,128,000) (5,523,000) (4,050,000) (5,044,000)
Equity in net losses of
unconsolidated subsidiaries ... (1,164,000) (942,000) (789,000) -- -- -- --
Minority interest in loss of
subsidiaries .............. -- -- -- 1,584,000 1,105,000 769,000 1,033,000
----------- ----------- ----------- ----------- ----------- ----------- -------------
Net loss ....................... $(1,846,000) $(1,623,000) $(2,633,000) $(1,544,000) $(4,418,000) $(3,281,000) $(4,011,000)
----------- ----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- ----------- -------------
Basic and diluted net
loss per share ................. $ (0.56) $ (0.47) $ (0.71) $ (0.33) $ (0.52) $ (0.39) $ (0.41)
----------- ----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- ----------- -------------
Weighted average shares
outstanding ................... 3,287,530 3,460,000 3,734,129 4,645,232 8,581,774 8,443,569 9,743,233
----------- ----------- ----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- ----------- ----------- -------------
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of
As of December 31, September 30,
------------------------------------------------------------------------- -------------
1994 1995 1996 1997 1998 1999
----------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Working capital
(deficiency) ........... $ 663,000 $ (686,000) $ (1,728,000) $ 266,000 $ 3,536,000 $ 2,705,000
Total assets ............ 5,522,000 3,819,000 3,621,000 14,443,000 14,755,000 12,173,000
Long-term debt, excluding
current maturities ..... 6,473,000 2,000,000 1,000,000 338,000 96,000 12,000
Accumulated deficit ..... (7,536,000) (9,117,000) (11,668,000) (13,232,000) (17,650,000) (21,661,000)
Total stockholders'
equity (deficiency) .... (1,399,000) (2,980,000) (1,645,000) 11,378,000 12,406,000 10,196,000
</TABLE>
SELECTED CONSOLIDATED FINANCIAL DATA OF MEDIS EL
The selected consolidated statement of operations data for the years
ended December 31, 1994 and 1995 and the selected consolidated balance sheet
data as of December 31, 1994, 1995 and 1996 have been derived from audited
financial statements not included in this prospectus. The selected consolidated
statement of operations data for the years ended December 31, 1996, 1997, and
1998
35
<PAGE>
and the selected consolidated balance sheet data as of December 31, 1997 and
1998 have been derived from our audited financial statements included elsewhere
in this prospectus. The selected consolidated statement of operations data for
the nine months ended September 31, 1998 and 1999 and the selected consolidated
balance sheet data as of September 30, 1999 are derived from unaudited condensed
consolidated financial statements included elsewhere in this prospectus that
have been prepared on the same basis as the audited financial statements and in
the opinion of management, contain all adjustments, consisting only of normal
recurring adjustments, necessary for the fair presentation of our operating
results for such periods and our financial condition as of such date. The
historical results are not necessarily indicative of results to be expected for
any future period. The data should be read in conjunction with the financial
statements, related notes and other financial information included elsewhere in
this report.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
For the nine months ended
For the Year Ended December 31, September 30,
----------------------------------------------------------------- --------------------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 75,000 $ 198,000 $ 32,000 $ -- $ 8,000 $ 8,000 $ --
Gross profit............ 47,000 17,000 21,000 -- 5,000 5,000 --
Research and development
costs, net (1)....... 1,296,000 1,023,000 815,000 1,406,000 1,646,000 1,086,000 $ 1,914,000
Net loss................ $(2,810,000) $(2,240,000) $(1,962,000) $(2,647,000) $(2,967,000) $(2,040,000) (2,853,000)
Net loss per share-basic
and diluted.......... $ (0.33) $ (0.26) $ (0.22) $ (0.28) $ (0.31) $ (0.21) $ (0.28)
Weighted average number
of shares outstanding 8,642,000 8,650,000 8,790,000 9,325,000 9,624,000 9,598,000 10,238,000
=========== ========== =========== =========== ============ =========== ============
</TABLE>
- ----------
(1) Total research and development costs were offset in part by grants from the
Government of Israel for the years 1994-1996.
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
As of December 31, As of September 30,
------------------------------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1999
----------- ----------- ------------ ------------ ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital........... $ 3,982,000 $ 2,324,000 $ 3,939,000 $ 1,209,000 $ 3,376,000 $ 2,186,000
Total Assets.............. 5,579,000 3,651,000 4,943,000 2,323,000 4,880,000 3,877,000
Long-term debt............ 451,000 681,000 489,000 293,000 96,000 12,000
Accumulated loss.......... (7,749,000) (9,988,000) (11,950,000) (14,597,000) (17,564,000) (20,417,000)
Total shareholders'
equity................... 4,167,000 2,093,000 3,869,000 1,344,000 4,079,000 3,060,000
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We serve as agent and distributor of certain technologies owned wholly
or in part by Medis El Ltd., an Israeli corporation of which we beneficially own
approximately 63%. To date we have devoted all of our efforts and resources to
help provide financing and assist in commercializing Medis El's technologies.
The financial presentation below is based upon our historical financial
statements which include the results of operations of Medis El beginning
December 15, 1997. Prior to that date, our investment in Medis El was accounted
for using the equity method of accounting. As we have conducted all of our
operating activities through Medis El, the presentation reflects primarily the
results of operations of Medis El. However, the presentation also includes
activities performed by us and are therefore different from the historical
financial statements of Medis El.
RESULTS OF OPERATIONS
From our inception in April 1992 through September 30, 1999, we have
generated a cumulative net loss of $21,661,000. We expect to incur additional
operating losses for the remainder of 2000 and beyond, principally as a result
of our continuing anticipated research and development costs, and due to
anticipated limited sales of Medis El's technologies. We do not expect to
substantially increase in the future our research and development expenses
beyond current levels due to our limited funds available for such purposes,
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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
We sustained a net loss of $4,011,000 during the nine months ended
September 30, 1999 compared to $3,281,000 during the same period in 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 cash balances and
lower interest expense due to lower debt balances during the nine months ended
September 30, 1999 as compared to the same period in 1998.
Research and development costs were up sharply at $1,914,000 for the
first nine months of 1999 as compared to $1,086,000 during the same period in
1998. This increase can be largely attributed to depreciation expense of
$155,000 on eight CellScan machines and our decision to write off our inventory
of cell carriers, antigens and neuritors, a technology owned by Medis El which
it is no longer developing or selling, to research and development expense. This
charge aggregated
37
<PAGE>
$255,000. Furthermore, we incurred more expenses in developing our non-medical
related technologies during the first nine months of 1999 compared to the same
period in 1998. 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:
- - 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
- - 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 nine months ended September 30, 1999.
Selling, general and administrative expenses for the nine months ended
September 30, 1999 were $1,279,000 compared to $1,030,000 for the nine months
ended September 30, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
We received additional operating resources during 1998 from an influx
of equity capital which greatly improved our financial position. Total
shareholders' equity at December 31, 1998 was $12,406,000 compared to
$11,378,000 at December 31, 1997, with working capital at $3,536,000 at December
31, 1998 compared to $266,000 at December 31, 1997. We sustained a net loss of
$4,418,000 for the year ended December 31, 1998, compared to $1,544,000 for the
year ended December 31, 1997, primarily due to the amortization of acquired
intangible technology assets and goodwill amounting to $2,445,000 compared to
$102,000 for 1997, which increased total operating expenses for the year to
$5,490,000 from $2,811,000 in 1997. Such acquired intangible technology assets
and goodwill were generated upon the acquisition of a minority interest in Medis
Inc., our wholly-owned subsidiary. The aggregate purchase price of the minority
interest was valued at $13,125,000, generating acquired intangible technology
assets and goodwill approximating $12,227,000 which are being amortized over a
five year period.
We had revenues of $8,000 for the year ended December 31, 1998 compared
to no revenues for the year ended December 31, 1997. The revenues came from the
sale of a single neuritor, based upon an unsolicited request for the product.
We devoted somewhat more resources to research and development
activities, incurring research and development costs of $1,646,000 for the year
ended December 31, 1998, compared to $1,406,000 for the year ended December 31,
1997. Medis El channeled resources to the development of the CellScan, stirling
cycle linear technologies, toroidal engine and fuel cell technology.
Interest expense decreased to approximately $101,000 for the year ended
December 31, 1998 from $381,000 for the year ended December 31, 1997. This
decrease was substantially due to the retirement of long term debt in 1998
aggregating approximately $941,000. The holders of $650,000 of
38
<PAGE>
such debt exchanged such debt for 325,000 shares of Medis El's common stock held
by us.
Selling, general and administrative expenses for the year ended
December 31, 1998 increased slightly to $1,399,000, compared to $1,303,000 for
the year ended December 31, 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
We began placing increasing emphasis on the research and development of
the stirling cycle linear technology, and, in December 1997, was awarded our
first patent for such technology. We sustained a net loss of $1,544,000 for the
year ended December 31, 1997, compared to $2,633,000 for the year ended December
31, 1996. This decrease is primarily due to a decrease in interest expense to
our long-term debt of approximately $1,279,000. Interest expense in 1996
includes $1,341,000 of non-cash interest which relates to amortization of an
in-the-money conversion feature on long-term debt issues in August 1996.
In 1996, we accounted for Medis El using the equity method of
accounting. Therefore, Medis El's research and development costs and selling,
general and administrative costs are not reflected as such in our financial
statements.
We devoted substantially more resources to research and development
activities for the year ended December 31, 1997 compared to the year ended
December 31, 1996, incurring research and development costs of $1,406,000 in
1997. Medis El's research and development costs were $815,000 in 1996. The
increase was due principally to new research and development programs in the
United States and Israel, as we:
- - continued to collaborate with scientists to discover and test new
applications for the CellScan;
- - completed development of the argon laser CellScan; and
- - began the development of our stirling cycle linear technologies with
the expectation that an increasing amount of resources will be devoted
to this endeavor.
Selling, general and administrative expenses for the year ended
December 31, 1997 increased sharply to $1,303,000 compared to $193,000 for the
year ended December 31, 1996. However, Medis El's selling, general and
administrative costs were $1,187,000 in 1996. Our selling, general and
administrative costs together with Medis El's costs show a slight decrease in
selling, general and administrative costs for 1997.
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 distributorship rights.
39
<PAGE>
In 1996, $1,267,610 of senior secured subordinated notes were
surrendered by the holders of such notes in payment for 316,902 shares of our
common stock underlying warrants. In 1997, $2,314,290 of such notes were
surrendered as payment for 578,573 shares of our common stock underlying
warrants. Also in 1997, we issued 60,000 additional shares of our common stock
upon the exercise of warrants against our receipt of the aggregate exercise
price of $240,000. In 1998, we issued a total of 1,150,002 shares of our common
stock and 358,334 warrants for an aggregate of $4,600,008. In 1999, we issued a
total of 581,004 shares of our common stock and 193,668 warrants for an
aggregate of $2,324,016. The proceeds of such offerings were used:
- - to repay Medis El the sum of $2.3 million pursuant to a promissory note
entered into between us and one of our subsidiaries, which had been
assigned to Medis El through a capital contribution;
- - to purchase shares of Medis El; and
- - for selling, general and administrative expenses.
In 2000, as of the date of this prospectus, we issued a total of
637,000 shares of our common stock and 240,833 warrants for an aggregate of
$2,895,400. We intend for the proceeds of such offering to be used:
- - to fund the further research and development of our products; and
- - for selling, general and administrative expenses.
In 1996, investors purchased 675,000 of Medis El's ordinary shares in
private placements for an aggregate of $3,130,000. In January 1998, a single
investor purchased 300,000 of Medis El's ordinary shares in a private placement
for an aggregate of $1,334,000, which lowered our percentage ownership in Medis
El from approximately 67% to approximately 65%. Also during 1998, we paid to
Medis El $4,300,000 out of the $4,600,008 discussed above, representing
$2,000,000 of proceeds from the issuance of 400,000 of Medis El's ordinary
shares to us and $2,300,000 of final principal and interest payments on the
promissory note between Medis El and us. In May 1999, we purchased 318,181 of
Medis El's ordinary shares in a private placement for an aggregate of
$1,750,000. In 2000, as of the date of this prospectus, employees, including
Medis El's executive vice president and vice president-finance, and a director
exercised an aggregate of 56,100 options to purchase a like number of Medis El's
ordinary shares, for an aggregate exercise price of approximately $390,000. The
proceeds of such offerings and option exercises were used and Medis El intends
to use for research and development and selling, general and administrative
expenses. Medis El does not intend to issue any more of its shares to third
parties subsequent to the successful completion of this exchange offering, as we
intend that all future financings of Medis El will be effected through Medis
Technologies.
As of September 30, 1999, we had bank loans outstanding of $145,000,
the long-term portion of which was $12,000. 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 year ended December 31, 1998, we used $2,659,000 of available
cash on hand in connection with our operating activities, compared to $2,612,000
for the year ended December 31, 1997. The increase was primarily attributable to
the increase in the net loss for the year, somewhat offset by the differences in
changes in certain working capital components during 1998 and 1997. The
40
<PAGE>
increase in the net loss was principally due to a rise in research and
development during 1998. For the nine months ended September 30, 1999, we used
$2,405,000 of available cash on hand in connection with our operating
activities, as compared to $1,996,000 for the nine months ended September 30,
1998. The increase was principally due to an increase in the net loss for the
period, as adjusted for non-cash related items such as depreciation and
amortization, caused by our increased spending for research and development.
For the year ended December 31, 1998, we reported net cash used in
investing activities of $617,000, compared to net cash provided by investing
activities of $356,000 in 1997. The change was principally attributed to an
investment in a short-term deposit in 1998, contrasted with maturity of a
short-term deposit in 1997.
As of February 1, 2000, we had approximately $4,300,000 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 -
the level of resources that Medis El devotes to the development of its
technologies, patents, marketing and sales capabilities.
Another contributing factor is the status of collaborative arrangements
with businesses and institutes for research and development.
Management expects that our present funds, after one-time charges such
as:
- - the possible repurchase of the CellScan machine from a purchaser in
Peru for $100,000;
- - the expected exercise of options representing an additional 50% of
the outstanding shares of New Devices Engineering 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 and Medis El's present activities for at least 12
months. However, to the extent we are required to fund up to $1,500,000 of the
costs necessary to obtain regulatory approval of
41
<PAGE>
the CellScan, our current funds will not be sufficient to support our and
Medis El's 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,
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.
We expect such operations to require funding of approximately $3,800,000 per
year. 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, 1998, for U.S. federal income tax purposes, we had
net operating loss carry-forwards of approximately $4,035,000. For Israeli
income tax purposes, we had net operating loss carry-forwards of $19,000,000.
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 US $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, a technology also owned by Medis El which it no
longer develops. 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 $2,576,000. Medis El
is not presently receiving any grants from the State of Israel. We believe
that Medis El will continue to be eligible to receive future research and
development grants should it again seek to initiate applications for such
grants subsequent to the successful completion of the exchange offer, as
grants are more readily attainable for Israeli companies with larger foreign
ownership as a way to attract more foreign capital into Israeli companies.
However, we have not confirmed such eligibility with the proper authorities as
we do not intend to seek to obtain research and development grants in the
immediate future.
Under the Law for the Encouragement of Capital Investments, 1959, Medis
El was issued a
42
<PAGE>
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. At September 30, 1999, the remaining
balance on the loans was approximately $145,000. 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.
DISCLOSURE ABOUT MARKET RISK
IMPACT OF INFLATION AND DEVALUATION ON RESULTS OF OPERATIONS, LIABILITIES
AND ASSETS
In connection with its currency use, Medis El operates 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:
<TABLE>
<S> <C>
1991 11.5%
1992 21.1%
1993 8.0%
1994 1.1%
1995 3.9%
1996 3.7%
1997 8.8%
</TABLE>
43
<PAGE>
<TABLE>
<S> <C>
1998 17.6 %
1999 (0.17)%
</TABLE>
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.
YEAR 2000 COMPLIANCE
We, including Medis El, have addressed year 2000 compliance in our
systems, accounting software, computer hardware and existing products, which
includes the CellScan and prototypes of our stirling cycle linear compressor and
fuel cell technology, and have communicated with our significant third party
vendors with respect to their respective states of readiness.
In order to assess year 2000 compliance of our products and systems, we
identified those systems critical to our operations and the operations of our
technologies and, based upon tests to such products and systems, believed that
all of our systems and technologies, to the extent developed, were materially
compliant. We expended approximately $10,000 to assess and address the year 2000
problem.
We did not experience any material failures or disruptions either on or
after January 1, 2000, whether internally or by reason of our significant third
party vendors, however, due to the uncertainties that are inherent in year 2000
remediation, we can give no assurances that our efforts will prevent future
disruptions.
Although we believe that we have adequately addressed the year 2000
issue, it is possible that future failures or disruptions stemming from year
2000 issues may yet result in material failures or disruptions to our systems,
products or prototypes.
44
<PAGE>
BUSINESS
THE EVOLUTION OF OUR BUSINESS
We were formed in April 1992 to enter into a joint venture with Israel
Aircraft Industries Ltd., a company wholly owned by the State of Israel and a
leader in aerospace technology. Together, we founded and financed the activities
of Medis El Ltd., an Israeli company, which was established to develop and
commercialize a technology known as the CellScan. Beginning in 1992 and through
its initial public offering in December 1993 until 1996, Medis El was
principally engaged in the development and clinical testing of the CellScan,
which it planned to manufacture and market when development was completed. Medis
El had its own facilities to manufacture a limited number of CellScans. It had
entered into arrangements in which certain distribution rights to the CellScan
were sold and initiated a direct sales program for a few territories where no
distributorship had been granted. Distribution rights to the CellScan in the
United States, its territories and possessions had already been granted to us
through one of our wholly-owned subsidiaries at the time of our formation. As
part of our distributorship rights, we were obligated to assist in funding the
effort to obtain FDA approval of the CellScan as a diagnostic tool.
Over the ensuing years, Medis El began to rethink its singular reliance
on the CellScan and its business strategy of manufacturing and marketing its
products. Problems in the development of the CellScan, discussed below, led it
to seek other technologies for development. Furthermore, the difficulties of
finding qualified distributors capable of working with and selling the CellScan
and recognition of the need for large amounts of capital to carry out a
manufacturing and marketing program led it to conclude that a better plan would
be to either develop the CellScan to the point where it could enter into an
arrangement with a joint venturer or licensee which had the marketing ability
and the capital to manufacture and market the CellScan, or seek the outright
sale of the technology.
In seeking out other technologies that it might be capable of
developing successfully, Medis El sought to take advantage of the talents in its
organization and its relationship with Israel Aircraft. In 1994, it acquired and
began work on the stirling cycle linear technology which Israel Aircraft had
initiated for possible military use. In this development program, it started
working with some of its contacts in the scientific community who emigrated from
the former Soviet Union. Medis El then added other technologies in related
fields of engineering as it expanded its relationships with emigres from the
former Soviet Union. In connection with these new technologies, Medis El
concluded that it should focus on developing them into working prototypes and
then licensing their use in return for royalty payments, rather than expend
large-scale capital and other resources to manufacture and market the products
in-house.
As a result of these actions, Medis El now seeks to operate as a
greenhouse for the development of highly advanced, innovative, proprietary
technology products which it intends to license, sell or joint venture with
large international corporations. As part of this new strategy, we became Medis
El's exclusive agent in North America for coordinating all licensing
arrangements with
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respect to all of Medis El's technologies except the CellScan, for which our
original 1992 distribution agreement still applies.
We and Israel Aircraft each beneficially owned 50% of Medis El upon its
formation in July 1992. In December 1997, Medis El was restructured so that we
beneficially owned a majority of Medis El's ordinary shares and Israel Aircraft
exchanged part of its beneficial interest in Medis El for a large minority
interest in us, leaving it with an approximately 12% direct ownership of Medis
El. As a consequence of the restructuring, the sharing of officers and directors
with Medis El, and in view of our distribution rights to the CellScan and agency
rights to the stirling cycle linear technology, we and Medis El are intimately
connected and our strategies, successes and failures parallel each other.
OUR PRODUCTS AND TECHNOLOGY
As part of its new strategy, Medis El focuses its efforts on the
lengthy and expensive process of conceiving its products, preparing and
submitting patents for its technologies and concurrently applying its in-house
technological capabilities to maximize the development of the technologies to a
point of exploitation through licensing, sales and joint ventures.
All of the technologies which Medis El owns in whole or in part are in
the development or testing phase. While we believe that each of these products
has advantages over products now on the market, we are unable to state with any
certainty how the technologies will compete in the marketplace. Nor will we know
fully their drawbacks and disadvantages until such time as our products are
successfully developed and marketed. Furthermore, we can give no assurance that
any of our products will be successfully developed or, if successfully
developed, will be commercially feasible. Our beliefs and estimates as to the
feasibility of the technologies are based upon the understanding of such
technologies by the technical advisors and scientists employed by Medis El,
whose views may not prove to be accurate.
Medis El's technologies presently include:
CELLSCAN
The CellScan is a system for the viewing and testing of cells. Current
cell scanning techniques involve the use of either a traditional microscope or a
"flow" cytometer, which passes large numbers of cells by a viewer at a time
without the ability to retrieve any one cell for further study. The CellScan,
which is a "non-flow" or "static" cytometer, 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 ongoing
cellular events. We believe that the CellScan is the first technology available
capable of doing this in a timely and cost efficient manner. Instead of having
an individual cell monitored and then lost, the cells are arranged on a "cell
carrier" which consists of a 4 square millimeter matrix of 10,000 wells, each of
which is designed to hold one cell in a semi-immobilized state without injury to
the cell or its surface. Each cell to be studied is stimulated and monitored to
detect changes in the intensity and direction of light emanating from the cell
which can then be measured and recorded.
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The CellScan was originally developed by scientists at Bar Ilan
University in Israel to diagnose cancer based upon investigations reported in
scientific publications that disease can be detected by testing the response of
the immune system to antigens, which are immune system stimulants, for specific
diseases. Those scientists believed that, using the CellScan technology, simple
and effective tests for breast cancer and other diseases could be developed.
Pursuant to an agreement entered into in 1991, Bar Ilan granted to Israel
Aircraft 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 of Bar-Ilan's rights to the CellScan patents, know-how and
inventions, including any subsequently acquired, and all improvements to such
intellectual property. In August 1992, Israel Aircraft assigned all of its
rights under the license to Medis El.
From Medis El's inception, the CellScan was being developed, marketed
and tested as a machine to screen for and detect breast cancer by means of a
blood test. It was also thought at that time that the CellScan could be applied
for other uses, such as for the detection of other diseases and for cell biology
research. Medis El sold a small number of CellScans to various hospitals and
institutions around the world but, from inception, there were problems with
inconsistency of results from tests to diagnose various cancers at these
institutions. This culminated in 1998 in a failure of a CellScan placed at a
predecessor of North Shore LIJ Health Systems, Inc. in New York to achieve
results achieved with the CellScan owned by the Rebecca Sief Medical Center in
Sefad in tests performed between 1994 and 1997 for the diagnosis of prostate
cancer. The inconsistent results were attributed to the difficulties in
operating the CellScan and differences from machine to machine caused by unknown
variables, so that diagnostic results were dependent on the quality and
characteristics of the particular CellScan and in some instances, the level of
experience of the personnel conducting tests using the CellScan. As a result, in
1998 Medis El redesigned the CellScan substantially to improve its accuracy,
repeatability and ease of handling. Such redesign included a new optical system
and new software.
Starting in 1997, Medis El also realized that the CellScan had
significant potential as an alternative to flow cytometers for research
applications in addition to its originally conceived role as a diagnostic
tool. We believe, based on our knowledge of the industry, the size of this
market to be between $750 million and $1 billion annually. Applications of
the CellScan as a research tool are expected to include developing drugs,
vaccines and antigens, and aspects of gene therapy. This focus on the
CellScan as a research tool resulted in the introduction of an argon laser to
the CellScan rather than the existing helium cadmium laser. The argon laser
was chosen since it is the laser broadly used by scientists in cell research.
However, because the intensity of the argon laser is much stronger than the
helium cadmium laser, cells could only be exposed to the laser light for a
briefer period of time. To allow for the increased intensity of the new argon
laser, the argon laser CellScan was redesigned with a new shutter and new
software to control the laser and provide readings of the results. Medis El
is comparing results of diagnostic tests using both lasers with a view to
replace the helium cadmium laser with the argon laser for all applications.
Results of tests to date show that the argon laser CellScan performs at least
as well as the helium cadmium laser CellScan. Tests of the new system for
diagnostic and other uses are now ongoing at the Rebecca Sief Medical Center
since March 1999, Medis El's laboratories since April 1999 and North Shore
LIJ Health Systems, Inc. since
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September 1999.
In parallel with the development and refinement of the CellScan since
Medis El first acquired a license to this technology, Medis El concentrated on
refining existing antigens and developing new antigens for use with the
CellScan. A specific antigen is needed for the CellScan to diagnose each
disease. There can be no assurance that Medis El will be able successfully to
develop or acquire antigens for any or all of the cancers and diseases which it
expects to diagnose using the CellScan. We believe that if the CellScan is
perfected and sold in significant quantities, of which there can be no
assurance, more antigens will be developed through use of the CellScan both by
Medis El and unrelated parties which will in turn create more applications for
the CellScan as a diagnostic tool.
Medis El is developing the next version of the CellScan, using smaller
and less expensive scanners, electronics and optics, as a lower priced, desktop
model and is working to have a prototype of such model by the end of 2000.
HOW THE CELLSCAN WORKS
The CellScan measures the intensity and direction of light emitted from
cells marked with fluorescent dye and stimulated with an antigen or chemical.
The cells are exposed to a laser light
to measure the surface reaction of each cell to the stimulant.
There are four steps involved in monitoring cells using the CellScan:
- - SELECTING AND LOCALIZING INDIVIDUAL CELLS WITHIN A CELL POPULATION.
Lymphocyte cells, which constitute part of the body's immune systems to
fight disease, from a blood sample are placed in wells on the
disposable cell carrier matrix. Because each well is tagged, the cell
carrier permits each cell to be tested and retested so that a
statistical norm of the intensity and direction of light can be
established which is statistically more reliable than an individual
reading of the cells; we know of no other presently available equipment
capable of such retesting procedures.
- - STIMULATING THE CELLS. The cells are then stimulated by a specific
antigen or chemical developed for such purpose and exposed to beams of
laser light at the rate of at least 5,000 times per second to activate
a detectable response in each cell's surface.
- - MEASURING AND RECORDING THE RESPONSE. The detectable response is
analyzed for qualitative and quantitative changes in the intensity and
direction of light emanating from each individual cell, which can be
measured and recorded.
- - ANALYSIS. The results can then be analyzed to conclude, for instance,
whether a patient has a particular disease for which the test was made,
in the case of a diagnostic test.
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APPLICATIONS AND INSTITUTIONS
Potential applications of the CellScan which hold out the promise of
broad use include aiding in the early detection of certain cancers and other
diseases, including breast, prostate and gynecological cancers and tuberculosis
and atherosclerosis, as well as individualized patient chemotherapy. Medis El
from time to time seeks to place the CellScan at medical and research
institutions around the world in order to test applications and to develop new
applications for the system in additional fields.
The applicability of the CellScan in diagnosing various cancers and
diseases are currently being researched, or there is an intention to research,
at the following institutions:
- - REBECCA SIEF MEDICAL CENTER. Researchers at the Rebecca Sief Medical
Center in Sefad, Israel are currently researching the applicability of
the CellScan as it relates to the detection of prostate cancer, breast
cancer and tuberculosis. An article detailing the Center's research as
it relates to prostate cancer reflecting favorable conclusions with
respect to the CellScan has been published in the June 1999 issue of
the Journal of Urology. Broader testing of the CellScan for breast
cancer detection at the Center and other Israeli institutions has
recently begun. Researchers have had promising results in the
application of the CellScan for the detection of tuberculosis.
- - SHEBA MEDICAL CENTER AND TEL HASHOMER HOSPITAL. Researchers at the
Sheba Medical Center and Tel Hashomer Hospital in Tel Aviv, Israel have
been researching the applicability of the CellScan as it relates to the
detection of atherosclerosis. An article describing promising initial
results was published in the August, 1999 issue of the Journal
"Clinical Cardiology."
- - SCHOTTENSTEIN CELLSCAN CENTER. The Schottenstein CellScan Center at
Bar-Ilan University is researching various applications for the
CellScan, including the possibility of a modular CellScan capable of
flow cytometry in addition to its non-flow capabilities and an optical
tweezer able to move a cell from the grid to a test tube. The further
development of these and other potential applications requires
additional funds, which we have no obligation to supply. We intend,
however, to explain the benefits of funding the continuation of such
research to companies we hope to enter into relationships with to
manufacture, market and sell the CellScan. Medis El from time to time
provides Bar-Ilan with upgrades to its CellScan at no charge.
- - PASTEUR INSTITUTE. Researchers at the Pasteur Institute in Paris have
researched the applicability of the CellScan in studying cell
appoptosis, or cell death, as it relates to HIV. We believe that the
Pasteur Institute will continue its study upon the placement of an
upgraded CellScan at their facilities, which we plan to do.
- - NORTH SHORE LIJ HEALTH SYSTEMS, INC. Medis El sent a research CellScan
to North Shore LIJ in July 1999 which it uses or intends to use to
research the applicability of the CellScan on papilloma, tuberculosis
and lyme disease.
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- - ICHILOV HOSPITAL. A CellScan placed at the Ichilov Hospital, which is
affiliated with Tel Aviv Medical Center, was used by Professor S.
Chaitchik to research the reaction of cancerous cells to certain drugs
in connection with developing a protocol for finding the correct
chemotherapeutic drug for a particular individual's cancer. Professor
Chaitchik recently retired from such hospital and has since come to
Medis El to continue his research at Medis El's facilities. Early
results at Medis El's facilities are promising and if Professor
Chaitchik's tests are ultimately proved to be successful, the CellScan
could help determine the effectiveness of certain drugs on cancerous
cells, thus creating more effective treatments for cancer patients.
There can be no assurance that Professor Chaitchik's tests will be
successful or that such tests, if successful, can be duplicated by
others. Medis El, with Professor Chaitchik, is applying for approval to
perform his tests on the cells of patients of a cancer clinic in
Israel.
- - VETERANS HOSPITAL IN TAIWAN. Medis El has upgraded the CellScan in the
Veteran's Hospital in Taiwan to research the applicability of the
CellScan to diagnose gynecological cancer using an antigen developed by
researchers at the Johns Hopkins Hospital in Baltimore, Maryland.
- - UNIVERSITY OF TEL AVIV. Members of the Department of Biochemistry at
the University of Tel Aviv are conducting experiments to determine
whether the CellScan has applications in gene therapy and targeted drug
delivery.
Except for one machine each at the Rebecca Sief Medical Center, the
Schottenstein CellScan Center, the Veterans Hospital in Taiwan and a CellScan
being used by Professor Chaitchik, all of which were purchased by the
respective owners during or prior to 1995, all of the CellScans currently or
contemplated being used for research are owned by Medis El and are on loan to
such facilities. The production of all of the CellScan machines on loan was
funded by equity and debt financings.
SALES AND MARKETING
We have begun a process of seeking out a company with an existing
medical device distribution network or a pharmaceutical company to assist in
marketing, selling and distributing the CellScan or to purchase the CellScan
technology in its entirety. As of the date of this prospectus, we have shown the
CellScan to a company engaged in the manufacture of flow cytometers.
We anticipate that any company engaged in the marketing and sale of the
CellScan would sell the machine and test kits as separate products. A test kit
is required for each test using the CellScan, which includes a cell carrier and,
depending on the test required, the specific antigen required for such test, if
any.
GOVERNMENT REGULATIONS AND CLINICAL TRIALS
Pursuant to our revised business plan, we do not intend to bear
responsibility for seeking regulatory clearance in any country in which the
CellScan will be marketed as a diagnostic tool, if required. Instead, such
responsibility will be placed with the companies we intend to enter into
arrangements with to market and sell the CellScan. We will, however, be required
pursuant to our
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distribution agreement with Medis El to fund up to $1.5 million of the costs
necessary to obtain regulatory clearance. Summarized below are certain of the
regulatory hurdles that we believe such company or companies must clear prior to
marketing and selling the CellScan as a diagnostic tool.
UNITED STATES. The United States Food and Drug Administration regulates
the manufacture, distribution and production of medical devices in the United
States. We anticipate that the CellScan, when used for diagnostic purposes, will
be regulated as a medical device by the FDA and, as such, will require FDA
regulatory clearance or premarket approval prior to commercialization in the
United States. Such clearance or premarket approval, however, is not required
for use of the CellScan in its research capacity.
We expect that the CellScan will very likely require premarket approval
before it may be commercially distributed for diagnostic use. Moreover, it
should be assumed that data from well-controlled multi-center clinical trials
will be required to support a premarket approval application for diagnostic use.
We believe that the whole FDA approval process will require not less
than 2 years and may require a substantially longer time. Development of
necessary clinical data and submission of a premarket approval application for
the CellScan's diagnostic use will be a lengthy and expensive process. There can
be no assurance that our anticipated strategic partners will ever be able to
obtain any necessary FDA regulatory clearance or approval for commercial
distribution.
We believe that for certain applications other than cancer detection,
the CellScan may be considered "substantially equivalent" to legally marketed
medical devices and thus could be cleared for commercial distribution without
the need for clinical trials and other testing. For such applications,
substantial equivalence is evaluated in the context of intended use, analysis,
test matrix, characteristics, and risk to patient of false results. There can be
no assurance that the FDA would find the CellScan substantially equivalent for
these applications; thus, premarket approval might be required for other
applications in addition to cancer detection, and there can be no assurance that
the FDA will ever grant premarket approval for this device for any applications.
If the CellScan is permitted to be marketed in the United States, its
manufacturer will be required to comply with the FDA's Quality System
Regulations, including routine inspections by the FDA and other regulatory
agencies for compliance with these and other regulations, including medical
device reporting requirements. Non-compliance can result in, among other things:
- - fines;
- - injunctions;
- - recall or seizure of products; and
- - criminal prosecution.
ISRAEL. The CellScan is not currently being used in such a manner that
would require licensing by the Israeli Ministry of Health. However, it is
possible that if the CellScan is used for medical
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diagnosis, it would require authorization, by either the medical manager of the
hospital in which the tests are being performed or the General Manager of the
Israeli Health Ministry, according to the nature of the experiment. Furthermore,
the use of the test kits, which utilize antigens, may require a license
independent of any that may be required for the CellScan. There can be no
assurance that we will receive authorization to perform additional tests, if
required, by the appropriate agency upon application.
OTHER JURISDICTIONS. Nations other than the United States have varying
patterns of regulation governing the use of medical diagnostic devices, some of
which require clearance or approval comparable to the regulatory pattern in the
United States and others of which do not require any or only perfunctory
clearance or approval. In those jurisdictions where more than perfunctory
clearance or approval is required, the CellScan may not be able to be marketed
unless and until the required clearance or approval is obtained.
LICENSE FEES
Medis El is required to pay Bar-Ilan a royalty through 2005 at the rate
of 6.5% of proceeds of sales, after deducting sales commissions and other
customary charges, and 4.5% of any fees received on account of the grant of
territorial rights, and for the ensuing ten years a royalty of 3.5% of all
revenues, whether from sales or fees.
In addition, Medis El is required to pay $100,000 to Bar-Ilan during
the first year in which Medis El's post-tax profits relating to the CellScan
exceed $300,000. Medis El is permitted to assign its rights under the license,
but subject to such assignee assuming all of the rights and obligations of Medis
El under the license. The license contains provisions relating to the joint
protection of the licensed patent rights and other provisions customary in such
instruments.
COMPETITION
We do not know of a product on the market or being developed that has
the combination of current and potential applications as the CellScan.
Nevertheless, each application of the CellScan taken individually, faces
competition from a number of sources. As a diagnostic tool, the CellScan
competes with:
- - traditional cancer screening methods, such as mammograms for breast
cancer, PSA tests for prostate cancer and x-ray techniques such as MRI;
and
- - traditional blood screening technologies,
which work to varying degrees. Additionally, current blood scanning techniques
involve the use of microscopy and flow cytometry, which may be cheaper, more
familiar to the scientific community and readily obtainable compared to the
CellScan. There can be no assurance that the marketplace will recognize the
value of the CellScan or replace existing technology with the CellScan, in which
case we will be unable to compete with companies marketing and selling such
devices.
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FUEL CELLS
Scientists at More Energy Ltd., an 86.5% subsidiary of Medis El, are
developing direct liquid methanol fuel cells which are expected to be small
enough to power cellular phones, laptop computers, camcorders and other
portable electronic devices with a view to providing significantly more
operating time and a longer lifespan than the batteries currently used for
such products. They are also working with larger fuel cells which could be
used as an efficient and environmentally friendly energy source for home and
automobile use.
Fuel cells are generally made up of three components:
- - electrodes, which are devices that emit or control the flow of
electricity;
- - electrolytes, which is a liquid that, when combined with the fuel,
allows protons to flow from one electrode to another, creating
electrical energy; and
- - a hydrogen-based fuel mixed with the electrolyte.
The fuel cells produce energy when the hydrogen in the fuel combines with
oxygen, which is readily obtainable from the atmosphere, in an electrochemical
reaction.
We are developing our fuel cell technology as an alternative to
currently available technology, such as disposable and rechargeable batteries,
based upon our perception of its:
- - potential efficiency;
- - ability to operate at a lower cost;
- - ability to operate longer without refueling; and
- - environmental benefits which include the absence of harmful emissions,
as the waste product is water, and the absence of special disposal
requirements compared to batteries.
We believe our fuel cell technology has important advantages over
competing fuel cell technologies such as:
- - more power delivered relative to the fuel cells' size and weight;
- - our small direct liquid methanol fuel cells fueled by a proprietary
electrolyte solution containing methanol operate longer without
refueling;
- - a longer lifespan of the fuel cells' electrodes, which increases the
life of the fuel cell, thus enabling it to be refueled more often
before it has to be replaced; and
- - lower cost to produce.
We attribute these advantages to:
- - the use of a special proprietary polymer, a form of plastic, in the
electrode which has the ability to efficiently conduct electrons;
- - the use of a proprietary catalyst which, when combined with the
polymer, creates a film which protects the electrode from harmful
impurities in the fuel, resulting in a longer service life for the
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electrode and a substantial reduction in the platinum component of the
electrode; and
- - the use, in the small direct liquid methanol fuel cells, of the
proprietary electrolyte which contains the fuel.
We anticipate that upon the successful development of the fuel cells,
of which there can be no assurance, we intend, with our joint venturer or
licensor, to market and sell the fuel cells as well as disposable electrolyte
cartridges to power the fuel cells as separate products.
We further anticipate that the polymer will have, in addition to its
applications in the fuel cells, stand-alone applications in such fields as:
- - anti-static equipment;
- - active matrix polymer displays;
- - plastic-coated electrodes and sensors; and
- - magnetic shielding in electrical equipment,
and the catalyst will have stand-alone applications in such fields as:
- - electro-synthesis;
- - organic synthesis;
- - producing mineral fertilizer; and
- - reforming, cleaning and purifying industrial and automotive gases and
exhaust fumes.
THE PRESENT STATE OF THE TECHNOLOGY
We have developed a prototype small direct liquid methanol fuel cell
in modular form fueled by methanol in our proprietary electrolyte solution.
Initial laboratory testing of the prototype, which has dimensions of
approximately 1" x 1" x 1/4", demonstrated an output of up to 0.25 watts at
1.3-1.4 volts. When 8 modules are combined in two layers, with dimensions of
approximately 4" x 1" x 1/2", the combined fuel cells demonstrated in
laboratory tests an output of up to 2.0 watts at 4 volts and achieved a
specific energy output of up to 900 watt hours per kilogram of fuel. Many
cell phones today are powered by batteries with an output of 1.8-2.0 watts of
electrical power. We are conducting tests to further improve the performance
of the fuel cells to:
- - improve the conducting ability of the electrolyte;
- - maximize the percentage of methanol or other alcohol product in the
electrolyte, thus allowing for longer life between refueling;
- - develop new, more efficient electrodes;
- - extend the lifespan of the electrode;
- - configure the fuel cell to power different types of hand-held
electronic devices; and
- - develop the appropriate refueling technique.
Based upon our tests to date, we believe that the fuel cell components,
if and when fully developed for use in cellular phones, for instance, will be
capable of over 100 hours of talk and standby
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time between each refueling.
We have also developed a prototype large fuel cell fueled by
hydrogen and oxygen which demonstrated in laboratory tests an output of at
least 0.3 watts of electrical power per square centimeter of electrode
surface while using approximately 0.25 milligrams of platinum per square
centimeter of electrode surface. Based on published literature, we believe
that our competitors have a comparatively lower watt output and use
comparatively more platinum.
We are focusing on further developing the direct liquid methanol
fuel cells for use in portable electronic products prior to focusing on the
further development of the hydrogen fuel cells.
We anticipate improving the direct liquid methanol fuel cells to a
point where we will seek to enter into licensing or joint venture
arrangements with third parties by the third quarter of 2000.
COMPETITION
There are numerous companies, institutions and governments around the
world inventing or which have invented fuel cells for uses similar to our
planned fuel cells, including for the automobile, home use and portable
electronics markets. Many of such entities have expended and have the
capabilities to expend funds far in excess of any capability we could have.
Among such entities are some of the largest and wealthiest companies in the
world employing the greatest talents in the field. However, based upon published
literature, we do not believe that any of these companies have successfully
developed a commercially acceptable fuel cell that has the advantages of our
electrodes, although some of them have indicated that they are close to
marketing their own products.
TOROIDAL INTERNAL COMBUSTION ENGINE AND COMPRESSOR
TOROIDAL ENGINE
The toroidal engine is a donut-shaped internal combustion engine. Medis
El believes that a toroidal engine comparable to but that is one-half the size
and weight of a conventional internal combustion engine found in today's
automobiles will be far more efficient and cost less to manufacture. We believe
that the toroidal engine has the capability of increasing engine efficiency by
at least thirty percent, thus substantially improving mileage per gallon of
fuel. We expect that the engine will also be more efficient than a diesel
engine, yet still use regular gasoline which will not create the emissions or
suffer other problems of using diesel fuel. Additionally, a smaller version can
be adapted for motorbikes, scooters, lawn mowers and other small engine-powered
products.
The engine is being developed pursuant to Medis El's patents by a
team of scientists employed at AOOT OKB Motorostroyeniya, a Russian company
having no affiliation with us or any of our principals, under consulting
contracts with Medis El. AOOT contemplates delivering a prototype 12-15
horsepower engine to us no later than March 2000 and developing a prototype
75-100 horsepower engine by June 2000.
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TOROIDAL COMPRESSOR
AOOT is also developing a toroidal compressor, contemplated for
delivery in June 2000, that is intended for use in refrigeration units, air
conditioning units and other compressor applications. Based on the same general
principles and Medis El patents as the toroidal engine, the weight and size of
the compressor is expected to be substantially smaller and lighter than current
state-of-the-art compressors. Such a compressor is expected to provide greater
energy efficiency and would be cheaper to manufacture than existing compressors.
We are preparing for filing an additional patent covering the toroidal
compressor.
REFRIGERATION. We believe that a traditional Rankine-cycle cooling
system, which is a thermodynamic cycle now used in most refrigeration and air
conditioning systems which uses chloro-fluorocarbons such as freon, driven by
our toroidal compressor in a refrigeration unit would have certain advantages
over existing technology such as:
- - energy savings of between 30% and 50%;
- - enabling manufacturers to meet new energy standards; and
- - smaller size and weight and lower manufacturing costs.
Another possibility which we are exploring for refrigeration
applications is developing a stirling cycle expander driven by our toroidal
compressor. This option could offer the low cost, size and weight of the
toroidal compressor coupled with the environmentally sensitive stirling cycle
expander. Drawings as to the feasibility of such a system are being prepared by
Medis El's technical staff.
AIR CONDITIONING. We believe that the toroidal compressor has
additional applications in powering air conditioning units. Based on our
calculations, we believe our toroidal compressor can increase the efficiency of
central home air conditioners to meet a 14-15 SEER, a commonly used rating for
energy efficiency in appliances where each SEER level represents a 10% increase
in efficiency. Existing central home air conditioner units in the United States
must currently meet a minimum of 10 SEER and may be required to meet a 12 SEER
based upon recently announced proposed energy efficiency standards for new air
conditioners by the Department of Energy.
Medis El owns a 25% interest in New Devices Engineering A.K.O. Ltd., a
privately held company that owns a patent and related applications to the
toroidal internal combustion engine, and has an option which it currently
intends to exercise to acquire an additional 50% interest in New Devices. The
option price aggregates $60,000 and expires on March 31, 2000. We intend to
extend the options to June 30, 2000 or, if unable to extend, to exercise the
options prior to the expiration date. Medis El has already filed and intends
further filings in its own name for additional patents for the toroidal engine
which cover new inventions beyond the patents currently in existence.
COMPETITION
The toroidal engine, if and when developed, is expected to compete with
internal combustion
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engines found in today's automobiles. We expect automobile manufacturers to be
very reluctant to replace such engines due to the need to retool manufacturing
plants and a perceived reluctance of the public to purchase an untried
technology. However, automobile manufacturers are increasingly being required to
develop new types of automobiles to meet new environmental standards imposed by
federal and state governments and we believe that a successfully developed
toroidal engine would offer a way to meet those standards.
Competition may also be expected from the many companies and
universities attempting to develop alternatives to today's internal combustion
engines, including engines powered by fuel cells, electricity and solar power or
combinations of the above, none of which are as of yet widely commercially
offered. To the extent that alternatives to today's engine are cheaper to
manufacture, more efficient or more familiar to the general public, we may be
unable to compete effectively.
We will also be competing for research dollars from automobile
manufacturers and others to assist in funding the continued research and
development of our design, however, there can be no assurance that we will
receive funds from others for the further development of our product. Nor can
there be any assurance that we will compete effectively with other research and
development companies seeking similar funding who may have better industry
contacts or whose technological development has advanced further than ours.
STIRLING CYCLE LINEAR TECHNOLOGY
Medis El's stirling cycle linear technology is a patented
development-stage refrigeration and air conditioning system for use in home and
office refrigerators, freezers and air conditioners and automobile air
conditioners. The system consists of a linear compressor and a displacer - or
expander - which utilizes an efficient thermodynamic technique known as the
"stirling cycle." We believe the technology is capable of providing greater
energy efficiency than current refrigeration and air conditioning systems and
would lower energy consumption and reduce emissions which may harm the
environment.
We believe that the stirling cycle is being looked at by companies in
the field of refrigeration due to the need for efficient and environmentally
friendly alternatives to existing technology. However, no one as yet has
designed a commercially acceptable system. We believe that Medis El's stirling
cycle system may offer a solution to current stirling cycle cooling system
problems, such as the use of inferior rotary bearings, compressor dynamic
seal-related problems, debris and lubricant contamination and helium leakage.
Medis El's compressor uses a cylinder-piston assembly containing a piston moving
back and forth on air bearings. Since the piston has only clearing seals and no
rotating parts, there is minimal dissipation of energy and consequently little
heat loss and wear on the system. Additionally, since the system's displacer
uses helium as its working gas, which is a natural gas found in the atmosphere
that has no known depleting effect on the ozone layer, it is environmentally
friendly. Current refrigeration and cooling systems use freon or a freon
compound as refrigerants. These substances contain chlorofluorocarbons, which
are commonly believed to deplete the ozone layer and contribute to the
"greenhouse effect" and global warming. We believe the greater efficiency will
enable
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<PAGE>
manufacturers to meet new elevated environmental standards for refrigeration
system efficiency, including the U.S. Department of Energy's announcement that
refrigerators produced in 2001 will have to use 30% less electricity than those
on the market today.
AUTOMOBILES
In addition to potential applications in home and office air
conditioners and refrigerators, Medis El is examining use of the stirling cycle
technology as a way to improve the efficiency of automobile air conditioner
compressors, which we believe could reduce the amount of power required for air
conditioning by up to 50%. We further believe that the draw-down of power from
the automobile's motor could reduce fuel consumption so the car can have more
power for other operations. In addition, we believe the stirling cycle
technology can benefit electric and hybrid vehicles, which use a combination of
fuel cells and traditional fuel such as gasoline, because the system is expected
to draw only one-half of the electricity compared to present air conditioning
systems. We believe the stirling cycle technology can also be adapted for
heating, and Medis El is currently planning the development of a heat pump for
automobiles.
THE PRESENT STATE OF THE TECHNOLOGY
In December 1998, Medis El entered into a technology development
agreement with The Coca-Cola Company, among other things, to jointly develop
the stirling cycle technology for application in such company's line of
business. Medis El was paid $100,000 pursuant to the agreement to grant a
right of first refusal to obtain exclusive rights for the sole use of the
stirling cycle and other technology in the beverage industry and an
additional $100,000 to assist in the development of the stirling cycle
technology for use in the beverage industry. A prototype of the system was
developed and submitted for analysis pursuant to the agreement.
Upon joint scientific review of the prototype in August 1999, both
parties concluded that, in order to operate at the level of efficiency
required for the product to be commercially acceptable, Medis El would have
to make significant design improvements. Consequently, Medis El is designing
a new prototype, which we expect to have available for review by the third
quarter of 2000. If Coca-Cola ultimately decides to use the technology, it is
required to pay to Medis El $500,000 to fund tooling and manufacturing. Medis
El would be entitled to a royalty to be agreed upon for each unit
manufactured for use pursuant to the agreement. Assuming no further setbacks
or unforeseen difficulties or problems arising with respect to developing the
technology, of which there can be no assurance, we anticipate having a
working model to show to potential distributors by the end of 2000 and being
able to go to market by the end of 2001.
Medis El is currently engaged in discussions with other companies in
the U.S. and Europe regarding their use of the stirling cycle technologies.
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<PAGE>
COMPETITION
There are currently a number of companies developing variations of the
stirling cycle technology for home and automobile cooling and refrigeration. We
do not believe any of such companies have a model ready for commercialization.
There can be no assurance that, if our stirling cycle technology is successfully
developed and commercialized, we will be the only entrant to the marketplace
with a working product or that we will compete successfully against any of such
competing products. While we believe our stirling cycle design is superior to
others being developed, a combination of factors including availability of
distribution channels, lower manufacturing costs of competing products or
general lack of acceptance from the general public, could make it difficult for
us to compete effectively with other stirling cycle systems currently being
developed or other products that claim greater efficiency, environmental
sensitivity or some combination of the two.
We are also competing for research dollars from appliance manufacturers
and other companies to assist in funding the continued research and development
of our design. Although, to date, we have received funding from one
multi-national company, discussed above, and others have expressed interest in
our design, there can be no assurance that we will receive additional funds from
our existing collaborator or receive funds from others interested in our
product, nor can there be any assurance that we will compete effectively with
other research and development companies seeking similar funding who may have
better industry contacts or whose technological development has advanced further
than ours.
RECIPROCATING ELECTRICAL MACHINE
The patented reciprocating electrical machine, if and when developed,
will seek to use the reciprocating motions of energy sources such as wind or sea
waves to convert such energies' back-and-forth motion into electricity. The
reciprocating machine is based on principles incorporated into the stirling
cycle linear technology. We believe it can reduce the cost of generating
electricity by up to 30% and would be cleaner and environmentally safer than
traditional power sources. We believe this machine could be particularly useful
in a country that depends heavily on importing fossil fuels for its energy needs
but has access to other energy sources.
COMPETITION
We expect to compete with the many alternative forms of power
generating equipment being developed or marketed, including the use of windmills
and solar power, all of which are accepted by the marketplace in varying
degrees. The marketplace has traditionally been slow to accept alternative forms
of energy and may not accept additional entrants, particularly with economically
riskier new approaches, into the crowded electric generating market.
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DIRECT CURRENT REGULATING DEVICE
In addition to its patents for the toroidal internal combustion engine
and compressor, New Devices Engineering also owns patents for a technology yet
to be developed that switches and regulates direct current, or DC, electricity
in ranges of several thousand amperes, which is a base unit of electric current.
Using currently-installed electric wire, the direct current regulating device is
expected to enable the transmission of two-thirds more current than the current
system and would eliminate the need for alternate current, or AC, power lines,
which make up two of the four wires presently used to supply electricity, and
the transformers which convert DC to AC. Furthermore, the elimination of
transformers could end the electromagnetic emission from electrical power lines
thought by some to cause diseases in people living or working in its vicinity.
Medis El believes that the device can also be applied to regulate and stabilize
the temperature inside electric furnaces during steel melting in ways that will
be more economical and accurate than current regulating devices for such
purposes.
COMPETITION
We expect to compete with existing technologies and expect utilities to
be very reluctant to accept a new method for transmitting electric current.
WATER TECHNOLOGIES
Medis El owns the rights to technologies which, if successfully
developed, would be used to generate potable water.
DEVICE FOR EXTRACTING WATER FROM THE ATMOSPHERE
Medis El is developing and will be seeking proprietary protection for
what may prove to be a low-cost household device that would possess the
capability to generate sufficient water from the atmosphere to satisfy an
average household's daily needs. It presently appears that the invention will
require a much higher energy cost for generating water than the present cost of
desalination so the invention's value will be limited to those areas where
desalination is not economically feasible and potable water is scarce.
DESALINATION
Medis El is developing and will be seeking proprietary protection for
what may prove to be a new method to reduce the energy required for
desalination, thus reducing the cost of generating potable water.
PATENTS
Medis El relies on certain proprietary technology and seeks to protect
its interests through a combination of licensed patents, know-how, trade secrets
and security measures, including
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confidentiality agreements. Medis El's policy is to secure, directly or through
licensing arrangements, patent protection for significant innovations to the
fullest extent practicable.
The following sets forth information on United States patents and
patents pending relating to Medis El's technologies. This list does not include
other worldwide patents and filings relating to Medis El's technologies. Each of
the issued patents listed below generally expire 17 years from the issuance date
in parenthesis.
PATENTS WHOLLY OWNED BY MEDIS EL
<TABLE>
<S> <C>
"Synchronous Twin Reciprocating Piston Covers a linear compressor designed for
Apparatus" refrigeration systems and utilizes a technique
known as the stirling cycle, which works on
#5,693,991 (December 2, 1997) a gas cycle.
"Displacer Assembly For Stirling Cycle Covers an assembly that converts a pulse
System" from a compressor via a thermodynamic
#5,907,201 (May 25, 1999) cycle to cold or heat.
"Synchronous Reciprocating Electric Covers a device that converts reciprocating
Machines" movement of any type into electricity or
converts electricity into reciprocating
#5,903,069 (May 11, 1999) motion.
"Toroidal Internal Combustion Engine" Covers a rotary engine with one or
more toroidal chambers defined by
rotors that rotate within cylindrical
#09/146,362 (September 3, 1998) housings.
(pending)
#09/250,239 (February 16, 1999)
(pending)
PATENTS LICENSED TO MEDIS EL
"System and Method for Cell Selection" Covers both a method and an apparatus for
selecting cells, including a method of
measuring and moving cells and a cell
#4,729,949 (March 8, 1988) carrier with first and second outer surfaces.
#4,675,065 (June 23, 1987)
#5,272,081 (December 21, 1993)
"Manufacture of Microsieves and Covers an improvement to known
Resulting Microsieves" photoresist methods to form a microsieve.
#4,772,540 (September 20, 1988)
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
"Apertured Cell Carrier" Defines first and second outer surfaces
and comprises an ordered array of
holes through the holes being in
identifiable positions on the carrier
and sized to contain individual
#5,506,141 (April 9, 1996) living cells.
</TABLE>
Medis El is the exclusive worldwide licensee of Bar-Ilan'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 Medis El is the licensee.
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.
PATENTS OWNED BY NEW DEVICES ENGINEERING A.K.O. LTD.
<TABLE>
<S> <C>
"Toroidal Engine" Covers an internal combustion engine
that comprises a toroidal combustion
chamber housing within which slides
#5,797,366 (August 25, 1998) at least one piston.
"Direct Current Regulating Device" Covers a gas discharge tube for
regulating the flow of high power
direct current, and a method for its
#5,814,943 (September 29, 1998) use.
</TABLE>
PATENTS OWNED BY MORE ENERGY LTD.
<TABLE>
<S> <C>
"A New Class of Electrocatalysts and a Gas Relates to electrochemistry and, more
Diffusion Electrode Based Thereon for Fuel particularly, to a class of electrocatalysts
Cells" based on highly electroconducting polymers,
and a gas diffusion electrode based thereon
for fuel cells.
#09/377,749 (August 20, 1999)
(pending)
</TABLE>
The status of patents involves complex legal and factual questions,
including the breadth of claims allowed. Accordingly, there can be no assurance
that patent applications filed by Medis El, or its present or future licensors,
will result in patents being issued or that these or future patents will afford
protection against competitors with similar technology. There can be no
assurance that the patents on which Medis El principally relies, or in the
future may rely, will not be invalidated or that any issued patent will provide
protection that has commercial significance. Litigation may be necessary to
protect Medis El's patent position. Such litigation can be costly and time
consuming and there can be no assurance that Medis El would be successful if
such litigation were instituted. The invalidation of patents owned or licensed
to Medis El could have a material adverse effect on Medis El and, consequently,
us.
There can be no assurance that Medis El's patents will provide broad
protection against any of
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its competitors. In addition, no assurances can be given that patents issued to
or relied upon by Medis El will not be infringed upon or designed around by
others or that others will not obtain patents that Medis El will need to license
or design around. Moreover, to the extent products are covered by third party
patents, development and marketing of such products by Medis El could require a
license under such patents. If existing or future patents containing broad
claims are upheld by the courts, the holders of such patents could require Medis
El to obtain licenses from them. If Medis El is found to be infringing third
party patents, there can be no assurance that licenses that might be required
for Medis El's products would be available on reasonable terms, if at all.
KNOW-HOW AND TRADE SECRETS
In addition to patent protection, Medis El relies on the laws of unfair
competition and trade secrets to protect its licensed or proprietary rights.
Medis El attempts to protect its trade secrets and other proprietary information
through agreements with its distributors, through confidentiality agreements
with employees, consultants, potential joint ventures and licensees and other
security measures.
FACILITIES
We presently maintain our executive offices in premises of
approximately 3,000 square feet at 805 Third Avenue, New York, New York 10022
under a sublease from the Stanoff Corporation, which is controlled by Robert K.
Lifton, our chairman and chief executive officer, and Howard Weingrow, our
president. We pay approximately $27,000 for rent per year. The sublease is on a
month to month basis. We believe our facilities are adequate for our present
purposes.
Medis El's executive offices, research laboratory and technology center
are located at a leased facility of approximately 7,000 square feet in Yehud,
Israel. The rental expense for this lease, which expires in November 2000 with a
one-year option extending to November 2001 on most of the facility, is
approximately US $89,000 per year. Medis El also leases a facility of
approximately 3,000 square feet in Jerusalem, Israel for the manufacturing of
its CellScan cell carriers, two thirds of which is sublet to a third party,
which expires on December 31, 1999. Medis El intends to enter into a new lease
for that portion of the facility it does not sublet which will expire on
December 31, 2001, with a two year option extending to December 31, 2003, and
will provide for an annual aggregate rental of approximately US $23,500. Medis
El believes its facilities are adequate for its present purposes.
LEGAL PROCEEDINGS
On November 22, 1999, Medis El entered into a settlement agreement with
an Argentinian company to dismiss 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. In this action, Cellscan Argentina
sought an aggregate of $10,000,000 in compensatory and punitive damages in
connection with a 1993 distribution agreement between CellScan Argentina and
Medis El and a related purchase of a CellScan machine. The settlement requires
Medis El to purchase back from Cellscan
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Argentina its CellScan for $100,000, issue 60,000 of Medis El's ordinary shares
to Cellscan Argentina and issue warrants to purchase 30,000 of Medis El's
ordinary shares for $5.00 per share, expiring two years from the date of the
warrant. The purchase price was paid and the shares and warrants were issued in
December 1999. The defendants were represented in this matter by Cooperman
Levitt Winikoff Lester & Newman, P.C.
In June 1999, Medis El entered into an agreement with a Peruvian
company owning a CellScan. Pursuant to the agreement, in consideration of Medis
El upgrading the company's CellScan free of charge, the company agreed to
relinquish any future claims against Medis El subject to a 6 month option to
require Medis El to reacquire its CellScan for $100,000 subsequent to the
CellScan's upgrade. Medis El completed its upgrade of such CellScan in July
1999. The company has not exercised its option pursuant to the terms of the
agreement.
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.
ECONOMIC CONDITIONS IN ISRAEL
UNFAVORABLE BALANCE OF PAYMENTS: Israel has an unfavorable balance of
payments due principally to defense expenditures which absorb a substantial
portion of the Israeli government's budget, excluding debt service. Defense
expenditures in 1998 absorbed approximately 15.2% of the State's budget,
excluding debt service. As a result, the share of the State's resources
available for economic development and other national purposes is limited.
Israel's foreign debt has been financed principally by military and economic aid
from the United States, personal remittances, sales of bonds primarily in the
United States, inter-governmental, institutional and free market loans and
contributions from the international Jewish community. Israel has never
defaulted on the payment of either principal or interest on any of its
indebtedness.
ISRAELI INFLATION AND CURRENCY DEVALUATION: During the years 1986 to
1998, the Israeli consumer price index increased by an average of approximately
13.7% annually, compared to 445% and 185% in years 1984 and 1985, respectively.
The consumer price index increased by 1.3% for the year ended December 31, 1999.
The following table sets forth for the period indicated the closing,
average, highest and lowest currency exchange rate between Israel and the United
States. The closing, highest and lowest exchange rate is the rate of the NIS for
one dollar as reported by the Bank of Israel. Average exchange rate is the
twelve monthly average rates divided by twelve.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
----- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Closing U.S. dollar exchange rate ........ 3.018 3.135 3.251 3.536 4.160 4.153
Average U.S. dollar exchange rate ........ 3.011 3.011 3.188 3.449 3.800 4.140
Highest U.S. dollar exchange rate ........ 3.060 3.175 3.292 3.592 4.367 4.288
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Lowest U.S. dollar rate .................. 2.962 2.939 2.080 2.242 3.548 4.013
</TABLE>
The following table sets forth for the periods indicated information
with respect to the rate of inflation in Israel, as measured by the consumer
price index, the devaluation of the New Israeli Shekel in relation to the dollar
and the comparison rate of yearly average inflation in the United States. Annual
inflation is the percentage change in the consumer price index between December
of the year indicated and December of the preceding year. U.S. devaluation is
the percentage increase in the value of the dollar in relation to the NIS during
the calendar year. Annual inflation adjusted for devaluation is obtained by
dividing the December consumer price index for the year in question by the
closing exchange rate, thus first obtaining dollar-adjusted consumer price index
and then calculating the yearly percentage changes in this adjusted index. The
U.S. inflation rate is published by the Bureau of Labor Statistics of the United
States Department of Labor and is from consumer price index for all urban
consumers.
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
----- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Annual inflation.......................... 14.5% 8.1% 10.6% 7.0 % 8.6% 1.3
U.S. devaluation.......................... 1.1 3.9 3.7 8.8 17.6 (0.17)
Annual inflation adjusted for
devaluation............................... 13.2 4.1 6.6 (1.6) (7.7) 1.5
U.S. inflation rate....................... 2.6 2.5 3.3 1.7 1.6 *
</TABLE>
- ----------
* The U.S. inflation rate for the year 1999 has not been released as of the
date of this prospectus.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors are as follows:
<TABLE>
<CAPTION>
Positions with:
---------------------------------------------------
Name Age Medis Technologies Medis El
------ ----- ------------------ ---------
<S> <C> <C> <C>
Robert K. Lifton................. 72 Chairman of the Board, Chief Chairman of the Board
Executive Officer and Secretary
Howard Weingrow.................. 76 President, Treasurer and Director Director
Zvi Rehavi....................... 64 Executive Vice President(1) Executive Vice President
Amos Eiran....................... 63 Director Director
Jacob S. Weiss................... 46 Director Director
Zeev Nahmoni..................... 58 Director Director
Shmuel Peretz.................... 59 Director Director
KEY EMPLOYEE:
Israel Fisher.................... 51 Vice President-Finance(1) Vice President-Finance
and Secretary
</TABLE>
- ------------------
(1) Messrs. Rehavi and Fisher are appointed to their respective positions in
Medis Technologies pending and subject to the successful completion of this
exchange offer.
ROBERT K. LIFTON has been our chairman of the board, chief executive
officer and secretary since our inception and chairman of the board of Medis El
since October 1993. 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 has recently been
named chairman of the advisory board of ActFit.com Inc., a developer of
interactive Internet programming, 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 the Transcontinental
Investing Corporation, serving as its president
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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 has recently joined the advisory boards
of Creditcards.com, a registered independent service organization and ActFit.com
Inc., a developer of Interactive Internet programming. He is a trustee of the
Children's Medical Fund of Long Island Jewish Hospital and was a member of the
board of advisors of the American Jewish Congress. He 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 is also a trustee of the James S. Brody Presidential Foundation
and the Nassau County Museum of Art. He was chairman and a director of Mercury
Paging & Communications, Inc. from 1995 until its sale in 1997.
ZVI REHAVI has been the executive vice president and General Manager of
Medis El since its inception. Mr. Rehavi is also general manager of More Energy
Ltd., a subsidiary of Medis El. 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.
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. Mr. Eiran also serves as director for
Clal Insurance Group, 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.
JACOB S. WEISS has been one of our directors since December 1997 and
one of Medis El's directors since October 1993. Mr. Weiss serves as the
corporate vice president and general counsel to Israel Aircraft since 1996.
Prior to that, he was deputy general counsel-international division of Israel
Aircraft. Mr. Weiss is a director of Fibersense, Inc., a designer, developer and
manufacturer of fiberoptic gyroscopes, a director of Ellipso Inc., which was
granted an FCC license to establish and operate a low earth orbit mobile
communications network and a director of West Indian Space, a venture
established to market and sell services from high resolution earth observation
satellites.
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ZEEV NAHMONI has been 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 West Indian Space.
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.
ISRAEL FISHER has been the vice president-finance and secretary of
Medis El since its inception. Mr. Fisher is also vice president-finance of More
Energy Ltd., a subsidiary of Medis El. From 1980 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.
In addition, 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.
As members of the board of Medis El, each director is elected for a one
year term at the annual meeting of shareholders. Upon the successful completion
of this exchange offer and the registration of our common stock pursuant to
section 12 of the Securities Exchange Act of 1934, members of the board of Medis
Technologies will be elected for a one year term at the annual meeting of
stockholders.
Our board of directors intends to create a compensation committee and
an audit committee, which is a requirement for listing on the Nasdaq SmallCap
Market, upon the completion of this exchange offer. Each committee will consist
of two or more independent directors, which directors have not yet been
appointed. The compensation committee will review our compensation policies and
administer our stock option plan. The audit committee will review the scope of
our audit, the engagement of our independent auditors and their audit reports.
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, our
only other executive officer who earns in excess of $100,000. Mr. Lifton's
annual compensation was paid by Medis Inc., our wholly owned subsidiary, with
funds paid to Medis Inc. in quarterly installments by Medis El for services
rendered. As of January 1, 1999, Medis El began paying such funds directly to
us. Mr. Rehavi's annual compensation is for services rendered to Medis El and is
paid by Medis El.
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<PAGE>
<TABLE>
<CAPTION>
Long-term compensation
Annual compensation awards
------------------- ----------------------
Securities
Other annual Restricted underlying
Name And Principal Position Year Salary Bonus compensation stock award(s) options/SARs
----------------------------- ---- ------ ----- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert K. Lifton ................ 1999 $100,000 -- -- -- --
Chief Executive Officer
Zvi Rehavi....................... 1999 $136,000 $64,000 $62,600(1) -- 27,500
Executive Vice President
</TABLE>
________________________
(1) Includes a monthly apartment allowance aggregating $24,000 per annum, a
$18,750 payment per annum for an educational fund and a contribution of
$15,600 per annum by Medis El 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.
EMPLOYMENT AGREEMENTS
Medis El entered into a one year employment agreement beginning October
1, 1999 with Zvi Rehavi, Medis El's executive vice president, which provides
for:
- - an annual base salary of $180,000;
- - a mandatary bonus of $62,000;
- - a payment of $30,000 per annum for an educational fund; and
- - a payment of $38,400 per annum for rent participation.
The employment agreement further provides for the payment of severance equal to
one-half of Mr. Rehavi's annual salary in the event of resignation or dismissal.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options/SAR
grants issued by Medis El to purchase Medis El's ordinary shares in the fiscal
year ended December 31, 1999. It does not include option/SARs issued by Medis El
or by us that will not vest within 60 days from the date of this prospectus. We
do not have any options outstanding that vest within 60 days from the date of
this prospectus.
<TABLE>
<CAPTION>
Number of securities Percent of total options/
underlying SARs granted to
option/SARs employees Exercise of base
Name granted (#) in fiscal year price ($/Sh) Expiration date
- --------------- -------------------- ------------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Zvi Rehavi................... 27,500 63.1% $7.42 2/14/00
</TABLE>
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1999 STOCK OPTION PLAN
We adopted our 1999 stock option plan on July 13, 1999. We have
reserved 1,000,000 shares of common stock with respect to which options and
stock appreciation rights may be granted under the plan. 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 thereunder. 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
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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.
To date, we have granted 450,000 options under the plan, all of which
were granted to our directors and an officer nominee as follows:
<TABLE>
<CAPTION>
<S> <C>
- - Zvi Rehavi......................................................200,000
- - Robert K. Lifton................................................100,000
- - Jacob S. Weiss..................................................100,000
- - Howard Weingrow..................................................50,000
</TABLE>
We have committed ourselves to grant to each of the current holders of
options under Medis El's stock option plan an option to purchase a number of our
shares based upon the same exchange rate as this exchange offer. Each of the
grants is conditioned upon the closing of this exchange offer and such option
holder's agreement to forfeit his or her existing Medis El options.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership
of our common stock as of February 9, 2000 by:
- - each beneficial owner of five percent or more of our common stock;
- - each of our directors and executive officers and our director and
executive officer nominees; and
- - all of our directors and executive officers and our director and executive
officer nominees as a group.
The table assumes all Medis ordinary shares not beneficially owned by
us are tendered in the exchange. 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
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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.
<TABLE>
<CAPTION>
AMOUNT OWNERSHIP AMOUNT OWNERSHIP
BENEFICIALLY PERCENTAGE BENEFICIALLY OWNED PERCENTAGE AFTER
NAME AND ADDRESS OWNED PRIOR PRIOR TO THE AFTER THE
OF BENEFICIAL OWNER TO THE EXCHANGE EXCHANGE THE EXCHANGE EXCHANGE
------------------- --------------- ------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Israel Aircraft Industries Ltd. (1) ... 3,791,457 35.5 5,503,957 34.5
Robert K. Lifton (2) .................. 1,704,201 15.6 1,903,384(3) 11.7
Howard Weingrow (4) ................... 1,587,533 14.5 1,725,614(5) 10.6
CVF, LLC (6) .......................... 1,194,168 10.9 1,194,168 7.4
Zvi Rehavi ............................ -- -- 13,700(7) *
Amos Eiran ............................ -- -- 13,700(8) *
Jacob S. Weiss (9) .................... -- -- 3,425 *
Zeev Nahmoni (10) ..................... -- -- 1,370 *
Shmuel Peretz (11) .................... -- -- -- --
All directors and executive officers as
a group - (7 persons) (12) .......... 2,721,898 24.5 3,091,357 18.8
</TABLE>
_________________________
* Less than 1%
(1) Includes 50,000 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. Israel Aircraft, immediately prior to
this exchange offer, was the beneficial owner of 1,250,000 ordinary
shares of Medis El, approximating 12% of Medis El's outstanding shares.
(2) Includes 182,865 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. 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. Mr. Lifton,
immediately prior to this exchange offer, was the beneficial owner of
130,389 ordinary shares of Medis El, approximating 1.2% of Medis El's
outstanding shares.
(3) Includes options to acquire 15,000 of Medis El's ordinary shares, which
will be exchanged for options to acquire our common stock at an
exchange ratio of 1.37:1.0 subsequent to the completion of this
offering.
(4) Includes 153,698 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. Mr. Weingrow,
immediately prior to this exchange offer, was the beneficial owner of
85,789 ordinary shares of Medis El, approximating less than 1% of Medis
El's outstanding shares.
(5) Includes options to acquire 15,000 of Medis El's ordinary shares, which
will be exchanged for options to acquire our common stock at an
exchange ratio of 1.37:1.0 subsequent to the completion of this
offering.
(6) Includes 304,167 shares of our common stock underlying warrants held by
CVF, LLC. CVF is controlled by Lester Crown 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.
(7) Represents options to acquire 10,000 of Medis El's ordinary shares,
which will be exchanged for options to acquire our common stock at an
exchange ratio of 1.37:1.0 subsequent to the completion of this
offering.
(8) Represents option to acquire 10,000 of Medis El's ordinary shares,
which will be exchanged for options to acquire our common stock at an
exchange ratio of 1.37:1.0 subsequent to the completion of this
offering.
(9) Does not include shares held by Israel Aircraft Industries, of which
Mr. Weiss is corporate vice president and general counsel.
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(10) Does not include shares held by Israel Aircraft Industries, of which
Mr. Nahmoni is a vice president.
(11) Does not include shares held by Israel Aircraft Industries, of which
Mr. Peretz is the president of one of its subsidiaries.
(12) Includes our directors and our executive officer nominee 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.
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CERTAIN TRANSACTIONS
On December 15, 1997, we acquired from Israel Aircraft all of its
capital shares of Medis Inc., representing a 40% equity interest in such
company, in exchange for 3,600,457 of our shares of common stock. Medis Inc. is
now our wholly-owned subsidiary and the holder of all of Medis El's shares
beneficially owned by us. In connection with the acquisition, certain of our
stockholders entered into a shareholders agreement with Israel Aircraft
providing for certain management and control matters. The shareholders agreement
will terminate in accordance with its terms upon consummation of the exchange
offer.
We used $2,000,000 of proceeds from a private placement on June 30,
1998 to repay Medis El pursuant to a promissory note entered into between us and
Medis Inc. in December 1993, which had been assigned by Medis Inc. to Medis El
through a capital contribution.
In December 1998, we made the final $300,000 interest payment under the
promissory note to Medis El which had been repaid in June 1998. Such payment was
made with funds invested by the Stanoff Corporation, which is controlled by
Robert K. Lifton, our chairman and chief executive officer, and Howard L.
Weingrow, our president. The Stanoff Corporation received 25,000 units, each
unit consisting of three shares of our common stock and a warrant to purchase
one share of our common stock at $5.00 per share, or an aggregate of 75,000
shares and 25,000 warrants, for such investment. Also in December 1998, we
purchased from Medis El in a private placement 400,000 of it's ordinary shares
for an aggregate of $2,000,000.
On May 19, 1999, we purchased from Medis El in a private placement
318,181 of its ordinary shares for an aggregate of $1,750,000.
In May 1999, Israel Aircraft purchased from us in a private placement
25,000 units, each unit consisting of three shares of our common stock and a
warrant to purchase one share of our common stock at $5.00 per share, or an
aggregate of 75,000 shares and 25,000 warrants, for an aggregate of $300,000.
On June 28, 1999 we transferred 718,181 shares of Medis El owned by us
to Medis Inc., our wholly-owned subsidiary.
Robert K. Lifton, receives an annual salary of $100,000 from Medis
Inc., our wholly-owned subsidiary, which amount is paid by Medis El for services
rendered.
In November 1999, our board of directors approved a resolution to hire
Jacob Weiss, a member of our board and of Medis El's board and the general
counsel of Israel Aircraft, as a consultant to us and Medis El, to provide
consulting services to us and Medis El on matters and in areas deemed
appropriate by management. We anticipate Mr. Weiss providing 300-400 hours of
services annually at an hourly rate of $125.
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In December 1999 and January 2000, Medis El purchased an additional
16.5% of the outstanding shares of More Energy Ltd., giving Medis El an 86.5%
interest in such company, for an aggregate purchase price of $165,000.
DISTRIBUTION AND AGENCY AGREEMENTS
Pursuant to an agreement between us and Medis El dated August 1992, we
became the sole distributor of the CellScan in the United States, its
territories and possessions. In July 1998, we became the exclusive agent to
Medis El in coordinating all licensing arrangements in North America with
respect to Medis El's stirling cycle technology and, in December 1999, the
remainder of Medis El's technologies except the CellScan, for which our original
1992 distribution agreement with Medis El still applies.
Other responsibilities under the 1998 agency agreement include:
- - finding potential licensees and cooperating with Medis El to demonstrate
its stirling cycle linear technologies;
- - preparing licensing agreements between Medis El and third parties;
- - overseeing legal proceedings between Medis El and third parties arising
out of or in connection with such licensing arrangements; and
- - managing the collection of royalties payable by such third parties to
Medis El.
In exchange for these and other services, we are entitled to receive a
fee equal to 10% of all royalties payable to Medis El under each license
agreement for the first ten years of each such agreement and 5% of the royalties
under each such agreement thereafter.
Except for affiliates of which we are 100% owners, all ongoing and
future transactions between us and our affiliates, including Medis El, 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.
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DESCRIPTION OF OUR SECURITIES
GENERAL
Our authorized capitalization consists of 25,000,000 shares of common
stock, par value $.01 per share, and 10,000 shares of preferred stock, par value
$.01 per share. As of the date of this prospectus:
- - 10,625,619 shares of our common stock were issued and outstanding, held of
record by 70 persons; and
- - warrants to purchase 1,446,623 shares of our common stock were issued and
outstanding, held in record by 43 persons.
In addition, we have outstanding options to purchase 450,000 shares
of our common stock and will have outstanding options to purchase an
additional 272,630 shares of our common stock subsequent to the completion of
this exchange offer, upon the exchange of all outstanding Medis El options
for options granted under our 1999 stock option plan. No shares of preferred
stock are currently outstanding.
COMMON STOCK
Each stockholder of record is entitled to one vote for each share of
our common stock owned by that stockholder on all matters properly submitted to
the stockholders for their vote. Our certificate of incorporation does not
provide for cumulative voting for the election of our directors, with the result
that stockholders owning or controlling more than 50% of the shares voted for
the election of directors 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 our board out of
funds legally available for this purpose. In the event of our 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 our 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. The outstanding shares of common stock are, and when issued
as set forth in this prospectus, will be, fully paid and nonassessable.
PREFERRED STOCK
Our certificate of incorporation authorizes us to issue 10,000 shares
of so-called "blank check" preferred stock having rights senior to our common
stock. Our board of directors is authorized, without further stockholder
approval, to issue preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, redemption terms and liquidation preferences,
and to fix the number of shares constituting any series and the designations of
these series.
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The issuance of preferred stock may have the effect of delaying or
preventing a change of control of Medis Technologies. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to the holders of common stock or could adversely affect the voting
power or other rights of the holders of common stock. We currently have no plans
to issue any shares of preferred stock.
WARRANTS
Each warrant entitles the holder of record to purchase one share of our
common stock at a price of $5.00 per share, subject to adjustment, among other
events, upon the occurrence of:
- - the issue or sale of common stock for consideration per share less than
the warrant price;
- - the issue, sale, grant or assumption of any options for consideration per
share less than the warrant price;
- - the declaration or payment of dividends payable in common stock; and
- - the combination, consolidation or reclassification of our common stock
into a lesser number of shares,
at any time until the warrants expire at 5:00 p.m., New York City time, on June
30, 2002.
Other provisions of the warrants include:
- - our right to extend the expiration date of the warrants; and
- - our obligation to issue additional shares of common stock to the warrant
holders upon consolidation, merger or transfer of all or substantially all
of our assets.
We refer you to the form of warrant agreement, which has been filed as
an exhibit to the Registration Statement of which this prospectus is a part, for
a complete description of the terms and conditions of the warrants.
DESCRIPTION OF MEDIS EL'S SECURITIES
Medis El's authorized capital consists of 30,000,000 ordinary shares,
of which 10,545,081 ordinary shares are currently outstanding.
All of Medis El's issued and outstanding shares are validly issued,
fully paid and non-assessable. The shares do not have preemptive rights. Neither
Medis El's Articles of Association nor the laws of the State of Israel restrict
in any way the ownership or voting of shares by non-residents of Israel.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF MEDIS TECHNOLOGIES
AND SHAREHOLDERS OF MEDIS EL
The following is a summary of the rights of our stockholders and Medis
El's shareholders. The rights of Medis El's shareholders are governed by the
Companies Ordinance of the State of Israel, Medis El's Articles of Association
and its Memorandum of Association. Upon the successful completion of this
exchange offer, Medis El's shareholders who properly tendered their ordinary
shares will become our stockholders, and their rights will be governed
principally by the General Corporation Law of the State of Delaware and our
charter and by-laws. Although we have attempted to identify all material
shareholders' rights differences, this summary does not purport to identify all
of the differences between our common stock and Medis El's ordinary shares and
is subject to the detailed provisions of the relevant laws and governing
instruments.
DIVIDENDS
AS A MEDIS EL SHAREHOLDER:
Under Medis El's articles, all of Medis El's shares have the right to
take a uniform rate of the divisible profits of Medis El. Medis El has the right
to issue shares with different dividend rights, but has no current intention to
do so.
AS OUR STOCKHOLDER:
Under the Delaware code, a corporation may pay dividends out of
surplus, defined as the excess of net assets over capital. If no such surplus
exists, dividends may be paid out of its net profits for the fiscal year,
provided that dividends may not be paid out of net profits if the capital of
such corporation is less than the aggregate amount of capital represented by the
outstanding stock of all classes having a preference upon distribution of
assets. Our charter allows for the payment of such dividends as may be declared
by our board of directors. Our By-Laws are silent as to the payment of
dividends.
Neither we nor Medis El currently pay dividends to our respective
shareholders.
VOTING RIGHTS
AS OUR STOCKHOLDER AND AS A MEDIS EL SHAREHOLDER:
Each of our shares of common stock and Medis El's ordinary shares is
entitled to one vote on matters submitted to a vote of shareholders. Neither our
nor Medis El's shareholders have cumulative voting rights in the election of
directors.
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DIRECTORS-NUMBER OF DIRECTORS; VACANCIES
AS A MEDIS EL SHAREHOLDER:
Under the Companies Ordinance, a public company must have at least two
directors. Medis El's articles specify that its board size shall be determined
by ordinary resolution of its shareholders. The current number of directors is
six. If a place on the board of directors is not filled or becomes vacant, the
remaining members of the board of directors are entitled to act for all
purposes, so long as their number does not fall below a quorum. If the number of
members falls below a quorum, the board of directors will not be entitled to act
except in emergency matters and for the purpose of appointing additional
directors.
AS OUR STOCKHOLDER:
Our charter and By-Laws provide that our board size shall be determined
by our board. The current size of our board of directors is two, however, we
have nominated four additional members to our board of directors subject to the
successful completion of this exchange offer. Vacant director positions may be
filled by a majority of our directors then in office, even though less than a
quorum.
In addition, at the time of filling any vacant director position, if
our directors then in office constitute less than a majority of the board, the
Delaware Court of Chancery may, upon application of shareholders holding at
least ten percent of shares outstanding, summarily order an election to be held
to fill any such vacant director positions, or to replace the directors chosen
by the directors then in office.
When one or more directors resign from our board, a majority of
directors then in office, including those who have so resigned, may vote to fill
the vacancy.
DIRECTORS-CLASSIFICATION
AS A MEDIS EL SHAREHOLDER:
Medis El has no staggered terms of office. Each of Medis El's directors
is elected to serve until the annual meeting proceeding the general meeting at
which such director was elected, or until his or her earlier removal.
AS OUR STOCKHOLDER:
We have no staggered terms of office. Each of our directors is elected
to serve until the annual meeting proceeding the annual meeting at which such
director was elected, or until his or her earlier removal.
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DIRECTORS-REMOVAL
AS A MEDIS EL SHAREHOLDER:
Medis El's articles provide that a director or the entire Medis El
board may be removed with or without cause by the holders of a majority of Medis
El's ordinary shares represented at a general meeting in person or by proxy.
AS OUR STOCKHOLDER:
Our By-Laws provide that any director or the entire board of directors
may be removed, with or without cause, by the holders of a majority of the
shares entitled to vote in an election of directors.
DIRECTORS-NOMINATIONS
As a Medis El Shareholder:
Medis El's articles and memorandum are silent on the nomination
procedure.
AS OUR STOCKHOLDER:
Our By-Laws provide that nominations for directors may be made only by
or at the direction of the our board of directors or by a shareholder entitled
to vote for the election of directors at a shareholders' meeting. Written notice
of such shareholder's intent to make a director nomination must be received by
our secretary in a manner and within the time period specified in
our By-Laws.
LIMITATION ON DIRECTORS LIABILITY; INDEMNIFICATION OF OFFICERS AND DIRECTORS
AS A MEDIS EL SHAREHOLDER:
The Companies Ordinance permits a company's articles of association to
provide that:
- - a company may obtain an insurance policy for an executive officer or
similar position without regard to the corporate title with respect to
liabilities incurred by such person as a result of a breach of his duty of
care or fiduciary duty to the company to the extent that he acted in good
faith and reasonably believed that the act would not prejudice the
company, as well as for monetary liabilities charged against him as a
result of an act or omission that he committed in connection with his
serving as an officeholder of a company; and
- - a company may indemnify an office holder for monetary liability incurred
pursuant to a judgment from an action brought against him by a third
party, or as a result of a criminal charge of which he was acquitted.
- - a company may not indemnify an office holder as a result of the following:
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- - a breach of fiduciary duty, except for a breach of fiduciary duty to the
company while acting in good faith and having reasonable cause to assume
that such act would not prejudice the interests of the company;
- - a willful breach of the duty of care or reckless disregard for the
circumstances or the consequences of a breach of the duty of care;
- - an intentional, unlawful act to realize a personal gain; or
- - a fine imposed for an offense.
Medis El's articles provide for the insurance and indemnification as
described above, and carries such insurance. Additionally, Israel Aircraft has
agreed to indemnify Mr. Rehavi, Medis El's executive vice president, and Mr.
Israel Fisher, Medis El's vice president-finance, for any claims arising out of
Medis El's initial public offering in 1993.
AS OUR STOCKHOLDER:
Section 102 of the Delaware code allows a corporation to include in its
certificate of incorporation a provision that limits or eliminates the personal
liability of directors to a corporation and its stockholders for monetary
damages for a breach of fiduciary duty as a director. However, a corporation may
not limit or eliminate the personal liability of a director for:
- - any breach of the director's duty of loyalty to the corporation or its
stockholders;
- - acts or omissions in bad faith or which involve intentional misconduct or
a knowing violation of law;
- - intentional or negligent payments of unlawful dividends or unlawful stock
purchases or redemption; or
- - any transaction from which the director derives an improper personal
benefit.
Section 145 of the Delaware code permits a corporation to indemnify any
person who was or is a party or is threatened to be made a party to:
- - any action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the corporation,
against expenses, including attorneys' fees, judgments, fines and
reasonable settlement amounts if such person acted in good faith and
reasonably believed that his or her actions were in or not opposed to the
best interests of such corporation and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his or her
conduct was unlawful; and
- - any derivative action or suit on behalf of such corporation against
expenses, including attorneys' fees, actually and reasonably incurred in
connection with the defense or settlement of such action or suit, if such
person acted in good faith and reasonably believed that his or her actions
were in or not opposed to the best interest of such corporation.
In the event that a person is adjudged to be liable to the corporation
in a derivative suit, the
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Delaware code prohibits indemnification unless either the Delaware Court of
Chancery or the court in which such derivative suit was brought determines that
such person is entitled to indemnification for those expenses which such court
deems proper. To the extent that a representative of a corporation has been
successful on the merits or otherwise in the defense of a third party or
derivative action, indemnification for actual and reasonable expenses incurred
is mandatory.
Our charter provides that we shall indemnify our directors to the
maximum extent permitted by the Delaware code. Our charter provides that we may,
at the discretion of our board of directors, indemnify our officers and
employees.
CALL OF SPECIAL MEETINGS
AS A MEDIS EL STOCKHOLDER:
Under Section 109 of the Companies Ordinance, an extraordinary general
meeting of shareholders must be called by the board of directors upon a request
of the shareholders holding at least one-tenth of the paid-up capital of the
company carrying voting rights at general meetings. Under Medis El's articles,
an extraordinary general meeting of the shareholders may be called by its board
of directors upon a valid vote of the board of directors.
AS OUR STOCKHOLDER:
Under Section 211 of the Delaware code, special meetings of
stockholders may be called by the board of directors or by such other person or
persons authorized to do so by the corporation's certificate of incorporation or
By-Laws. Under our By-Laws, a special meeting of shareholders may be called only
by our chairman of the board or our president or by our president or secretary
at the request in writing of our board of directors.
ACTION OF SHAREHOLDERS WITHOUT A MEETING
AS A MEDIS EL SHAREHOLDER:
Neither the Companies Ordinance nor Medis El's articles or memorandum
address the issue of shareholders action without a meeting. However, under
section 110 of the Ordinance, in the event that shareholders holding at least
one-tenth of the paid-up capital of a company have asked the directors of such
company to call a general meeting and the directors did not do so within 21 days
from the date of such request, such shareholders, or shareholders holding more
than 50% of the voting rights of such shareholders, may call a general meeting.
AS OUR STOCKHOLDER:
The Delaware code permits the stockholders of a corporation to consent
in writing to any
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action without a meeting, unless the certificate of incorporation of such
corporation provides otherwise, which ours does not provide.
SHAREHOLDER PROPOSALS
AS A MEDIS EL SHAREHOLDER:
Neither the Companies Ordinance nor Medis El's articles or memorandum
address the issue of shareholder proposals.
AS OUR STOCKHOLDER:
Our By-Laws provide that, to be timely, our secretary must receive
written notice at our principal executive offices not later than the close of
business on the 60th day nor earlier than the close of business on the 90th day
prior to the first anniversary of our annual meeting of stockholders. Such
notice must set forth:
- - in the case of nominations for election or re-election as a director, such
information relating to such person that is required to be disclosed
pursuant to the Exchange Act;
- - in the case of any other business the stockholder proposes to bring before
the meeting, a brief description of such business, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose
behalf the nomination or proposal is made; and
- - the name and address of the stockholder and any such beneficial owner, if
any, and the class and number of shares of our stock owned beneficially
and of record by such stockholder and such beneficial owner.
AMENDMENT TO CHARTER; BY-LAWS
AS A MEDIS EL SHAREHOLDER:
Under the Companies Ordinance, an Israeli company may not amend its
memorandum of association, except to the extent allowed under the explicit
instructions in the Companies Ordinance, or under other limited circumstances in
accordance with Israeli law.
Under the Companies Ordinance, an Israeli company may, subject to its
memorandum of association, amend or supplement its articles of association by
"Special Resolution." A "Special Resolution" requires the approval, at a general
meeting with a quorum present, of seventy-five percent of the shareholders
present and voting in person or by proxy with regard to which notice which
includes the specific intention of proposing a special resolution has been
given, at least 21 days prior to the date of the meeting.
83
<PAGE>
AS OUR STOCKHOLDER:
Under the Delaware code, the charter of a corporation may be amended by
resolution of the board of directors and the affirmative vote of the holders of
a majority of the outstanding shares of voting stock then entitled to vote. The
Delaware code also permits a corporation to make provision in its certificate of
incorporation requiring a greater proportion of the voting power to approve a
specified amendment. Any amendment to the charter of a corporation that
adversely affects a particular class or series of stock requires the separate
approval of the holders of the affected class or series of stock.
Under our charter, our board of directors is expressly authorized to
make, alter, amend, change, add or repeal our By-Laws. If such action is to be
taken by shareholders, the affirmative vote of not less than 66 2/3% of the
total votes eligible to be cast by shareholders is required.
CONFLICTS OF INTEREST
AS A MEDIS EL SHAREHOLDER:
Under the Companies Ordinance, certain "unusual transactions" of a
company, defined as transactions not in the ordinary course of business, not on
market terms or apt to substantially affect the corporation, in which an office
holder of the company has a "personal interest" must be approved by the
company's audit committee and its board of directors and, for certain events,
its shareholders. Furthermore, any transaction in which an office holder of a
company has a personal interest must be approved by the board of directors of
that company.
Medis El's articles provide that no director or officer shall be
disqualified by virtue of his office from holding any office or place of profit
in Medis El or in any company which Medis El holds shares of or contracts with.
Any such arrangement or contract requires Medis El's approval, which may be
approved, provided that the director or officer involved acts in good faith and
the arrangement or contract does not prejudice Medis El's interests. No director
or officer shall be liable to account to Medis El for any profit arising from
any such office or place of profit or realized by any such contract or
arrangement solely due to such interest. The nature of the interest, as well as
any material fact or document, must be disclosed by him at the meeting of the
board of directors at which the contract or arrangement is first considered, if
his interest then exists, or, no later than the first meeting of the board of
directors after the acquisition of his interest.
AS OUR STOCKHOLDER:
Our By-Laws provide that no contract entered into between us and one or
more of our directors or officers or between us and any other organization in
which one or more of its directors or officers, are directors or officers, or
have a financial interest, shall be void or voidable solely for this reason, or
solely because the director or officer is present or participates in a meeting
of the board or committee which authorizes the contract or transaction, or
solely because his or her votes are counted
84
<PAGE>
for such purpose, if:
- - the director or officer's relationship or interest in the contract or
transaction is disclosed or known to our board of directors, and the
disinterested directors authorize the contract or transaction in good
faith;
- - the material facts as to the director or officer's relationship or
interest in the contract or transaction are disclosed or known to our
shareholders then entitled to vote, and the contract is approved in good
faith by the vote of our shareholders; or
- - the contract or transaction is fair to the corporation as of the time it
is authorized, approved or ratified by our board of directors or by our
shareholders.
BUSINESS COMBINATIONS; ANTITAKEOVER EFFECTS
AS A MEDIS EL SHAREHOLDER:
Under the Companies Ordinance, settlements and arrangements between a
company and any class of its shareholders, or any class of its creditors,
involving certain types of mergers, reorganizations, sales of assets and
dissolutions require:
- - the approval of the majority of shareholders present and voting in person
or by proxy, who together own 75% of the value represented in the vote, at
an extraordinary meeting of shareholders; and
- - the sanction of the Israeli District Court.
Once so approved and sanctioned, all shareholders of the relevant class
are bound by the arrangement.
AS OUR STOCKHOLDER:
Section 203 of the Delaware code generally prohibits a publicly held
corporation from engaging in a "business combination" with an "interested
stockholder" for three years after the date the person becomes an interested
shareholder. Neither our charter nor bylaws contains any provisions which modify
Section 203 of the Delaware code.
Our charter and By-Laws contain a number of provisions which may be
deemed to have potential anti-takeover effects.
85
<PAGE>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of material U.S. income tax consequences of
the exchange offer. This summary may not apply to certain classes of persons,
including, without limitation, foreign persons, insurance companies, tax-exempt
organizations, financial institutions, dealers in securities, persons who
acquired shares pursuant to the exercise of employee stock options or rights or
otherwise as compensation and persons who hold shares as part of a straddle or
conversion transaction. This summary is based upon laws, regulations rulings and
decisions, all of which are subject to change, possibly with retroactive effect,
and no ruling has been or will be requested from the Internal Revenue Service on
the tax consequences of the exchange offer.
Our counsel, Cooperman Levitt Winikoff Lester & Newman, P.C., have
advised us that, in their opinion, an exchange of Medis El shares for our common
stock pursuant to the exchange offer will be treated for federal income tax
purposes as an exchange pursuant to Section 368(a)(1)(B) of the Internal Revenue
Code only if Medis Inc., our wholly-owned subsidiary, owns 80% or more of Medis
El's stock after the transaction and:
- - no gain or loss will be recognized by a holder of Medis El shares upon the
exchange in the exchange offer of such Medis El shares solely for our
common stock, except with respect to the receipt of cash in lieu of
fractional shares of common stock;
- - the aggregate adjusted tax basis of shares of our common stock received in
the exchange offer by a holder of Medis El shares, including fractional
shares of our common stock deemed received and redeemed as described
below, will be the same as the aggregate adjusted tax basis of the Medis
El shares exchanged therefor;
- - the holding period of shares of our common stock received in the exchange
offer by a holder of Medis El shares, including fractional shares of our
common stock deemed received and redeemed as described below, will include
the holding period of the Medis El shares exchanged therefor, provided
such shares were held as capital assets;
- - a holder of Medis El shares who receives cash in lieu of fractional shares
of our common stock will be treated as having received such fractional
shares and then as having received such cash in redemption of such
fractional shares; and
- - no gain or loss will be recognized by us or Medis El as a result of the
exchange offer.
Under Section 302 of the Code, provided such fractional shares would
have constituted a capital asset in the hands of such holder and provided such
deemed redemption is "substantially disproportionate" with respect to such
holder or is "not essentially equivalent to a dividend" after giving effect to
the constructive ownership rules of the Code, the holder will generally
recognize capital gain or loss equal to the difference between the amount of
cash received and the holder's adjusted tax basis in such fractional shares.
Such capital gain or loss will be long-term capital gain or loss if the holder's
holding period in the fractional shares is more than one year.
86
<PAGE>
The positions stated above are those of our tax advisors. Unlike a
ruling from the Service, the opinion of the our tax advisors is not binding on
the Service, and there can be no assurance that the Service will not take a
position contrary to one or more positions reflected herein or that the
positions reflected herein will be upheld if challenged by the Service.
This summary does not address state, local or foreign tax consequences
of the exchange offer. Consequently, each holder should consult such holder's
own tax advisor as to the specific tax consequences of the exchange offer to
such holder. We are not including any discussion of Israeli tax effects in this
prospectus. To the extent you are a Medis El shareholder and an Israeli citizen
or an Israeli company, please consult your tax advisor or counsel for the tax
effects of this exchange applicable to you.
87
<PAGE>
LEGAL MATTERS
The validity of our securities will be passed upon on our behalf by
Cooperman Levitt Winikoff Lester & Newman, P.C., New York, New York.
EXPERTS
Our consolidated financial statements as of December 31, 1997 and 1998
and for each of the three years in the period ended December 31, 1998 included
in this prospectus and the registration statement of which this prospectus is a
part have been audited by Grant Thornton LLP, independent certified public
accountants, as indicated in their reports, and are included herein in reliance
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Medis El Ltd. as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998 have been audited by Fahn, Kanne & Co., independent auditors, as
indicated in their reports and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-1 which
includes exhibits, schedules and amendments, pursuant to the Securities Act of
1933 with respect to this offering of our securities. This Prospectus is part of
the Form S-1 but does not contain all the information in the Form S-1. We refer
you to the Form S-1 for further information about us, our securities and this
exchange offer. Statements in this prospectus about documents filed as exhibits
to the Form S-1 are summaries of these documents, and each of these statements
is qualified in its entirety by reference to the copy of the applicable document
filed with the SEC. The Form S-1 can be inspected and copied at the SEC's Public
Reference Room at:
Room 1024, Judiciary Plaza,
450 Fifth Street, N.W.,
Washington, D.C. 20549-1004,
and at the SEC regional offices located at:
7 World Trade Center,
Suite 1300,
New York, New York 10048,
and
88
<PAGE>
Northwest Atrium Center,
500 West Madison Street, 14th Floor,
Chicago, Illinois 60661.
The public may obtain information about the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC
maintains a web site at http://www.sec.gov which contains the Form S-1 and other
reports, proxy and information statements and information regarding issuers that
file electronically with the SEC.
Medis El files annual and other reports pursuant to the Securities
Exchange Act of 1934. Such reports and other information filed by Medis El can
be inspected and copied at the above-listed addresses at prescribed rates.
We will file, no later than the date of commencement of the exchange
offer, a statement on Schedule TO pursuant to Rule 14d-3 under the Exchange Act
which contains certain information about the exchange offer. The Schedule and
any amendments to the Schedule can be inspected and copied as set forth above.
We intend to furnish to each of our stockholders annual reports
containing audited financial statements. We will also furnish to each of our
stockholders such other reports, including proxy statements, as may be required
by law.
89
<PAGE>
I N D E X
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
MEDIS TECHNOLOGIES LTD. FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-3
Financial Statements
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statement of Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7 - F-8
Notes to Consolidated Financial Statements F-9 - F-34
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Introduction F-35
PRO FORMA FINANCIAL STATEMENTS ASSUMING 100% OF MEDIS EL SHARES ARE TENDERED:
Unaudited Pro Forma Consolidated Balance Sheet - September 30, 1999 F-36
Note to Unaudited Pro Forma Consolidated Balance Sheet F-37
Unaudited Pro Forma Consolidated Statement of Operations - September 30, 1999 F-38
Note to Unaudited Pro Forma Consolidated Statement of Operations F-39
Unaudited Pro Forma Consolidated Statement of Operations - December 31, 1998 F-40
Note to Unaudited Pro Forma Consolidated Statement of Operations F-41
PRO FORMA FINANCIAL STATEMENTS ASSUMING 80% OF MEDIS EL SHARES ARE TENDERED:
Unaudited Pro Forma Consolidated Balance Sheet - September 30, 1999 F-42
Note to Unaudited Pro Forma Consolidated Balance Sheet F-43
</TABLE>
F-1
<PAGE>
I N D E X
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Unaudited Pro Forma Consolidated Statement of Operations - September 30, 1999 F-44
Note to Unaudited Pro Forma Consolidated Statement of Operations F-45
Unaudited Pro Forma Consolidated Statement of Operations - December 31, 1998 F-46
Note to Unaudited Pro Forma Consolidated Statement of Operations F-47
MEDIS EL LTD. FINANCIAL STATEMENTS
UNAUDITED CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of December 31, 1998
and September 30, 1999 F-48
Condensed Consolidated Statements of Operations for the nine months
ended September 30, 1998 and 1999 F-49
Condensed Consolidated Statement of Shareholders' Equity for the
nine months ended September 30, 1999 F-50
Consolidated Statements of Cash Flow for the nine months ended
September 30, 1998 and 1999 F-51
Notes to Condensed Consolidated Financial Statements F-52 - F-55
YEAR-END FINANCIAL STATEMENTS
Independent Auditors' Report to the Shareholders of Medis El Ltd. F-56
Financial Statements
Consolidated Balance Sheets F-57
Consolidated Statements of Operations F-58
Consolidated Statements of Changes in Shareholders' Equity F-59
Consolidated Statements of Cash Flows F-60
Notes to Consolidated Financial Statements F-61 - F-73
</TABLE>
F-2
<PAGE>
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 (formerly Cell Diagnostics, Inc. and
Subsidiaries) (a Delaware corporation) as of December 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As discussed in Note B, the Company restated its 1996 and 1997 financial
statements to reflect, in 1996, the "in-the-money" conversion factor on
long-term debt, and, in 1997, the acquisition of the minority interest share of
Medis Inc.
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, 1997 and 1998, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
GRANT THORNTON LLP
New York, New York
June 11, 1999 (except for Notes F and J-5, as to which the date is September 30,
1999, and Note N, as to which the date is February 9, 2000)
F-3
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
ASSETS 1997 1998 1999
------------ ------------ ------------
(AS RESTATED)
(UNAUDITED)
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 772,000 $ 3,155,000 $ 3,219,000
Short-term investments 500,000
Accounts receivable 87,000 66,000 130,000
Inventory 947,000 405,000
Prepaid expenses 46,000 89,000 135,000
------------ ------------ ------------
Total current assets 1,852,000 4,215,000 3,484,000
Property and equipment, net 456,000 860,000 962,000
Intangible assets, net 12,125,000 9,680,000 7,727,000
------------ ------------ ------------
$ 14,433,000 $ 14,755,000 $ 12,173,000
============ ============ ============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 903,000 $ 204,000 $ 143,000
Accounts payable 155,000 113,000 87,000
Accrued expenses 305,000 362,000 549,000
Accrued interest 223,000 -- --
------------ ------------ ------------
Total current liabilities 1,586,000 679,000 779,000
Long-term debt, excluding current maturities 338,000 96,000 12,000
Other long-term liabilities 28,000 61,000 76,000
------------ ------------ ------------
1,952,000 836,000 867,000
Minority interest in subsidiary 1,103,000 1,513,000 1,110,000
Commitments and contingencies
Stockholders' equity (deficiency)
Preferred stock, $.01 par value; 10,000 shares
authorized; none issued
Common stock, $.01 par value; 25,000,000 shares
authorized; 8,257,613, 9,407,615 and 9,988,619 shares
issued and outstanding, at December 31, 1997 and
1998 and September 30, 1999, respectively 83,000 94,000 100,000
Additional paid-in capital 24,527,000 29,962,000 31,757,000
Accumulated deficit (13,232,000) (17,650,000) (21,661,000)
------------ ------------ ------------
11,378,000 12,406,000 10,196,000
------------ ------------ ------------
$ 14,433,000 $ 14,755,000 $ 12,173,000
============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-4
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ -----------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(AS RESTATED)
(unaudited)
<S> <C> <C> <C> <C> <C>
Sales $ -- $ -- $ 8,000 $ 8,000 $ --
Cost of sales -- -- 3,000 3,000 --
--------- --------- --------- --------- ---------
Gross profit -- -- 5,000 5,000 --
Operating expenses
Research and development costs, net -- 1,406,000 1,646,000 1,086,000 1,914,000
Selling, general and administrative
expenses 193,000 1,303,000 1,399,000 1,030,000 1,279,000
Amortization of intangible assets -- 102,000 2,445,000 1,834,000 1,953,000
--------- --------- --------- --------- ---------
Total operating expenses 193,000 2,811,000 5,490,000 3,950,000 5,146,000
--------- --------- --------- --------- ---------
Loss from operations (193,000) (2,811,000) (5,485,000) (3,945,000) (5,146,000)
Other income (expenses)
Interest and other income 9,000 64,000 63,000 20,000 120,000
Interest expense (1,660,000) (381,000) (101,000) (125,000) (18,000)
--------- --------- --------- --------- ---------
(1,651,000) (317,000) (38,000) (105,000) 102,000
--------- --------- --------- --------- ---------
Loss before minority interest (1,844,000) (3,128,000) (5,523,000) (4,050,000) (5,044,000)
Equity in net losses of unconsolidated
subsidiaries (789,000) -- -- -- --
Minority interest in loss of subsidiary -- 1,584,000 1,105,000 769,000 1,033,000
--------- --------- --------- --------- ---------
NET LOSS $(2,633,000) $(1,544,000) $(4,418,000) $(3,281,000) $(4,011,000)
=========== =========== =========== =========== ===========
Basic and diluted net loss per share $ (.71) $ (.33) $ (.52) $ (.39) $ (.41)
=========== =========== =========== =========== ===========
Weighted-average shares outstanding 3,734,129 4,645,232 8,581,774 8,443,569 9,743,233
=========== =========== =========== =========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-5
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE TOTAL
--------------------------- PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES DOLLARS CAPITAL DEFICIT ADJUSTMENT EQUITY
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 3,460,000 $ 35,000 $ 6,102,000 $ (9,055,000) $ (62,000) $ (2,980,000)
Net loss -- -- -- (2,633,000) 62,000 (2,571,000)
Issuance of common stock in lieu of
interest on subordinated notes 175,308 2,000 349,000 -- -- 351,000
Issuance of common stock due to
exercise of warrants 316,902 3,000 1,264,000 -- -- 1,267,000
Issuance of Medis El common stock -- -- 947,000 -- -- 947,000
Allocation of proceeds of convertible
debt to additional paid-in capital -- -- 1,341,000 -- -- 1,341,000
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 3,952,210 40,000 10,003,000 (11,688,000) -- (1,645,000)
Net loss -- -- -- (1,544,000) -- (1,544,000)
Issuance of common stock in lieu of
interest on subordinated notes 66,373 1,000 32,000 -- -- 33,000
Issuance of common stock due to
exercise of warrants 638,573 6,000 2,548,000 -- -- 2,554,000
Minority share of capital contribution -- -- (1,145,000) -- -- (1,145,000)
Acquisition of minority interest in
Medis Inc. 3,600,457 36,000 13,089,000 -- -- 13,125,000
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 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
Medis El shares outstanding -- -- 1,549,000 -- -- 1,549,000
Minority share of MTL's
investment in Medis El -- -- (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 -- -- -- (4,011,000) -- (4,011,000)
Issuance of common stock 581,004 6,000 2,318,000 -- -- 2,324,000
Compensation expense -- -- 68,000 -- -- 68,000
Minority share of MTL's investment
in Medis El -- -- (591,000) -- -- (591,000)
------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT SEPTEMBER 30, 1999
(UNAUDITED) (AS RESTATED) 9,988,619 $ 100,000 $ 31,757,000 $(21,661,000) $ -- $ 10,196,000
============ ============ ============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS STATEMENT.
F-6
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(AS RESTATED)
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $(2,633,000) $(1,544,000) $(4,418,000) $(3,281,000) $(4,011,000)
Adjustments to reconcile net loss to net cash
used in operating activities
Equity in net loss of unconsolidated 789,000 -- -- -- --
subsidiaries
Non-cash interest 1,341,000 -- -- -- --
Depreciation and amortization 57,000 117,000 132,000 97,000 285,000
Amortization of intangible assets -- 102,000 2,445,000 1,834,000 1,953,000
Changes in accrued severance payable -- 33,000 23,000 15,000
Losses of minority interest -- (1,584,000) (1,105,000) (769,000) (1,033,000)
Loss on sale of available-for-sale -- 22,000 -- -- --
securities
Compensation expense -- -- 61,000 33,000 162,000
Write-off of foreign currency translation -- -- -- -- --
adjustment 22,000 -- -- -- --
Loss from sale of property and equipment -- -- 10,000 -- --
Charge of inventory to research
and development expenses -- -- -- -- 255,000
Changes in operating assets and liabilities
Accounts receivable -- 29,000 21,000 6,000 (64,000)
Inventory -- (78,000) 113,000 (5,000) (47,000)
Prepaid expenses -- 9,000 (43,000) (59,000) (46,000)
Other assets 30,000 -- -- -- --
Due to unconsolidated subsidiaries (500,000) -- -- -- --
Due to Bar-Ilan (250,000) -- -- -- --
Accounts payable -- 93,000 (42,000) (50,000) (26,000)
Accrued interest and other expenses (181,000) 222,000 134,000 175,000 152,000
----------- ----------- ----------- ----------- -----------
Net cash used in operating activities (1,325,000) (2,612,000) (2,659,000) (1,996,000) (2,405,000)
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities
Capital expenditures -- (124,000) (134,000) (109,000) (190,000)
Sale of securities and short-term -- 479,000 -- -- 500,000
investments
Proceeds from sale of property, plant and -- 1,000 17,000 -- --
equipment
Purchases of short-term investments -- -- (500,000) (500,000) --
----------- ----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities -- 356,000 (617,000) (609,000) 310,000
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities
Repayment of subordinated notes payable -- (130,000) -- -- --
Repayment of long-term debt -- (196,000) (342,000) (293,000) (147,000)
Proceeds from long-term debt 650,000 240,000 45,000 45,000 --
Proceeds from issuance of common stock - -- -- 1,350,000 1,337,000 --
Medis El
Payment of financing fees (20,000)
Proceeds from issuance of common stock 351,000 33,000 4,600,000 2,176,000 2,324,000
Proceeds from increase in short-term credit -- 60,000 6,000 16,000 2,000
----------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities 1,001,000 7,000 5,659,000 3,281,000 2,159,000
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (324,000) (2,249,000) 2,383,000 676,000 64,000
Cash and cash equivalents at beginning of period 373,000 3,021,000 772,000 772,000 3,155,000
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end of period $ 49,000 $ 772,000 $ 3,155,000 $ 1,448,000 $ 3,219,000
=========== =========== =========== =========== ===========
</TABLE>
F-7
<PAGE>
Medis Technologies Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------- -------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ------- -------
(AS RESTATED)
(unaudited)
<S> <C> <C> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 297,000 $ 220,000 $ 305,000 $ -- $ 20,000
Income taxes 6,000 1,000 4,000 3,000 11,000
Noncash investing and financing activities:
Decrease in long-term debt through the issuance
of common stock $ 2,609,000 $ 2,314,000 $ 650,000 $ -- $ --
Acquisition of minority interest in
Medis Inc. (see Note C) $ -- $13,125,000 $ -- $ -- $ --
Decrease in inventory through increase in
fixed assets $ -- $ -- $ 429,000 $ -- $ 197,000
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-8
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1998
NOTE A - NATURE OF BUSINESS
Medis Technologies Ltd. (formerly Cell Diagnostics Inc.) ("MTL") is a
holding company which, through its majority-owned subsidiary, Medis El Ltd.
("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. Medis
El's 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, the Reciprocating Electrical Machine,
Direct Current Regulating Device and Water Technologies.
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 certain other technologies
developed by Medis El. See Note J-1 and J-2 for further discussion of these
distribution and agency rights.
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 (collectively, the
"Company"). All intercompany transactions and balances have been
eliminated. Minority interest represents the minority shareholders'
proportionate share in the equity or income of Medis El. The minority
shareholders of Medis El include Israel Aircraft Industries Ltd.
("IAI"), which is also a shareholder of MTL, certain other shareholders
of MTL, and owners of shares that are traded on the NASDAQ Small Cap
Market.
During the year ended December 31, 1996, MTL had accounted for its
investment in Medis Inc. (and therefore Medis El) under the equity
method of accounting (see Note C).
F-9
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
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 a maturity of
three months or less when purchased. As of December 31, 1997 and 1998,
cash and cash equivalents included $114,000 and $105,000, respectively,
of balances denominated in Israeli currency (NIS).
3. SHORT-TERM INVESTMENTS
The Company's short-term investments are categorized as
available-for-sale securities and are carried at market value.
Unrealized holding gains and losses are reflected as a separate
component of stockholders' equity until realized. For the purpose of
computing realized gains and losses, cost is identified on a specific
identification basis. As of December 31, 1997 and 1998, there were no
unrealized holding gains or losses on short-term investments.
4. INVENTORY
Inventory, consisting primarily of finished goods, is valued at the
lower of cost or market. Cost is determined on a first-in, first-out
basis.
5. 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 were offset against research and
development costs.
6. REVENUE RECOGNITION
Revenue from sales is recognized upon delivery of product to the
customer.
7. WARRANTY COSTS
The Company grants a one-year warranty on products sold and provides
for estimated warranty costs.
8. 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
F-10
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE B (CONTINUED)
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.
9. 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, 1997 and 1998, 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.
10. TRANSLATION OF FOREIGN CURRENCIES
The financial statements of the Company and its subsidaries 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."
11. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost (net of investment grants).
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:
<TABLE>
<CAPTION>
ANNUAL RATES
------------
<S> <C>
Machinery and equipment 10% - 33%
Computers 20 - 33
Furniture and office equipment 7 - 15
Vehicles 15%
</TABLE>
F-11
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE B (CONTINUED)
12. STOCK-BASED COMPENSATION
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.
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. The Company has adopted
the disclosure only provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123").
13. 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 a five year
period. 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. With respect to goodwill, the Company
follows the enterprise level approach, whereby the value of goodwill is
compared to the value of Company as a whole. Therefore, the Company
would judge a significant decline in the market value of the Company's
or Medis El's common stock as an event or change in circumstances, and
recognize an impairment loss on such goodwill to the extent that the
market value of the equity of the Company or Medis El declines below
the book value of the assets of the Company.
14. INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Information in the accompanying condensed consolidated financial
statements for the nine months ended September 30, 1998 and 1999 is
unaudited.
F-12
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE B (CONTINUED)
The condensed consolidated financial statements as of September 30,
1999 and for the nine months ended September 30, 1998 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 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 September 30, 1998 and
1999 unaudited interim condensed consolidated financial statements
include all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of such consolidated financial
statements. The results of operations for the nine months ended
September 30, 1999 are not necessarily indicative of the results to be
expected for the entire year.
As of February 1, 2000, the Company believes that it has adequate cash
to sustain itself for a twelve-month period. After that date,
additional sources of funds will be necessary to sustain the Company's
operations. As discussed in Note L, the Company has incurred operating
losses and used cash in its operations. The Company has relied on
financing activities, principally the sale of its stock, to fund its
research and development activities. There can be no assurance that the
Company will be able to continue to obtain such financing. To the
extent that the Company is unable to acquire additional funds, it will
curtail research and development of one or more of its technologies
until such time as it acquires additional funds.
15. 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, are
not reflected in diluted net loss per share because such shares are
antidilutive.
F-13
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE B (CONTINUED)
16. 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.
17. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 131 ("SFAS No.
131"), "Disclosures About Segments of an Enterprise and Related
Information." SFAS No. 131 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
disclosures prescribed in SFAS No. 131 are effective for the year ended
December 31, 1998. The Company has determined that it does not have any
separately reportable business segments.
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. SFAS No. 133 as
amended by SFAS 137 is effective for fiscal years beginning after June
15, 2000. Although the Company has not fully assessed the implications
of SFAS No. 133, the Company does not believe that the adoption of this
statement will have a material impact on the Company's financial
position or results of operations.
18. RESTATEMENT OF 1996 AND 1997 FINANCIAL STATEMENTS
The Company has restated its 1996 and 1997 financial statements.
The 1996 restatement recorded amortization of the "in-the-money"
conversion factor on long-term debt issued in August 1996. The full
amortization was recorded in 1996 as the conversion feature became
exercisable beginning in November 1996.
F-14
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE B (CONTINUED)
The 1997 restatement recorded acquired intangible technology assets and
goodwill in connection with the Company's acquisition of the minority
interest in Medis Inc. Reference is made to Note C.
The following table summarizes the effect of the restatements on the
Company's net loss for the years ended December 31, 1996 and 1997 and
the effect on the Company's accumulated deficit as of December 31, 1996
and 1997:
<TABLE>
<CAPTION>
NET LOSS FOR THE YEAR ENDED ACCUMULATED DEFICIT
DECEMBER 31, AS OF DECEMBER 31,
--------------------------- ---------------------------
1996 1997 1996 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
As reported $ (1,292,000) $ (1,442,000) $(10,347,000) $(11,789,000)
Effect of 1996 restatement (1,341,000) -- (1,341,000) (1,341,000)
Effect of 1997 restatement -- (102,000) -- (102,000)
------------ ------------ ------------ ------------
As restated $ (2,633,000) $ (1,544,000) $(11,688,000) $(13,232,000)
============ ============ ============ ============
</TABLE>
19. RESTATEMENT OF PREVIOUSLY FILED SEPTEMBER 30, 1999 FINANCIAL
STATEMENTS:
The Company and Medis El have restated previously filed unaudited
interim financial statements to reflect all CellScan machines as fixed
assets as of September 30, 1999, with an appropriate charge to research
and development expense for nine months of depreciation on such
machines. This restatement reflects all CellScan machines currently
used in research and development activities in accordance with
Statement of Financial Accounting Standards No. 2.
The following table summarizes the effect of the restatement on the
Company's net loss for the nine months ended September 30, 1999 and the
effect on the Company's accumulated deficit as of September 30, 1999:
<TABLE>
<CAPTION>
NET LOSS FOR THE
NINE MONTHS ENDED
SEPTEMBER 30, 1999 ACCUMULATED DEFICIT
------------------ -------------------
<S> <C> <C>
As Reported $ (4,310,000) $(21,960,000)
Effect of restatement 299,000 299,000
============ ============
As Restated $ (4,011,000) $(21,661,000)
============ ============
</TABLE>
F-15
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE B (CONTINUED)
20. YEAR 2000 ISSUE:
The Year 2000 issue relates to limitations in computer systems and
applications that may prevent proper recognition of the Year 2000. The
potential effect of the Year 2000 issue on the Company's third party
vendors will not be fully determinable until the Year 2000 and
thereafter. If Year 2000 modifications are not properly completed by
such entities with which the Company conducts business, the Company's
ability to continue its research and development activities could be
adversely impacted.
NOTE C - MINORITY INTEREST AND ACQUISITION OF MINORITY INTEREST
For the period from January 1, 1996 through December 15, 1997, MTL owned
60% of Medis Inc. while 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 $3,002,000, 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 $9,225,000. 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.
At December 31, 1997 and 1998, the Company reported minority interest in
the balance sheet of $1,584,000 and $1,105,000, respectively. For financial
reporting purposes, the assets, liabilities, and earnings of Medis El are
consolidated in MTL's financial statements, and the minority investors'
interest in Medis El has been recorded as "Minority interest" in the
balance sheet.
F-16
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE C (CONTINUED)
At December 31, 1997, MTL owned 100% of the common stock of Medis Inc.,
which in turn owned 6,250,000 shares, or 67.02%, of Medis El. The minority
shareholders (including public shareholders) owned 32.98% of Medis El's
common stock.
At December 31, 1998, MTL owned 100% of the common stock of Medis Inc.,
which in turn owned 5,925,000 shares, or 58.87%, of Medis El. Additionally,
MTL owned 400,000 shares of Medis El, or an additional 3.97%. The minority
shareholders (including public shareholders) owned 37.16% of Medis El's
common stock.
The following unaudited pro forma consolidated results of operations for
the year ended December 31, 1997 assumes that the acquisition of the
minority interest of Medis Inc. had occurred on January 1, 1997. The pro
forma data is for informational purposes only and may not necessarily
reflect results of operations as if the acquisition had occurred on January
1, 1997.
<TABLE>
<S> <C>
Revenues $ --
===========
Net loss $(4,598,000)
===========
Basic and diluted
loss per share $ (.57)
===========
Shares used in calculation of basic
and diluted loss per share 8,077,997
===========
</TABLE>
NOTE D - INVENTORIES
Inventories at December 31, 1997 include eight CellScan machines. All of
such machines were designated by management as held for sale.
Inventories at December 31, 1998 include three CellScan machines that
management designated as held for sale because the Company made certain
improvements to such machines and believed that it would be able to sell
such machines. There can be no assurance that such machines will actually
be sold during the next twelve months. The remaining five machines were
included in property and equipment as they were intended to be used as a
marketing and research and development tool to demonstrate and promote the
CellScan technology and to develop new research applications.
F-17
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE D (CONTINUED)
During the three months ended March 31, 1999, the Company reclassified
three CellScans with a total cost of $197,000 from inventory to property
and equipment. This treatment, which resulted in all of the Company's
CellScans being classified as property and equipment, is consistent with
the Company's use of all its CellScans as a marketing and research and
development tool to demonstrate and promote the CellScan technology, and to
develop new research applications.
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
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Machinery and equipment $ 341,000 $ 776,000
Computers 150,000 174,000
Furniture and office equipment 80,000 84,000
Vehicles 146,000 154,000
Leasehold improvements 114,000 156,000
---------- ----------
831,000 1,344,000
Less accumulated depreciation 375,000 484,000
---------- ----------
Property and equipment - net $ 456,000 $ 860,000
---------- ----------
---------- ----------
</TABLE>
Machinery and equipment at December 31, 1998 includes five CellScan
machines (Reference is made to Note D).
Depreciation expense on the eight CellScans during the nine months ended
September 30, 1999, which was charged to research and development expense,
amounted to $155,000.
F-18
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE F - INTANGIBLE ASSETS
Intangible assets consist of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
CellScan technology assets $ 2,814,000 $ 2,814,000
Neuritor technology assets 188,000 188,000
Goodwill 9,225,000 9,225,000
----------- -----------
12,227,000 12,227,000
Accumulated amortization 102,000 2,547,000
----------- -----------
$12,125,000 $ 9,680,000
=========== ===========
</TABLE>
In connection with management's decision as of June 30, 1999 to no longer
develop or sell the Neuritor technology, management determined that an
event or change in circumstances had occurred that indicated that the
acquired technology assets relating to the Neuritor were impaired.
Therefore, the Company charged the remaining unamortized balance relating
to such technology (or an additional $128,000) to amortization of
intangible assets. Such amount represents the write-off of such impaired
technology assets.
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Bank debt - Israel $ 491,000 $ 300,000
Subordinated notes payable 45,000 --
Bank loan 55,000 --
Senior exchangeable subordinated notes 650,000 --
----------- -----------
1,241,000 300,000
Less current portion (903,000) (204,000)
----------- -----------
$ 338,000 $ 96,000
=========== ===========
</TABLE>
F-19
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE G (CONTINUED)
BANK DEBT - ISRAEL
Bank Debt - Israel represents Medis El's borrowings of bank loans that are
linked to the dollar, which bear interest at the LIBOR plus 2.4% to 2.6%
per annum and are guaranteed by the State of Israel. Such loans are
collateralized by all of the assets of Medis El.
SUBORDINATED NOTES
The subordinated notes were issued as part of the initial stock offerings
to MTL shareholders in July 1992 and November 1993. As of December 31,
1997, approximately $45,000 of such subordinated notes were outstanding
which were repaid in September 1998.
SENIOR EXCHANGEABLE SUBORDINATED NOTES
In August 1996, the Company issued $650,000 of outstanding senior
exchangeable subordinated notes to certain of its stockholders. The notes
bore interest at a rate of prime plus 2% payable semiannually. The notes
were exchangeable, beginning in November 1996, for shares of Medis El at $2
per share. Since the market price of Medis El stock was greater than the
conversion price on the date of issuance, the Company restated its 1996
financial statements to reflect additional interest expense for $1,341,000
to amortize the "in-the-money" conversion factor. (See Note B-18.)
In March 1998, the holders of the senior exchangeable subordinated notes
exchanged such notes for 325,000 shares of Medis El common stock that were
held by MTL's wholly-owned subsidiary, Medis Inc.
BANK LOAN
At December 31, 1997, the Company had a bank loan outstanding for $55,000.
An additional $45,000 was borrowed in January 1998. The total outstanding
balance of $100,000 was repaid in September 1998. Such loan bore interest
at the prime rate.
F-20
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE G (CONTINUED)
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
<S> <C>
1999 $204,000
2000 86,000
2001 7,000
2002 3,000
--------
$300,000
--------
</TABLE>
NOTE H - STOCKHOLDERS' EQUITY
1. MEDIS TECHNOLOGIES LTD.
In 1997, the Company recorded a reduction in additional paid-in capital
due to the recognition of the minority share of a capital contribution
to Medis El. The capital contribution arose from a note that was signed
between Medis Inc. and MTL at inception. The note had a face value of
$2,500,000, of which $500,000 was repaid prior to January 1, 1996.
Prior to January 1, 1996, the note receivable was assigned by Medis
Inc. to Medis El as a capital contribution. Medis El disclosed this
transaction in the notes to its financial statements and recorded the
capital contribution and note receivable netted against each other in
stockholders' equity. As of December 31, 1997, MTL was required to
consolidate Medis El for the first time, after the acquisition by MTL
of the minority interest held by IAI. Since MTL had a note payable to
Medis El that would need to be eliminated in consolidation, Medis El
had to reclassify the note out of equity in order to eliminate it in
consolidation as of December 31, 1997. Therefore, even though the
capital contribution had occurred before December 31, 1997, it was
reflected in the December 31, 1997 financial statements to facilitate
the consolidation process. Since MTL owned only 67% of Medis El at the
time, the minority share of the capital contribution was recorded as a
reduction of equity and an increase in the minority interest.
In March 1998, the Company offered its existing shareholders 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
shareholders for approximately $2,177,000. The proceeds were used to
repay a $2,000,000 subordinated note due to Medis El, and the
outstanding subordinated notes and bank loan.
F-21
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE H (CONTINUED)
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. These proceeds
were used to purchase additional 400,000 shares of Medis El for
$2,000,000 and to pay interest of $300,000 due on the note which had
already been paid. 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.
In March 1998, as consideration for providing guarantees on Company
debt, the Company granted a total of 100,000 warrants to purchase
100,000 shares of the Company's common stock exercisable at $5.00 per
share to two officers. Additionally, during 1998, 50,000 warrants were
issued to a nonemployee 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 methodology and a 5% risk-free interest
rate and a 10% volatility.
2. MEDIS TECHNOLOGIES LTD. WARRANTS
MTL warrants outstanding are summarized below:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
EXERCISE
SHARES PRICE
--------- -----------
<S> <C> <C>
Balance at January 1, 1996 1,460,000 $3.00-$5.00
Exercised (316,902) $ 4.00
Cancelled -- --
--------- -----------
Balance at December 31, 1996 1,143,098 $3.00-$5.00
--------- -----------
Exercised (638,573) $ 4.00
Cancelled (15,000) $3.00-$5.00
--------- -----------
Balance at December 31, 1997 489,525 $ 5.00
Granted 533,334 $ 5.00
Exercised -- --
Cancelled (11,762) $ 5.00
--------- -----------
BALANCE AT DECEMBER 31, 1998 1,011,097 $ 5.00
========= ========
</TABLE>
F-22
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE H (CONTINUED)
3. MEDIS EL
In January 1998, Medis El sold 300,000 shares at $ 4.50 per share, in a
private placement, to an existing shareholder for aggregate net cash
proceeds of $1,334,000. The Company owned 67% of Medis El before the
private placement and 65% of Medis El after the private placement. The
Company recorded a gain on the issuance of these shares of
approximately $796,000, which is reflected as additional paid-in
capital.
The Company calculated the recorded gain by subtracting the book value
of the new shares after issuance from the net proceeds of such shares.
The Company recorded its share of the gain by multiplying its ownership
percentage by the total gain.
The following table reconciles the gains recognized by the Company
through transactions in Medis El stock:
<TABLE>
<S> <C>
Gain on Medis El private placement - 1/98 $ 796,000
Gain on exchange of shares of Medis El owned
by Medis Inc. for the Company's outstanding
debt (Note G) 540,000
Gain on exercises of Medis El stock options 37,000
Contribution of interest payment to Medis El 176,000
----------
Amount reflected in statement of stockholders'
Equity $1,549,000
==========
</TABLE>
The Company calculated the gain on the exchange of shares for debt by
subtracting the book value of the shares previously owned by Medis Inc.
from the value of the debt.
4. 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 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.
F-23
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE H (CONTINUED)
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. The options are
exercisable in full, two years after the date of grant. On January 21,
1998, the Board of Directors extended the expiration date of the
options issued on February 14, 1994, for an additional one-year period
until February 14, 1999. The extension pertains only to options held by
persons who were in the employ of Medis El on the date the extension
was adopted.
On March 19, 1996, 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,
employees, directors, and a consultant of Medis El received 164,100
options (of which 60,000 were granted to directors and 3,300 were
granted to a consultant) which are convertible into shares on a
one-to-one ratio at the market price on the date of the grant
($0.5625).
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.
The following table summarizes Medis El's option plan activity for the
three years ended December 31, 1998:
F-24
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE H (CONTINUED)
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE
OF EXERCISE
OPTIONS PRICE
------- --------
<S> <C> <C>
Balance at January 1, 1996 87,950 $ 7.42
Granted 164,100 0.56
Cancelled (7,300) 0.56
-------
Balance at December 31, 1996 244,750 3.03
Cancelled (9,000) 0.56
-------
Balance at December 31, 1997 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
=======
</TABLE>
Outstanding Share Option Plan activity is summarized as follows:
<TABLE>
<CAPTION>
EXERCISE NUMBER OF OPTIONS
ISSUE DATE PRICE ISSUED EXERCISED CANCELLED OUTSTANDING EXPIRES
- ---------- ----- ------ --------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
February 14, 1994 $ 7.42 143,150 -- (143,150) -- February 14, 1998
August 30, 1996 0.5625 89,700 (26,650) (14,900) 48,150(1) August 30, 2000
November 28, 1996 0.5625 11,100 (2,500) (1,400) 7,200 November 28, 2000
December 2, 1996 0.5625 63,300 -- -- 63,300(2) December 2, 2000
February 14, 1998 7.42 47,400 (500) -- 46,900(1) February 14, 1999
July 1, 1998 7.20 105,000 -- -- 105,000(3) July 1, 2002
November 5, 1998 7.20 14,000 -- -- 14,000 November 5, 2002
November 4, 1998 6.00 30,000 -- -- 30,000(4) November 4, 2002
</TABLE>
(1) Including to the executive vice president of Medis El - 27,500 options
(2) Including to directors of Medis El - 60,000 options
(3) Including to officers and directors of Medis El - 100,000 options
(4) All issued to the executive vice president of Medis El
F-25
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE H (CONTINUED)
Compensation costs charged to operations which Medis El recorded for
options granted below the fair market value at the date of grant were
$23,000 in 1998. 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.
4. EFFECT OF SFAS NO. 123 ON MEDIS EL SHARE OPTIONS
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation,"
and has been determined as if the Company had accounted for 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 for 1996 and 1998:
<TABLE>
<CAPTION>
MEDIS EL MEDIS EL
OPTIONS OPTIONS
1996 1998
---- ----
<S> <C> <C>
Dividend yield 0% 0%
Risk-free interest rate 6.67% 5.00%
Volatility factor 0.31 0.10
Expected life in years
after vesting period 2 1-2
</TABLE>
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 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 options' vesting period.
The Company's pro forma information is as follows:
F-26
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE H (CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Loss for the year as reported $(2,633,000) $(1,544,000) $(4,418,000)
Pro forma loss (2,677,000) (1,785,000) (4,592,000)
Weighted-average fair value of
Medis El options granted
during the year $7.13 $1.89
</TABLE>
The total compensation expense for employees included in the pro forma
information for 1996, 1997 and 1998 is $44,000, $144,000 and $174,000,
respectively.
NOTE I - COMMITMENTS AND CONTINGENCIES
1. CELLSCAN LICENSE - Medis El acquired the rights to the CellScan 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. 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, 1998.
2. 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, 1998, aggregate $2,576,000, 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, 1998.
F-27
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE I (CONTINUED)
3. LEASE COMMITMENTS - MTL's office space is provided to MTL for an annual
rental fee of approximately $24,000, by a company, which is controlled
by the Chairman of the Board and the President of MTL.
Medis El has two leases for office space, laboratory and manufacturing
facilities. One lease terminates on December 31, 1999, with options to
renew such lease through December 31, 2001 and provides for annual
aggregate rental payments of approximately $64,000. The second lease,
which has an initial term through November 1999, with two one-year
options to extend the lease through November 2001, provides for annual
aggregate rentals of approximately $89,000.
4. LITIGATION - An action was filed in 1998, in the Supreme Court of the
State of New York, entitled CellScan Argentina SA v. Medis El Ltd., et
al. where the plaintiff claims that Medis El defrauded it into entering
into a 1993 distribution agreement and in its attendant purchase of a
Cell-Scan machine. The plaintiff seeks $10,000,000 in damages including
punitive damages. The Company has answered the complaint and has filed
counterclaims against the plaintiff for $3,145,000 arising from the
plaintiff's failure to purchase additional machines from the Company,
as was required by the distribution agreement. The Company intends to
vigorously defend its position and pursue its counterclaims. Reference
is made to Note N-7 and N-10.
5. OTHER AGREEMENTS - In December 1998, Medis El entered into a Technology
Development Agreement with a large multinational corporation pursuant
to which such corporation paid Medis El in January 1999, $100,000 for a
right of first refusal to obtain exclusive rights to use the stirling
cycle and other technology in its field of business and an additional
$100,000 to assist in the development of the stirling cycle technology
for use in its field of business, which the Company recorded as a
credit to research and development expense during the nine months ended
September 30, 1999.
NOTE J - RELATED PARTY TRANSACTIONS
1. CELLSCAN DISTRIBUTION AGREEMENT - Medis El and CDS have entered into an
agreement, whereby CDS has the sole distribution rights to the CellScan
in the United States continuing for a period of twelve years after FDA
approval of the product, but is subject to termination in the event
that certain annual performance criteria are not met. CDS is obligated
to pay the first $1,500,000 of costs to obtain FDA approval, Medis El
is obligated to pay the next $500,000 and is obligated to loan CDS the
next $500,000 which will be repaid only if CellScan receives FDA
approval. In the event that the distribution agreement is transferred
by CDS to a third party for consideration, Medis El will be entitled to
receive a pro rata portion of such consideration (based on the share it
bore of all FDA costs) to the extent required to repay the loan it
granted to the distributor, referred to above.
F-28
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE J (CONTINUED)
2. EXCLUSIVE AGENCY AGREEMENTS - In July 1998, Medis El entered into an
Exclusive Agency Agreement with CDS. Under such agreement, CDS would
coordinate all licensing arrangements between the Company and third
parties within North America in respect of the Company's linear
technologies. In exchange, CDS would be entitled to receive a fee equal
to 10% of all royalties payable to the Company under the specific
license agreements for the first ten years of such agreement and 5% of
the royalties thereafter. Additionally, on October 26, 1998, the Board
of Directors authorized Medis El to enter into an Exclusive Agency
Agreement with CDS with respect to Medis El's other technologies. The
agreement would be on terms similar to the agreement for linear
technologies described above, and is subject to approval at a general
meeting of the shareholders of Medis El. In January 1999, Medis El paid
CDS $20,000, which represented the royalty due to CDS for negotiating
the agreement with the large multinational corporation mentioned in
Note I-5.
3. OTHER RELATED PARTY TRANSACTIONS - Medis El is required to utilize IAI
as its initial outside manufacturing source for products to be
manufactured by Medis El which IAI is capable of producing at
competitive prices and, if IAI is unable to satisfy Medis El's
requirement at such prices, Medis El is required to seek other Israeli
sources. Only after exhausting these two options, may Medis El then
have recourse to non-Israeli sources.
4. INSURANCE - Medis El is presently included as an additional insured
party on IAI's product and third party liability insurance policy.
5. EMPLOYMENT AGREEMENT - Medis El had a one-year employment agreement
with its executive vice president, which terminated on September 30,
1998. Under the agreement, he received an annual base salary of
approximately $109,000. In September 1999, the Company and the
executive vice president signed a one-year employment agreement, which
became effective on October 1, 1998, which provides the executive vice
president an annual base salary of $120,000.
6. BOARD MEMBERS - Medis Inc. has a Board of Directors consisting of six
members, three of which are designated by MTL and three by IAI. Medis
El has a Board currently composed of six Directors, three of which are
designated by MTL and three by IAI. One of the founding stockholders of
MTL is the Chairman of the Board of Medis El, the Chairman of the
Board, Chief Executive Officer, and Secretary of MTL and President and
Chief Executive Officer of Medis Inc. He receives an annual salary of
$100,000 paid by Medis El. The other founding shareholder is a Director
of Medis El, Vice President of Medis Inc. and President, Treasurer and
a Director of MTL.
F-29
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
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, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Domestic $(1,844,000) $ (481,000) $(2,556,000)
Foreign (789,000) (1,063,000) (1,862,000)
----------- ----------- -----------
$(2,633,000) $(1,544,000) $(4,418,000)
=========== =========== ===========
</TABLE>
The Company files a consolidated Federal income tax return, which includes
MTL, Medis Inc., and CDS. At December 31, 1998, the Company has a net
operating loss ("NOL") carryforward for United States Federal income tax
purposes of approximately $4,035,000, expiring as follows:
<TABLE>
<CAPTION>
<S> <C>
2007 $ 210,000
2008 897,000
2009 684,000
2010 657,000
2011 1,115,000
2012 370,000
2013 102,000
----------
$4,035,000
==========
</TABLE>
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, which may include the acquisition of
the minority interest in Medis Inc. as discussed in Note C.
The Company, through Medis El, has net operating losses, for Israeli tax
purposes, aggregating approximately $19,000,000, which, pursuant to Israeli
tax law, do not expire.
Deferred income tax assets arising 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.
F-30
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE K (CONTINUED)
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 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.
Temporary differences that give rise to deferred tax assets are as follows
<TABLE>
<CAPTION>
December 31,
------------
1997 1998
---- ----
<S> <C> <C>
Net operating loss carryforwards - United States $ 1,649,000 $ 1,691,000
Net operating loss carryforwards - other 6,277,000 6,839,000
Other (350,000) (544,000)
----------- -----------
7,576,000 7,986,000
Valuation allowance (7,576,000) (7,986,000)
----------- -----------
Deferred tax assets, net of valuation
allowance $ -- $ --
=========== ===========
</TABLE>
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: <TABLE>
<S> <C>
Income tax benefit computed at Federal statutory rate $(668,000)
Effect of foreign income taxes 258,000
Change in valuation allowance 410,000
---------
$ -
=========
</TABLE>
F-31
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE L - 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
technology.
NOTE M - INFORMATION ABOUT GEOGRAPHIC AREAS
The following lists the long-lived assets held in the Company's country of
domicile and in all foreign countries:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1997 1998
---- ----
<S> <C> <C>
United States $ -- $ --
Israel 12,581,000 10,540,000
----------- -----------
$12,581,000 $10,540,000
----------- -----------
Long-lived assets consist of the following:
Property and equipment, net $ 456,000 $ 860,000
Intangible assets, net 12,125,000 9,680,000
----------- -----------
$12,581,000 $10,540,000
=========== ===========
</TABLE>
F-32
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE N - SUBSEQUENT EVENTS
1. During the nine months ended September 30, 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
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.
2. On May 19, 1999, the Company purchased an additional 318,181 shares of
Medis El for $1,750,000.
3. 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.
4. The Company intends to file Amendment No. 2 to a Registration Statement
with the Securities and Exchange Commission to register additional
shares (to a maximum of 5,298,352) to be issued in exchange for
outstanding shares of Medis El that are tendered (the "Exchange Offer").
Such transaction is subject to the terms discussed in the Registration
Statement. The Company intends to issue 1.37 of its shares for each
share of Medis El that is tendered. The Exchange Offer will not be
consummated unless a minimum of 1,758,394 shares (or 80% of the
outstanding shares of Medis El) are tendered. Additionally, the Company
intends to file an additional registration statement to register
approximately 9.2 million of its outstanding shares.
5. During the nine months ended September 30, 1999, Medis El issued an
additional 56,150 shares upon exercise of stock options by employees.
6. In 1999, the Board of Directors of Medis El extended options scheduled to
expire on February 14, 1999 for those persons still in the employ of Medis
El (43,600 options) for another year to February 14, 2000.
7. In June 1999, Medis El reached an agreement with the Peruvian company
("Peru") which owns 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. Peru has not exercised such option. Although such option
has expired, the Company may repurchase the CellScan system from Peru.
8. 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.
9. On November 2, 1999, the Company granted to employees and consultants
options to purchase 450,000 shares of common stock at $2.93 per share
which is the Company's good faith determination of the fair market value
on the date of grant. Such options have a four-year life, and vest after
two years. The Company will recognize
F-33
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1997 and 1998
NOTE N (CONTINUED)
compensation expense on the employee options in an amount equal to the
difference between the exercise price and the fair market value on the
date of grant. The Company will recognize expense equal to the fair
market value of the options granted to non-employee consultants. The
expense, which the Company estimates will be $315,000 based on the
market price of Medis El shares on November 2, 1999, will be charged to
operations, ratably over the vesting period of two years. The Company
estimates that approximately $26,000 will be charged to operations in
the fourth quarter of 1999 relating to these options.
10. In November 1999, Medis El entered into a settlement agreement with an
Argentinian company ("Argentina") to dismiss 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. This
action arose from a 1993 distribution agreement and a related purchase
of a CellScan machine. Argentina sought an aggregate of $10,000,000 in
compensatory and punitive damages. The settlement requires Medis El to
purchase back from Argentina its CellScan for $100,000, issue 60,000 of
Medis El's ordinary shares to Argentina and issue warrants to purchase
30,000 of Medis El's ordinary shares for $5.00 per share, expiring two
years from the date of the warrant. Medis El will record a charge to
expense in the fourth quarter of 1999 for $438,000, which represents
the fair market value of the Medis El shares and warrants on the date
of grant. The fair value of the warrants was estimated using a
Black-Scholes valuation model and assumptions consistent with those
used at December 31, 1998.
The settlement agreement also includes irrevocable options that MTL and
Argentina grant to each other. If the Exchange Offer is not consummated
by January 3, 2000, Argentina may require MTL to purchase its shares at
$6.00 per share provided that it may not sell more than an aggregate of
3,000 shares within five trading days and not more than aggregate of
12,000 shares in a period of 20 trading days. Additionally, MTL may
require Argentina to sell its shares to MTL for a price of $6.00
subject to the above trading restrictions. In January and February
2000, MTL repurchased an aggregate of 15,000 shares from Argentina for
an aggregate cash consideration of $90,000.
11. In December 1999 and January 2000, Medis El purchased an additional
16.5% of its majority-owned subsidiary, More Energy, Inc., for an
aggregate cash purchase price of $165,000.
12. In December 1999, Medis El exercised an option to purchase shares of a
Company developing the Torroidal Engine, for $23,000.
13. In January and February, 2000, the Company completed private placements
of units of its common stock. An aggregate of 637,000 shares and
240,833 warrants were issued for aggregate cash proceeds of $2,895,400.
The warrants have an exercise price of $5.75 per share.
14. During January and February 2000, employees, including certain officers
and a director of Medis El, exercised an aggregate of 56,100 stock
options.
* * * * *
F-34
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
The following unaudited pro forma consolidated balance sheet as of
September 30, 1999 gives effect to the exchange offer proposed by this
Registration Statement (1) as if 100% of the outstanding shares of Medis
El had been tendered and (2) as if 80% of the outstanding shares of Medis
El had been tendered, in both cases, as if they had occurred on September
30, 1999. The following unaudited pro forma consolidated statements of
operations for the year ended December 31, 1998 and for the nine months
ended September 30, 1999, give effect to the exchange offer proposed by
this Registration Statement (1) as if 100% of the outstanding shares of
Medis El had been tendered and (2) as if 80% of the outstanding shares of
Medis El had been tendered, in both cases, as if they had occurred at the
beginning of each year presented. The exchange offer proposed by this
registration statement represents the Company's acquisition of the shares
held by minority shareholders of Medis El.
The pro forma adjustments are based on available information and certain
assumptions that management believes are reasonable. The unaudited pro
forma consolidated financial statements and the notes thereto should be
read in conjunction with the consolidated financial statements and the
notes thereto. The unaudited pro forma financial information does not
purport to represent the financial condition or results of operations of
the Company after such transaction nor does it purport to project the
financial condition or results of operations of the Company as of any
future date or for any future period.
F-35
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSUMING 100% OF MEDIS EL SHARES ARE TENDERED
September 30, 1999
<TABLE>
<CAPTION>
Pro forma
Actual Adjustments Pro Forma
------ ----------- ---------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,219,000 $ 3,219,000
Accounts receivable 130,000 130,000
Prepaid expenses 135,000 135,000
-------------- ------------
Total current assets 3,484,000 3,484,000
PROPERTY AND EQUIPMENT, net 962,000 962,000
------- -------
INTANGIBLE ASSETS, net 7,727,000 $21,951,000 (a) 29,678,000
------------- ---------- -----------
$ 12,173,000 $21,951,000 $ 34,124,000
============ =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Current portion of long-term debt $ 143,000 $ 143,000
Accounts payable 87,000 87,000
Accrued expenses and other current liabilities 549,000 549,000
------------- ------------
Total current liabilities 779,000 779,000
LONG-TERM DEBT 12,000 12,000
OTHER LONG-TERM LIABILITIES 76,000 76,000
-------------- -------------
Total liabilities 867,000 867,000
MINORITY INTEREST IN SUBSIDIARY 1,110,000 $ (1,110,000) (a) -
--------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock 100,000 53,000 (a) 153,000
Additional paid in capital 31,757,000 23,393,000 (a) 55,150,000
Accumulated deficit (21,661,000) (385,000)(a) (22,046,000)
----------- ----------------- -----------
Total stockholders' equity 10,196,000 23,061,000 33,257,000
----------- ---------- -----------
$ 12,173,000 $21,951,000 $ 34,124,000
============ =========== ===========
</TABLE>
F-36
<PAGE>
Medis Technologies Ltd. And Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSUMING 100% OF MEDIS EL SHARES ARE TENDERED
September 30, 1999
(a) Adjustment to reflect the excess of purchase price over assets acquired
upon completion of this exchange offer assuming that 100% of the shares of
Medis El or 3,867,410 shares are tendered in the exchange offer. The
assumed market price for such shares is $6.0625, which was the quoted
market price of Medis El shares on September 30, 1999. The Company has
allocated the excess of purchase price over net assets acquired to
in-process research and development to be written off on the date of
acquisition ($385,000), acquired technology assets ($5,758,000), and
goodwill ($16,193,000). The Company intends to amortize the acquired
technology assets over their remaining useful lives of three years and the
goodwill over a five-year period. The adjustment also eliminates the
minority interest of Medis El, as it is assumed to be settled upon
completion of this transaction.
F-37
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ASSUMING 100% OF MEDIS EL SHARES ARE TENDERED
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
Pro forma
Actual adjustments Pro forma
<S> <C> <C> <C>
Operating expenses
Research and development costs, net $ 1,914,000 $ 1,914,000
Selling general and administrative
Expenses 1,279,000 1,279,000
Amortization of intangible assets 1,953,000 $ 3,869,000 (a) 5,822,000
---------- ---------- ----------
Total operating expenses 5,146,000 3,869,000 9,015,000
---------- ---------- ----------
Loss from operations (5,146,000) (3,869,000) (9,015,000)
Other income (expenses)
Interest and other income 120,000 120,000
Interest expense (18,000) (18,000)
------------- ---------------- ------------
102,000 102,000
------------ ---------------- -----------
Loss before minority interest (5,044,000) (3,869,000) (8,913,000)
Minority interest in losses of subsidiaries 1,033,000 (1,033,000) (a) -
----------- ---------- -----------
NET LOSS $(4,011,000) $(4,902,000) $(8,913,000)
========== ========== ==========
Basic and diluted net loss per share $(.41) $(.59)
==== ====
Weighted average shares outstanding 9,743,233 15,041,585
========= ==========
</TABLE>
F-38
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS ASSUMING
100% OF MEDIS EL SHARES ARE TENDERED
Nine months ended September 30, 1999
(a) Adjustment to reflect the amortization of the excess of purchase price
over assets acquired upon completion of this exchange offer assuming that
100% of the shares of Medis El are tendered. The Company has allocated the
excess of purchase price over net assets acquired to in-process research
and development to be written off on the date of acquisition ($385,000),
acquired technology assets ($5,758,000), and goodwill ($16,193,000). Such
amortization was calculated based on an aggregate of $21,951,000 of
acquired technology assets and goodwill, assuming that 3,867,410 shares of
Medis El are tendered at an assumed market price at September 30, 1999 of
$6.0625. The amortization for the nine months ended September 30, 1999,
was calculated assuming that the amortization period for the acquired
technology assets is three years and for goodwill is five years.
Additionally, the minority shareholders' share of the net loss of Medis El
is eliminated since, as of the beginning of the year, there are no
minority shareholders.
F-39
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ASSUMING 100% OF MEDIS EL SHARES ARE TENDERED
Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro forma
Actual adjustments Pro forma
------ ----------- ---------
<S> <C> <C>
Sales $ 8,000 $ 8,000
Cost of sales 3,000 3,000
------------ -------------
Gross profit 5,000 5,000
Operating expenses
Research and development costs, net 1,646,000 1,646,000
Selling, general and administrative
Expenses 1,399,000 1,399,000
Amortization of intangible assets 2,445,000 $ 5,158,000 (a) 7,603,000
---------- ---------- -----------
Total operating expenses 5,490,000 5,158,000 10,648,000
---------- ---------- -------------
Loss from operations (5,485,000) (5,158,000) (10,643,000)
Other income (expenses)
Interest and other income 63,000 63,000
Interest expense (101,000) (101,000)
----------- ---------------- -------------
(38,000) (38,000)
------------- ---------------- --------------
Loss before minority interest (5,523,000) (5,158,000) (10,681,000)
Minority interest in losses of subsidiaries 1,105,000 (1,105,000) (a) --
----------- ---------- -------------
NET LOSS $(4,418,000) $(6,263,000) $ (10,681,000)
========== ========== ===========
Basic and diluted net loss per share $(.52) $(.77)
==== ====
Weighted average shares outstanding 8,581,774 13,880,125
========= ==========
</TABLE>
F-40
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ASSUMING 100% OF MEDIS EL SHARES ARE TENDERED
Year ended December 31, 1998
(a) Adjustment to reflect the amortization of the excess of purchase price
over assets acquired upon completion of this exchange offer assuming that
100% of the shares of Medis El are tendered. The Company has allocated the
excess of purchase price over net assets acquired to in-process research
and development to be written off on the date of acquisition ($385,000),
acquired technology assets ($5,758,000), and goodwill ($16,193,000). Such
amortization was calculated based on an aggregate of $21,951,000 of
acquired technology assets and goodwill, assuming that 3,867,410 shares of
Medis El are tendered at an assumed market price at September 30, 1999 of
$6.0625. The amortization for the year ended December 31, 1998 was
calculated assuming that the amortization period for the acquired
technology assets is three years and for goodwill is five years.
Additionally, the minority shareholders' share of the net loss of Medis El
is eliminated since, as of the beginning of the year, there are no
minority shareholders.
F-41
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSUMING 80% OF MEDIS EL SHARES ARE TENDERED
September 30, 1999
<TABLE>
<CAPTION>
Pro forma
Actual adjustments Pro Forma
------ ----------- ---------
ASSETS
<S> <C> <C> <C>
Current assets
Cash and cash equivalents $ 3,219,000 $ 3,219,000
Accounts receivable 130,000 130,000
Prepaid expenses 135,000 135,000
-------------- ------------
Total current assets 3,484,000 3,484,000
PROPERTY AND EQUIPMENT, net 962,000 962,000
INTANGIBLE ASSETS, net 7,727,000 $9,987,000 (a) 17,714,000
------------- --------- -----------
$ 12,173,000 $9,987,000 $ 22,160,000
============ ========= ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Current portion of long-term debt $ 143,000 $ 143,000
Accounts payable 87,000 87,000
Accrued expenses and other current liabilities 549,000 549,000
------------- ------------
Total current liabilities 779,000 779,000
LONG-TERM DEBT 12,000 12,000
OTHER LONG-TERM LIABILITIES 76,000 76,000
-------------- -------------
Total liabilities 867,000 867,000
MINORITY INTEREST IN SUBSIDIARY 1,110,000 $ (498,000) (a) 612,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock 100,000 24,000 (a) 124,000
Additional paid-in capital 31,757,000 10,636,000 (a) 42,393,000
Accumulated deficit (21,661,000) (175,000)(a) (21,836,000)
----------- --------------- -----------
Total stockholders' equity 10,196,000 10,485,000 20,681,000
---------- ---------- -----------
$ 12,173,000 $9,987,000 $ 22,160,000
============ ========= ===========
</TABLE>
F-42
<PAGE>
Medis Technologies Ltd. And Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
ASSUMING 80% OF MEDIS EL SHARES ARE TENDERED
September 30, 1999
(a) Adjustment to reflect the excess of purchase price over assets acquired
upon completion of this exchange offer assuming that 80% of the shares of
Medis El or 1,758,393 shares are tendered in the exchange offer. The
assumed market price for such shares is $6.0625, which was the quoted
market price of Medis El shares on September 30, 1999. The Company has
allocated the excess of purchase price over net assets acquired to
in-process research and development to be written off on the date of
acquisition ($175,000), acquired technology assets ($2,618,000), and
goodwill ($7,369,000). The Company intends to amortize the acquired
technology assets over three years and the goodwill over a five-year
period. The adjustment also eliminates the minority interest of Medis El,
as it is assumed to be settled upon completion of this transaction.
F-43
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ASSUMING 80% OF MEDIS EL SHARES ARE TENDERED
Nine months ended September 30, 1999
<TABLE>
<CAPTION>
Pro forma
Actual adjustments Pro Forma
------ ----------- ---------
<S> <C> <C> <C>
Operating expenses
Research and development costs, net $ 1,914,000 $ 1,914,000
Selling, general and administrative
Expenses 1,279,000 1,279,000
Amortization of intangible assets 1,953,000 $ 1,760,000 3,713,000
---------- ---------- ----------
Total operating expenses 5,146,000 1,760,000 6,906,000
---------- ---------- ----------
Loss from operations (5,146,000) (1,760,000) (6,906,000)
Other income (expenses)
Interest and other income 120,000 120,000
Interest expense (18,000) (18,000)
------------- ---------------- ------------
102,000 102,000
------------- ---------------- -----------
Loss before minority interest (5,044,000) (1,760,000) (6,804,000)
---------- ---------- ----------
Minority interest in losses of subsidiaries 1,033,000 (462,000) 571,000
------------- ----------- -----------
NET LOSS $(4,011,000) $(2,222,000) $(6,233,000)
========== ========== ==========
Basic and diluted net loss per share $(.44) $(.51)
==== ====
Weighted average shares outstanding 9,743,233 12,152,230
========== ==========
</TABLE>
F-44
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED
STATEMENT OF OPERATIONS
ASSUMING 80% OF MEDIS EL SHARES ARE TENDERED
Nine months ended September 30, 1999
(a) Adjustment to reflect the amortization of the excess of purchase price
over assets acquired upon completion of this exchange offer assuming
that 80% of the shares of Medis El are tendered. The Company has
allocated the excess of purchase price over net assets acquired to
in-process research and development to be written off on the date of
acquisition ($175,000), acquired technology assets ($2,618,000), and
goodwill ($7,369,000). Such amortization was calculated based on an
aggregate of $9,987,000 of acquired technology assets and goodwill,
assuming that 1,758,394 shares of Medis El are tendered at an assumed
market price at September 30, 1999 of $6.0625. The amortization for the
nine months ended September 30, 1999 was calculated assuming that the
amortization period for the acquired technology assets is three years
and for goodwill is five years. Additionally, the minority
shareholders' share of the net loss of Medis El is adjusted to reflect
a 20% minority interest.
F-45
<PAGE>
Medis Technologies Ltd. and Subsidiaries
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ASSUMING 80% OF MEDIS EL SHARES ARE TENDERED
Year ended December 31, 1998
<TABLE>
<CAPTION>
Pro forma
Actual adjustments Pro forma
------ ----------- ---------
<S> <C> <C> <C>
Sales $ 8,000 $ 8,000
Cost of sales 3,000 3,000
------------- -------------
Gross profit 5,000 5,000
Operating expenses
Research and development costs, net 1,646,000 1,646,000
Selling, general and administrative
expenses 1,399,000 1,399,000
Amortization of intangible assets 2,445,000 $ 2,346,000 (a) 4,791,000
---------- ---------- -----------
Total operating expenses 5,490,000 2,346,000 7,836,000
---------- ---------- -----------
Loss from operations (5,485,000) (2,346,000) (7,831,000)
Other income (expenses)
Interest and other income 63,000 63,000
Interest expense (101,000) (101,000)
----------- ---------------- -------------
(38,000) (38,000)
------------- ---------------- --------------
Loss before minority interest (5,523,000) (2,346,000) (7,869,000)
Minority interest in losses of subsidiaries 1,105,000 (512,000) (a) 593,000
----------- ---------- -------------
NET LOSS $(4,418,000) $(2,858,000) $ (7,276,000)
========== ========== ===========
Basic and diluted net loss per share $(.51) $(.66)
==== ====
Weighted average shares outstanding 8,581,774 10,993,923
========== ==========
</TABLE>
F-46
<PAGE>
Medis Technologies Ltd. and Subsidiaries
NOTE TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
ASSUMING 80% OF MEDIS EL SHARES ARE TENDERED
Year ended December 31, 1998
(b) Adjustment to reflect the amortization of the excess of purchase price
over assets acquired upon completion of this exchange offer assuming
that 80% of the shares of Medis El are tendered. The Company has
allocated the excess of purchase price over net assets acquired to
in-process research and development to be written off on the date of
acquisition ($175,000), acquired technology assets ($2,618,000), and
goodwill ($7,369,000). Such amortization was calculated based on an
aggregate of $9,987,000 of acquired technology assets and goodwill,
assuming that 1,758,394 shares of Medis El are tendered at an assumed
market price at September 30, 1999 of $6.0625. The amortization for the
year ended December 31, 1998 was calculated assuming that the
amortization period for the acquired technology assets is three years
and for goodwill is five years. Additionally, the minority
shareholders' share of the net loss of Medis El is adjusted to reflect
a 20% minority interest.
F-47
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------- -------------
(as restated)
ASSETS (audited) (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,960 $ 2,650
Short-term investments 500 --
Accounts receivable - other 66 130
Inventory 405
Prepaid expenses 89 135
-------- --------
Total current assets 4,020 2,915
-------- --------
PROPERTY AND EQUIPMENT
Cost 1,344 1,731
Less accumulated depreciation (484) (769)
-------- --------
860 962
-------- --------
$ 4,880 $ 3,877
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term credit $ 204 $ 143
Trade payables 113 87
Accrued expenses and other liabilities 327 499
-------- --------
Total current liabilities 644 729
-------- --------
LONG-TERM LIABILITIES
Long-term debt 96 12
Accrued severance pay 61 76
-------- --------
157 88
SHAREHOLDERS' EQUITY
Share capital 352 362
Additional paid-in capital 21,462 23,192
Accumulated loss (17,564) (20,417)
Cumulative translation adjustments 27 27
Deferred compensation under employee
stock option plan and other (198) (104)
-------- --------
Total shareholders' equity 4,079 3,060
-------- --------
$ 4,880 $ 3,877
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-48
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except net loss per share amounts )
Nine months ended September 30,
<TABLE>
<CAPTION>
1998 1999
-------- --------
(AS RESTATED)
(unaudited)
<S> <C> <C>
Sales $ 8 $ --
Cost of sales 3 --
-------- --------
Gross profit 5 --
Research and development costs, net 1,086 1,914
-------- --------
(1,081) (1,914)
Selling, general and administrative expenses 978 1,022
-------- --------
Operating loss (2,059) (2,936)
Financial income, net 19 83
-------- --------
(2,040) (2,853)
Other expenses -- --
-------- --------
Net loss $ (2,040) $ (2,853)
======== ========
Net loss per share - basic and diluted $ (.21) $ (.28)
======== ========
Weighted - average number of shares outstanding $ 9,598 $ 10,238
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-49
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Nine months ended September 30, 1999 (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Deferred
Additional Cumulative Compensation Total
Share paid-in Accumulated Translation ESOP and shareholders'
capital capital loss adjustments other equity
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $352 $21,462 $(17,564) $27 $(198) $4,079
Changes during the nine-month period
ended September 30, 1999 (unaudited)
Issuance of shares 10 1,751 -- -- -- 1,761
Additional paid-in capital -- (21) -- -- -- (21)
Net loss -- -- (2,853) -- -- (2,853)
Deferred compensation ESOP and other -- -- -- -- 94 94
-------- -------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30, 1999 (AS RESTATED) $362 $23,192 $(20,417) $27 $(104) $3,060
======== ======== ======== ======== ======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-50
<PAGE>
Medis El Ltd.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine months ended September 30,
<TABLE>
<CAPTION>
1998 1999
------- -------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net loss $(2,040) $(2,853)
Adjustments to reconcile loss to net
cash used in operating activities
Depreciation and amortization 121 379
Changes in accrued severance pay 23 15
Charge of inventory to
research and development costs 255
Changes in assets and liabilities
Increase in other accounts receivable and
prepaid expenses (53) (110)
Increase in inventory (5) (47)
Increase (decrease) in accounts payable (49) 146
------- -------
Net cash used in operating activities (2,003) (2,215)
Cash flows from investing activities
Purchase of property and equipment (109) (190)
Proceeds from realization of short-term investments -- 500
Purchase of short-term investments (500) --
------- -------
Net cash provided by (used in) investing activities (609) 310
------- -------
Cash flows from financing activities
Short-term credit 16 2
Proceeds from issuance of shares 1,337 1,761
Additional paid-in capital 2,000 (21)
Repayments on long-term debt (148) (147)
------- -------
Net cash provided by financing activities 3,205 1,595
------- -------
Net increase (decrease) in cash and cash equivalents 593 (310)
Cash and cash equivalents at beginning of period 787 2,960
------- -------
Cash and cash equivalents at end of period $1,380 $2,650
======= =======
Non-cash transactions
Reclassification of inventory $ -- $197
======= =======
Grant of stock options $189 $ --
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
F-51
<PAGE>
Medis El Ltd.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 1 - GENERAL
Information in the accompanying condensed consolidated financial
statements for the nine months ended September 30, 1998 and 1999 is
unaudited.
The condensed consolidated financial statements as of September 30, 1999
and for the nine months ended September 30, 1998 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 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 September 30, 1998 and
1999 unaudited interim condensed consolidated financial statements include
all adjustments, consisting of normal recurring adjustments necessary for
a fair presentation of such consolidated financial statements. The results
of operations for the nine months ended September 30, 1999 are not
necessarily indicative of the results to be expected for the entire year.
The interim statements should be read in conjunction with the Company's
annual financial statements as of December 31, 1998 and for the year then
ended, together with their accompanying notes.
NOTE 2. RESTATEMENT OF PREVIOUSLY FILED SEPTEMBER 30, 1999 FINANCIAL STATEMENTS
The Company has restated previously filed unaudited interim financial statements
to reflect all of its CellScan machines as fixed assets, as of September 30,
1999, with an appropriate charge to research and development expense for nine
months of depreciation expense. This restatement reflects all CellScan machines
currently used in research and development activities in accordance with
Statement of Financial Accounting Standards No. 2.
F-52
<PAGE>
Medis El Ltd.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and 1998
NOTE 2 (CONTINUED)
The following table summarizes the effect of the restatement on the Company's
net loss for the nine-months ended September 30, 1999 and on the Company's
accumulated loss as of September 30, 1999.
<TABLE>
<CAPTION>
Net loss for the
nine months ended
September 30, 1999 Accumulated Loss
<S> <C> <C>
As Reported $(3,324,000) $(20,888,000)
Effect of restatement 471,000 471,000
=========== ============
As Restated $(2,853,000) $(20,417,000)
=========== ============
</TABLE>
NOTE 3 - FINANCIAL STATEMENTS IN U.S. DOLLARS
Balances denominated in or linked to foreign currency are presented at the
representative exchange rate at the balance sheet date. Exchange rates
between the New Israeli Shekel and the U.S. dollar at December 31, 1998,
September 30, 1998 and September 30, 1999 were 4.16=$1.00, 3.845=$1.00 and
4.276=$1.00, respectively.
NOTE 4 - SIGNIFICANT MATTERS
a. During the first quarter of 1999, a U.S.-based multinational
corporation paid to the Company $100,000 for a right of first refusal
to obtain exclusive rights to use the stirling cycle and other
technologies in its field of business and an additional $100,000 to
assist in the development of the stirling cycle for use in its field
of business, which the Company recorded as a credit to research and
development expense. This payment was made pursuant to a technology
development agreement the Company entered into with the corporation in
December 1998 to, among other things, jointly develop the stirling
cycle system for application in such corporation's line of business.
F-53
<PAGE>
Medis El Ltd.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999 and 1998
NOTE 4 (CONTINUED)
b. During the three months ended March 31, 1999, the Company reclassified
three CellScans with a total cost of $197,000 from inventory to
property and equipment. This treatment, which results in all of the
Company's CellScans being classified as property and equipment, is
consistent with the Company's use of its CellScans as a marketing and
research and development tool to demonstrate and promote the CellScan
technology, and to develop new research applications.
c. On June 30, 1999, the Company charged its inventory of cell carriers
and antigens and Neuritors with an aggregate cost of $255,000, to
research and development expense.
d. On May 19, 1999, the Company issued to Medis Technologies Ltd.
318,181 of its ordinary shares for an aggregate of $1,750,000.
e. During the nine months ended September 30, 1999, the Company issued
an additional 56,150 shares upon exercise of stock options by
employees.
f. In 1999, the Board of Directors of the Company extended options
scheduled to expire on February 14, 1999 for those persons still in
the employ of Medis El (43,600 options) for another year to
February 14, 2000.
g. In June 1999, Medis El reached an agreement with the Peruvian
company ("Peru") which owns 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. Although such
option has expired, the Company may repurchase the CellScan system
from Peru.
F-54
<PAGE>
Medis El Ltd.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
September 30, 1999 and 1998
NOTE 4 (CONTINUED)
h. Medis Technologies Ltd. ("MTL"), which presently owns approximately
63 percent of the Company, intends to file Amendment #2 to a
registration statement with the United States Securites and Exchange
Commission ("SEC") relating to its offer to exchange a maximum of
5,298,352 shares of its common stock for all of the Company's ordinary
shares not already owned by MTL (3,867,410) at an exchange rate of
1.37 shares of MTL common stock for each Medis El ordinary share
tendered (the "Exchange Offer"). The Exchange Offer, which does not
take effect until the registration statement filed with the SEC
becomes effective, is conditioned upon the tender of at least
1,758,394 of the Company's ordinary shares, which is the number of the
Company's ordinary shares needed to give MTL beneficial ownership of
80 percent of the Company's shares. If all shares are tendered, the
Company will become a wholly owned subsidiary of MTL. Upon
consummation of the Exchange Offer, MTL will apply for listing on the
Nasdaq Small Cap Market and seek to delist the Company from the same.
i. In November 1999, the Company entered into a settlement agreement
with an Argentinian company ("Argentina") to dismiss 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. , This action arose from a 1993 distribution agreement and a
related purchase of a CellScan machine. Argentina sought an aggregate
of $10,000,000 in compensatory and punitive damages. The settlement
requires the Company to purchase back from Argentina its CellScan for
$100,000, issue 60,000 of the Company's ordinary shares to Argentina
and issue warrants to purchase 30,000 of the Company's ordinary shares
for $5.00 per share, expiring two years from the date of the warrant.
The Company will record a charge to expense in the fourth quarter of
1999 for $438,000, which represents the fair market value of the
Company's shares and warrants on the date of grant. The fair value of
the warrants was estimated using a Black-Scholes valuation model and
assumptions consistent with those used at December 31, 1998. The
settlement agreement also includes irrevocable options that MTL and
Argentina grant to each other. If the Exchange Offer is not
consummated by January 3, 2000, Argentina may require MTL to purchase
its shares at $6.00 per share provided that it may not sell more than
an aggregate of 3,000 shares within five trading days and not more
than aggregate of 12,000 shares in a period of 20 trading days.
Additionally, MTL may require Argentina to sell its shares to MTL for
a price of $6.00 subject to the above trading restrictions. In January
and February 2000, MTL repurchased an aggregate of 15,000 shares from
Argentina for an aggregate cash consideration of $90,000.
j. In December 1999 and January 2000, Medis El purchased an additional
16.5% of its majority-owned subsidiary, More Energy, Inc., for an
aggregate cash purchase price of $165,000.
k . In December 1999, Medis El exercised an option to purchase shares
of a Company developing the Torroidal Engine, for $23,000.
l. During January and February 2000, employees, including certain
officers and directors of the Company, exercised an aggregate of
56,100 stock options.
F-55
<PAGE>
INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS
OF
MEDIS EL LTD.
We have audited the consolidated balance sheets of "Medis El Ltd." and its
subsidiary (the "Company") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors' Regulations (Mode
of Performance), 1973, which auditing standards are substantially identical to
generally accepted auditing standards in the United States. Those standards
require that we plan and perform the audit to obtain reasonable assurance that
the financial statements are free of material misstatement, whether accidental
or intentional. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the aforementioned consolidated financial statements present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and 1997, and the results of its operations, its changes in
shareholders' equity and its cash flows for each of the three years in the
period ended December 31, 1998, in accordance with generally accepted accounting
principles in Israel and in the United States (as applicable to these financial
statements, such accounting principles are, in all material respects,
substantially identical).
Fahn, Kanne & Co.
Certified Public Accountants (Isr.)
Tel-Aviv, Israel
March 29, 1999
F-56
<PAGE>
MEDIS EL LTD.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $ 787 $ 2,960
Short-term deposits -- 500
Accounts receivable - Other (Note 4) 87 66
Inventory 947 405
Prepaid expenses 46 89
-------- --------
Total current assets 1,867 4,020
-------- --------
PROPERTY AND EQUIPMENT (Note 5):
Cost 831 1,344
Less - accumulated depreciation (375) (484)
-------- --------
456 860
-------- --------
$ 2,323 $ 4,880
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term credit $ 198 $ 204
Trade payables 155 113
Accrued expenses and other liabilities (Note 6) 305 327
-------- --------
Total current liabilities 658 644
-------- --------
LONG-TERM LIABILITIES:
Long-term debt (Note 7) 293 96
Accrued severance pay (Note 8) 28 61
-------- --------
321 157
-------- --------
CONTINGENT LIABILITIES AND COMMITMENTS (Note 9)
SHAREHOLDERS' EQUITY:
Share capital (Note 10):
Authorized - 30,000,000 ordinary shares of NIS 0.1 par value,
Issued and outstanding - 10,054,650 shares 334 352
Additional paid-in capital 15,580 21,462
Accumulated loss (14,597) (17,564)
Cumulative translation adjustments 27 27
Deferred compensation under employee stock option plan and other -- (198)
-------- --------
Total shareholders' equity 1,344 4,079
-------- --------
$ 2,323 $ 4,880
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-57
<PAGE>
MEDIS EL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT NET LOSS PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
Sales $ 32 $ -- $ 8
Cost of sales 11 -- 3
------- ------- -------
Gross profit 21 -- 5
Research and development costs, net (Note 11) 815 1,406 1,646
------- ------- -------
(794) (1,406) (1,641)
Selling, general and administrative expenses (Note 12) 1,187 1,269 1,350
------- ------- -------
Operating loss (1,981) (2,675) (2,991)
Financial income, net 20 28 34
------- ------- -------
(1,961) (2,647) (2,957)
Other expenses (1) -- (10)
------- ------- -------
Net Loss $(1,962) $(2,647) $(2,967)
======= ======= =======
Net loss per share - basic and diluted $ (0.22) $ (0.28) $ (0.31)
======= ======= =======
Weighted average number of shares outstanding 8,790 9,325 9,624
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-58
<PAGE>
MEDIS EL LTD.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Additional Cumulative Deferred Total
Share Paid-in Accumulated Translation Compensation Shareholders'
Capital Capital Loss Adjustments ESOP and Equity
Other
-------- ---------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1996 313 11,741 (9,988) 27 -- 2,093
CHANGES DURING THE YEAR ENDED
DECEMBER 31, 1996
Issuance of shares (*) 21 3,109 -- -- -- 3,130
Additional paid-in capital -- 608 -- -- -- 608
Net loss -- -- (1,962) -- -- (1,962)
-------- -------- -------- ------ -------- --------
Balance at December 31, 1996 334 15,458 (11,950) 27 -- 3,869
CHANGES DURING THE YEAR ENDED
DECEMBER 31, 1997
Additional paid-in capital -- 122 -- -- -- 122
Net loss -- -- (2,647) -- -- (2,647)
-------- -------- -------- ------ -------- --------
Balance at December 31, 1997 334 15,580 (14,597) 27 -- 1,344
CHANGES DURING THE YEAR ENDED
DECEMBER 31, 1998
Issuance of shares (*) 18 3,332 -- -- -- 3,350
Additional paid-in capital -- 2,300 -- -- -- 2,300
Net loss -- -- (2,967) -- (2,967)
Grant of stock options -- 250 -- -- (198) 52
-------- -------- -------- ------ -------- --------
Balance at December 31, 1998 $ 352 $ 21,462 $(17,564) $ 27 $ (198) $ 4,079
======== ======== ======== ====== ======== ========
</TABLE>
(*) Net of share issue expenses of $20,000 and $133,000 in 1998 and1996,
respectively
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-59
<PAGE>
MEDIS EL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,962) $(2,647) $(2,967)
Adjustments to reconcile loss to net cash used in
operating activities:
Depreciation and amortization 106 101 184
Changes in accrued severance pay (1) 13 33
Erosion of securities and short-term deposits (5) 22 --
Loss from sale of property and equipment 1 -- 10
Changes in assets and liabilities:
Decrease in trade accounts receivable 23 8 --
Decrease (increase) in other accounts receivable and
prepaid expenses 171 30 (22)
Decrease (increase) in inventory 16 (78) 113
Increase (decrease) in accounts payable (325) 83 (20)
------- ------- -------
Net cash used in operating activities (1,976) (2,468) (2,669)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (137) (124) (134)
Proceeds from sales of property and equipment 62 1 17
Investment in securities and short-term deposits (496) -- (500)
Proceeds from realization of securities and short-term
deposits -- 479 --
------- ------- -------
Net cash provided by (used in) investing activities (571) 356 (617)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Short-term credit (5) 1 6
Proceeds from issuance of shares 3,130 -- 3,350
Additional paid-in capital 608 122 2,300
Repayment of long-term debt (153) (192) (197)
------- ------- -------
Net cash provided by (used in) financing activities 3,580 (69) 5,459
------- ------- -------
Net increase (decrease) in cash and cash equivalents 1,033 (2,181) 2,173
Cash and cash equivalents at beginning of year 1,935 2,968 787
------- ------- -------
Cash and cash equivalents at end of year $ 2,968 $ 787 $ 2,960
======= ======= =======
NON-CASH TRANSACTIONS:
Grant of stock options $ -- $ -- $ 250
Reclassification of inventory $ -- $ -- $ 429
======= ======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-60
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 1 - GENERAL
Medis El Ltd. (the "Company") was incorporated in July 1992 and is engaged in
the development, clinical testing and marketing of the CellScan System, a
diagnostic system designed for screening and detecting diseases by means of a
blood test. The System is designed to provide a new way to study cells, offering
the opportunity for early detection of cancer, AIDS, infectious diseases and
autoimmune diseases. CellScan Systems are utilized for basic research in cell
biology and for the detection of cancer, such as breast, colon, lung and
prostate, as well as personalized chemotherapy. The Company, through the
placement of the CellScan System at several medical institutions around the
world, is seeking to develop new applications for the CellScan System in
additional fields, such as AIDS detection, follow-up and preventive therapy and
the development of diagnostic tests in the field of infectious and autoimmune
diseases.
The Company is also engaged in developing and marketing its other technologies,
which include: The Stirling Cycle Technologies, The Toroidal Internal Combustion
Engine, The Fuel Cells, The Reciprocating Electric Machine, and The Neuritor.
YEAR 2000 COMPLIANCE
Many computer systems which express dates using only the last two digits of the
year may malfunction due to the date change to the Year 2000. The risk to the
business relates not only to the Company's computer system, but also to some
degree to those of the customers and suppliers of the Company.
The Company has performed a review of its Year 2000 compliance relative to its
products and systems. No limitation is expected in using any of its products or
systems. However, there can be no assurance that the Company's products and
systems contain all of the necessary code changes. Moreover, the Company cannot
predict the consequences of the failure of its customers or suppliers to adopt
year 2000 compliant software or to comply with installations for Year 2000
solutions in a timely and accurate manner.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
A. ACCOUNTING PRINCIPLES
The financial statements are prepared in accordance with generally
accepted accounting principles ("GAAP") in Israel. Such Israeli accounting
principles, as applicable to these financial statements, are, in all
material respects, the same as accounting principles generally accepted in
the United States.
B. USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions in determining the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
C. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Medis El
Ltd. and its subsidiary, More Energy Ltd., of which Medis El owns 70%.
Consolidation was made based on the financial statements of the
subsidiary, after elimination of intercompany balances.
F-61
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
D. FINANCIAL STATEMENTS IN U.S. DOLLARS
1. These financial statements have been prepared in U.S. Dollars ("the
dollar") because the functional currency of the Company is the
dollar. The dollar is the currency of the primary economic
environment in which the operations of the Company are conducted.
Most of the sales of the Company are generated outside of Israel, in
dollars. The remainder of Company sales, which are generated in
Israel, are linked to the dollar. In addition, the Company manages
its operations in dollars.
Certain of the dollar amounts in the financial statements may
represent the dollar equivalent of other currencies, including the
New Israeli Shekel ("NIS"), which may not be exchangeable for
dollars.
2. Transactions and balances denominated in dollars are presented at
their dollar amounts. Non-dollar transactions and balances are
remeasured into dollars in accordance with the principles set forth
in the Statement of Financial Accounting Standards ("FAS") No. 52,
"Foreign Currency Translation", of the Financial Accounting Standards
Board of the United States.
Accordingly, items have been remeasured as follows:
- Monetary items - at the current exchange rate at each balance
sheet date;
- Nonmonetary items - at historical exchange rates;
- Income and expense items - at exchange rates current as of the
date of recognition of those items (excluding depreciation and
other items deriving from nonmonetary items).
- Exchange gains and loses from the aforementioned remeasurements
(which are immaterial for each year) are reflected in the
statements of income.
E. TRANSLATION OF FOREIGN CURRENCIES
Balances denominated in foreign currencies are translated at exchange
rates prevailing at the balance sheet date. Exchange rates between the NIS
and the U.S. dollar at December 31, 1998 and 1997 were NIS 4.16 = $ 1.00
and NIS 3.536 = $ 1.00, respectively.
F. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash, money-market funds and
certificates of deposit with a maturity of three months or less.
G. INVENTORY
Inventory is presented at the lower of cost or market value. Cost is
determined on the "first-in, first-out" basis.
H. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, net of investment grants
received in respect thereof. Depreciation is provided for in amounts
sufficient to relate the cost of depreciable assets to operations over
their estimated service lives on the straight-line basis. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. The annual
depreciation rates are as follows:
<TABLE>
<CAPTION>
Annual Rates (%)
----------------
<S> <C>
Machinery and equipment 10 - 20
Computers 20 - 33
Furniture and office equipment 7 - 15
Vehicles 15
</TABLE>
F-62
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT.)
I. REVENUE RECOGNITION
Revenue from sales is recognized upon delivery of the product to the
customer.
J. WARRANTY COSTS
The Company grants a one-year warranty on products sold and provides for
estimated warranty costs.
K. RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
Grants received from the State of Israel for research and development are
offset against the Company's research and development costs.
L. EARNINGS PER SHARE
Earnings per share are computed based on the weighted average number of
shares outstanding during each period. Stock options have been excluded
from the calculation of diluted loss per share as their effect would have
been anti-dilutive.
M. STOCK-BASED COMPENSATION
The Company has elected to follow the Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB-25"), in
accounting for its stock option plans. Under APB-25, when the exercise
price of the Company's stock options equals or exceeds the market price of
the underlying stock on the date of grant, no compensation expense is
recognized.
N. SHORT-TERM INVESTMENTS
The Company's short-term investments are categorized as available-for-sale
securities and are carried at market value. Unrealized holding gains and
losses are reflected as a separate component of stockholders' equity until
realized. For the purpose of computing realized gains and losses, cost is
identified on a specific identification basis. As of December 31, 1997 and
1998 there were no unrealized holding gains or losses on short-term
investments.
O. 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 a five-year
period. 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. With respect to goodwill, the Company
follows the enterprise level approach, whereby the value of goodwill is
compared to the value of the Company as a whole. Therefore, the Company
would judge a significant decline in the market value of the Company's
common stock as an event or change in circumstances, and recognize an
impairment loss on such goodwill to the extent that the market value of
the equity of the Company declines below the book value of the assets
of the Company.
F-63
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 3 - CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
In Israeli currency (NIS) $ 114 $ 105
In U.S. dollars 673 2,855
------ ------
$ 787 $2,960
====== ======
</TABLE>
NOTE 4 - ACCOUNTS RECEIVABLE - OTHER
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Government institutions $59 $15
Sundry 28 51
--- ---
$87 $66
=== ===
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
COST (*)
Machinery and equipment $ 341 $ 776
Computers 150 174
Furniture and office equipment 80 84
Vehicles 146 154
Leasehold improvements 114 156
----- -----
$ 831 $ 1,344
===== =====
(*) Net of investment grants $ 93 $ 89
===== =====
ACCUMULATED DEPRECIATION
Machinery and equipment $ 131 $ 168
Computers 107 135
Furniture and office equipment 33 40
Vehicles 32 33
Leasehold improvements 72 108
---- ----
$ 375 $ 484
===== ====
</TABLE>
F-64
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 6 - ACCRUED EXPENSES AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Employees and related liabilities $ 136 $ 160
Accrued expenses 169 167
----- ----
$ 305 $ 327
===== ====
Includes amounts in NIS $ 168 $ 203
===== ====
</TABLE>
NOTE 7 - LONG-TERM DEBT
A. The long-term debt is comprised of bank loans linked to the dollar,
bearing interest equal to the London Inter-Bank Offered Rate (LIBOR) plus
2.4% to 2.6% per annum and guaranteed by the State of Israel.
The aggregate maturities after the balance sheet date are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C>
1999, current liability $ 196
-----
2000 86
2001 7
2002 3
-----
96
-----
$ 292
=====
</TABLE>
B. To collateralize the loans which the Company received from the bank, the
Company gave a floating lien on all its assets.
NOTE 8 - ACCRUED SEVERANCE PAY
The Company's liability for severance pay, pursuant to Israeli law, is fully
provided for through managers' insurance policies and by an accrual which
reflects the unfunded portion. The amounts maintained with insurance companies
are not under the control of the Company and, therefore, are not included in the
financial statements.
NOTE 9 - CONTINGENT LIABILITIES AND COMMITMENTS
A. The Company acquired the rights to the CellScan in August 1992 by
assignment from Israel Aircraft Industries Ltd. ("IAI" - a related party,
see note 14A) to the Company of a license from Bar Ilan University (the
"University") to IAI. The Company 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, market
and sell the CellScan, and to sub-license the right to manufacture and
sell the device. The license includes all rights to the University's
F-65
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 9 - CONTINGENT LIABILITIES AND COMMITMENTS (CONT.)
CellScan patents, know-how and inventions, including any subsequently
acquired, and all improvements thereto. Beginning in 1995, the Company is
obliged to pay the University a royalty for a 20-year period. For the
first ten years, the royalty is at the rate of 6.5% on proceeds of sales
(after deducting sales commissions and other customary charges) and 4.5%
on any fees received on account of the grant of territorial rights. The
royalty in the ensuing ten years is 3.5% on all revenues, whether from
sales or fees. In addition to such royalty payments, the Company is to
make a further grant of $100,000 to the University for the first year in
which the Company's post-tax profits exceed $300,000.
B. The Company acquired the rights to the Neuritor in August 1992 by
assignment from IAI to the Company of a license from Imexco General Ltd.
("Imexco"), for which assignment the Company paid $500,000. An additional
sum of $125,000 was paid in December 1995. In 1996, the Company
relinquished its exclusive right to market the Neuritor in consideration
of relief of its obligation to pay minimum royalties. The Company has to
pay Imexco royalties at rates ranging from 2% to 7% of the revenue
generated by the sale of the Neuritor.
C. In consideration of grants by the State of Israel, the Company 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 the Company is repaid in full. This amount,
as of December 31, 1998, is approximately $2,576,000.
D. The Company is committed under two leases for office space, laboratory and
manufacturing facilities. Its corporate headquarters and principal
facility lease terminates on December 31, 1999 and provides for an annual
aggregate rental of approximately $64,000. Its Technology center facility
lease, which has an initial term until November 1999 and two one-year
options extending to November 2001 on most of the facility, provides for
an annual aggregate rental of approximately $89,000.
E. For commitments to related parties, see Note 14.
F. There is an action newly 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. In this action, plaintiff claims that the Company defrauded
it into entering into a 1993 distribution agreement with the Company and
in its attendant purchase of a CellScan machine. Plaintiff seeks $10
million, which amount includes punitive damages. The Company has answered
the complaint and has counterclaimed against the plaintiff for $3,145,000
arising from plaintiff's failure to purchase additional machines from the
Company, as was required by the distribution agreement at issue. The
Company intends to defend its position and pursue its counterclaim
vigorously. Although the Company's independent counsel cannot opine about
the outcome of this litigation, as there has
F-66
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 9 - CONTINGENT LIABILITIES AND COMMITMENTS (CONT.)
been no discovery or substantive motion practice, counsel has advised the
Company that it believes that the Company has meritorious defenses to the
claim. The Company did not make any provision in the Financial Statements
for the said claim.
G. In December 1998, the Company entered into a Technology Development
Agreement with a large multi-national corporation (hereinafter - "the
corporation") pursuant to which the corporation paid the Company, after
the balance sheet date, $100,000 for a right of first refusal to obtain
exclusive rights in its particular field for certain of the Company's
technologies including the Stirling Cycle Linear system and $100,000 for
the development for the Stirling Cycle Linear system. After acceptance of
the technology, In order to qualify to maintain its exclusivity for the
Stirling Cycle Linear system for a period of 10 years after first
commercialization, the corporation will pay the Company an additional
$500,000 towards the cost of tooling for production.
NOTE 10- SHARE CAPITAL
A. NUMBER OF SHARES
<TABLE>
<CAPTION>
Authorized Issued and Outstanding
---------------------- ---------------------
December December December December
31, 1997 31, 1998 31, 1997 31, 1998
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Ordinary Shares of NIS 0.1 each 30,000,000 30,000,000 9,325,000 10,054,650
========== ========== ========= ==========
</TABLE>
Subsequent to the balance sheet date, the Company issued additional shares
(see Note 14F).
B. SHARE OPTION PLAN
In October 1993, the Board of Directors of the Company 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 the Company. The Share 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 Company's Board of Directors, the exercise price of options will be
the market price of the Ordinary Shares on the date of grant.
Options under the Share Option Plan will be for 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
the Company. The options are exercisable in full, two years after the date
of grant. The grantee is responsible for all personal tax consequences of
the grant and the exercise thereof. The Company believes that no tax
consequences will result to the Company in connection with such grant or
exercise. On January 21, 1998, the Board of Directors extended the
expiration date of the options issued on February 14, 1994 for an
additional one-year period until February 14, 1999. The extension pertains
only to options held by persons who were in the employ of the company on
the date the extension was adopted.
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10- SHARE CAPITAL (CONT.)
On March 19, 1996, the Board of Directors of the Company granted options
to purchase the Company's shares under the share option plan adopted in
October 1993 (see details of issuance in D. below). Pursuant to the grant,
employees, directors, and a consultant of the Company received 164,100
options (of which 60,000 were granted to directors and 3,300 were granted
to a consultant) which are convertible into shares on a one to one ratio
at the market price on the date of the grant ($0.5625).
On May 3, 1998, the Board of Directors of the Company granted options to
purchase the Company's shares under the share option plan adopted in
October 1993 (see details of issuance in D. below). Pursuant to the grant,
certain employees, a director, and a consultant of the Company 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 the Company granted options
to purchase the Company's shares under the share option plan adopted in
October 1993 (see details of issuance in D. below). Pursuant to the grant,
the executive vice-president of the Company 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.
C. The following table summarizes option plan activity for the three years
ended December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Number of Average
Options Exercise Price
<S> <C> <C>
Balance at January 1, 1996 87,950 7.42
CHANGES DURING THE YEAR ENDED
DECEMBER 31, 1996
Granted 164,100 0.56
Cancelled (7,300) 0.56
-------
Balance at December 31, 1996 244,750 3.03
CHANGES DURING THE YEAR ENDED
DECEMBER 31, 1997
Cancelled (9,000) 0.56
-------
Balance at December 31, 1997 235,750 3.12
CHANGES DURING THE YEAR ENDED
DECEMBER 31, 1998
Granted 196,400 7.07
Exercised (29,650) 0.66
Cancelled (87,950) 7.42
--------
Balance at December 31, 1998 314,550 4.61
=======
</TABLE>
F-68
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10- SHARE CAPITAL (CONT.)
D. Outstanding Share Option Plan activity (see B. and C. above) is summarized
as follows:
<TABLE>
<CAPTION>
Number of Options
--------------------------
Issue Date Exercise Price Issued Exercised Cancelled Outstanding Expires
---------- -------------- ------ --------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
February 14, 1994 $7.42 143,150 -- (143,150) -- February 14, 1998
August 30, 1996 $0.5625 89,700 (26,650) (14,900) 48,150(1) August 30, 2000
November 28, 1996 $0.5625 11,100 (2,500) (1,400) 7,200 November 28, 2000
December 2, 1996 $0.5625 63,300 -- -- 63,300(2) December 2, 2000
February 14, 1998 $7.42 47,400 (500) -- 46,900(1) February 14, 1999
July 1, 1998 $7.20 105,000 -- -- 105,000(3) July 1, 2002
November 5, 1998 $7.20 14,000 -- -- 14,000 November 5, 2002
November 4, 1998 $6.00 30,000 -- -- 30,000(4) November 4, 2002
</TABLE>
(1) Including to the executive vice president of the Company - 27,500 options.
(2) Including to directors of the Company - 60,000 options.
(3) Including to the executive vice president of the Company - 50,000 options.
(4) All issued to the executive vice president of the Company
Compensation costs charged to operations which the Company records for
options granted below the fair market value at the date of grant were
$23,000 in 1998. Compensation expense was determined by calculating the
difference between the exercise price and the fair market value of the
option on the date of grant. Such expense is charged to operations over
the vesting period.
E. Pro-forma information regarding net income and earnings per share is
required by SFAS No. 123, "Accounting for Stock-Based Compensation," and
has been determined as if the Company had accounted for its 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 for 1996
and 1998:
<TABLE>
<CAPTION>
1996 1998
---- ----
<S> <C> <C>
Dividend yield 0% 0%
Risk-free interest rate 6.67% 5.00%
Volatility factor 0.31 0.10
Expected life in years
after vesting period 2 1-2
</TABLE>
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 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 options' vesting period. The
Company's pro-forma information is as follows:
F-69
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 10- SHARE CAPITAL (CONT.)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1997 1998
---- ---- ----
(In Thousands, Except Per Share Amounts)
----------------------------------------
<S> <C> <C> <C>
Loss for the year as reported $ (1,962) $ (2,647) $ (2,967)
Pro-forma loss $ (2,072) $ (3,006) $ (3,244)
Loss per share as reported $ (0.22) $ (0.28) $ (0.31)
Pro-forma loss per share $ (0.24) $ (0.32) $ (0.34)
Weighted average fair value of options granted
during the year $ 7.13 -- $ 1.89
</TABLE>
The total compensation expense for employees included in the pro-forma
information for 1996, 1997 and 1998 is $110,000, $359,000 and $277,000,
respectively.
NOTE 11- RESEARCH AND DEVELOPMENT COSTS, NET
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Salaries, materials, sub-contractors and other expenses $ 838 $ 1,333 $ 1,545
Depreciation expense 80 73 101
----- ------- -------
918 1,406 1,646
Government grants (103) -- --
----- ------- -------
$ 815 $1,406 $ 1,646
===== ====== =======
DISTRIBUTION BY FIELD OF RESEARCH:
Medical $ 815 $ 1,328 $ 1,173
Stirling Cycle Technologies - 78 354
Other - - 119
----- ------- -------
$ 815 $1,406 $ 1,646
===== ====== =======
</TABLE>
NOTE 12 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Selling expenses $ 147 $ 146 $ 146
General and administrative expenses 1,014 1,095 1,174
Depreciation expense 26 28 30
------ ------ ------
$1,187 $1,269 $1,350
====== ====== ======
</TABLE>
F-70
<PAGE>
MEDIS EL LTD.
NOTES TO THE FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 13 - INCOME TAXES
A. Under the Income Tax Law (Adjustment for Inflation), 1985, income for tax
purposes is measured in terms of earnings in NIS, adjusted for the
increase in the Israeli CPI.
B. Tax benefits under the Law for the Encouragement of Capital Investments,
1959 (the "Law") are summarized as follows:
The Company has been issued a certificate of approval as an "Approved
Enterprise" under the Law.
In accordance with the above Law, the Company elected the "combined path",
pursuant to which the Company has the right to receive a government
guaranteed bank loan of 66% of the amount of the approved investment (see
Note 7). In addition, the Company has the right to receive a grant of 25%
of the approved investment, in which case the loan will be reduced by the
amount of the grant. As of the balance sheet date, the Company has
received grants in the amount of $97,000, of which $89,000 remains after
the sale of vehicles in respect of which investment grants were received.
The tax liability in respect of the Company's income deriving from its
Approved Enterprise activities is calculated as follows:
1. For a ten-year period, company tax at a rate of 20% of income.
2. Tax on dividends distributed at a rate of 15% (instead of 25%).
These tax benefits can be utilized at least through 2006.
C. A reconciliation of the theoretical tax expense, assuming all income was
taxed at the regular rate applicable to an Israeli corporation, and the
actual tax expense is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Theoretical tax benefit on losses (*) $706 $952 $1,068
Non-deductible expenses (4) (6) (5)
Tax adjustments in respect of inflation in
Israel and other items 40 (58) (189)
------ ------ ------
742 888 874
Valuation allowance (742) (888) (874)
------ ------ ------
Reported income tax expense $ -- $ -- $ --
====== ====== ======
(*) Applicable tax rate 36% 36% 36%
====== ====== ======
</TABLE>
D. The Company has not been audited by the Israeli tax authorities since its
incorporation.
F-71
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(TABULAR AMOUNTS IN THOUSANDS)
NOTE 13 - INCOME TAXES (CONT.)
E. Temporary differences giving rise to deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
----------- -----------
<S> <C> <C>
Net operating loss carryforward $ 6,277 $ 6,839
Temporary differences, net (350) (544)
-------- ---------
Total 5,927 6,295
Valuation allowance (5,927) (6,295)
-------- ---------
Deferred tax assets, net of valuation allowance $ -- $ --
======== =========
</TABLE>
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES
A. The Company is controlled directly and indirectly (via Cell Diagnostics
Inc. ("CDI") and its wholly owned subsidiary Medis Inc.), by a group of
Investors, which includes Company board members Robert K. Lifton and
Howard Weingrow and Israel Aircraft Industries Ltd. ("IAI"), a government
corporation.
B. The following transactions with related parties are included in the
financial statements:
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Expenses $ 25 $ 32 $ 32
Participation of a related party in Company expenses (3) -- --
Reimbursement to related parties $145 $164 $161
</TABLE>
C. The Company's CellScan distribution agreement for the United States with a
subsidiary of CDI is for a period expiring 12 years after FDA approval of
the product, but is subject to termination in the event that certain
yearly performance criteria are not met. The distributor is obligated to
fund the effort to obtain FDA approval in accordance with the following
schedule:
1. First $1,500,000 - to be paid by the distributor.
2. Next $500,000 - to be paid by the Company.
3. Next $500,000 - to be loaned by the Company to the distributor but to
be repaid to the Company only if the CellScan receives FDA approval.
In the event that the distribution agreement is transferred by CDI to a
third party for consideration, the Company will be entitled to receive a
pro rata portion of such consideration (based on the share it bore of all
FDA costs) to the extent required to repay the loan it granted to the
distributor, referred to in item 3 above.
In July 1998, the Company entered into an Exclusive Agency Agreement with
CDS Distributors Inc. or its affiliate ("CDS"). CDS Distributors Inc. is a
subsidiary of CDI - a principal beneficial shareholder of the Company.
Under such agreement, CDS would coordinate all licensing arrangements
between the Company and third parties within
F-72
<PAGE>
MEDIS EL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - TRANSACTIONS WITH RELATED PARTIES (CONT.)
North America in respect of the Company's linear technologies. In
exchange, CDS would be entitled to receive a fee equal to 10% of all
royalties payable to the Company under the specific license agreements for
the first ten years of such agreement and 5% of the royalties thereafter.
The agreement is subject to approval at a general meeting of the
shareholders of the Company.
Additionally, on October 26, 1998, the Board of Directors authorized the
company to enter into an Exclusive Agency Agreement with CDS Distributors
Inc. in respect of the Company's other technologies. The agreement would
be on terms similar to the agreement for linear technologies described
above, and would be subject to approval at a general meeting of the
shareholders of the Company.
D. The Company is required to utilize IAI as its initial outside
manufacturing source for products which IAI is capable of producing at
competitive prices and, if IAI is unable to satisfy the Company's
requirement at such prices, the Company is required to seek other Israeli
sources. Only after exhausting these two options, may the Company then
have recourse to non-Israeli sources.
E. The Company pays $150,000 per year to Medis Inc. for services rendered to
the Company, $100,000 of which is used to pay a salary to Robert K. Lifton
(Chairman of the Board of Directors of the Company) as President and Chief
Executive Officer of Medis Inc. Amos Eiran, a Director of the Company,
acts as a consultant to the Company for which he receives approximately
$1,400 per month.
F. In accordance with the amended shareholders agreement, CDI issued a
secured promissory note to Medis Inc., which note was assigned to the
Company as a capital contribution. During 1997, the Company and CDI
entered into agreements to amend certain terms of the note. The note,
which had an original principal amount of $2,500,000, bore interest at the
same rate as the Company's loan guaranteed by the State of Israel. The
note was amended to provide for payment of the remaining principal balance
of $2,000,000 in four installments of $500,000, with the first two of such
installments being payable on July 1, 1998 and the remaining two
installments being payable on each of January 1, 1999 and July 1, 1999.
During the second quarter of 1997, CDI paid the Company interest on the
note in the amount of $122,000 for the period from April 1, 1997 through
December 31, 1997. All other interest on the note was payable with the
final installment on July 1, 1999. On June 30, 1998, CDI repaid the entire
principal balance of the CDI Note in the amount of $2,000,000. In
connection with the aforementioned acquisition by CDI of all of the shares
of Medis Inc. owned by IAI, Messrs. Lifton and Weingrow guaranteed to the
Company, on a non-recourse basis, that the remaining obligations of CDI
under the CDI Note, specifically $300,000 of accrued interest, would be
repaid in full by December 31, 1998. The interest was paid in full on
December 31, 1998.
G. The Company issued to CDI, in December 1998, 400,000 of its ordinary
shares at a net price of $5 per share. The Board considered that the
issuance of shares at $5 per share - which was 20% below the most recent
closing price of $6.25 - to be advantageous to the Company.
H. The Company is presently included as an additional insured party on IAI's
product and third party liability insurance policy.
I. The Company's one-year employment agreement with its executive vice
president, terminated on September 30, 1998. Under the agreement, he
received approximately $109,000 as a base salary for the year.
NOTE 15 - FINANCIAL INSTURMENTS
Financial instruments, as part of general business, mainly include cash and cash
equivalents, accounts receivable, deposits, short-term credit, trade and other
accounts payable, other current liabilities and long-term liabilities. The fair
value of the above instruments is not materially different from the values at
which they are presented in the financial statements. The average interest rates
in respect of the Company's long-term liabilities are not materially different
from the interest rates offered, as of balance sheet date on similar Company
liabilities.
F-73
<PAGE>
===============================================================================
MEDIS TECHNOLOGIES LTD.
EXCHANGE OFFER
FOR
3,831,810 ORDINARY SHARES
OF
MEDIS EL LTD.
--------------------
PROSPECTUS
--------------------
, 2000
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus, and, if given or made, such information or representations must not
be relied on as having been authorized by us. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
offered hereby by anyone in any jurisdiction in which such offer or solicitation
is not authorized or is unlawful. The delivery of this prospectus shall not,
under any circumstances create any implication that the information herein is
correct as of any time subsequent to the date of the prospectus.
- -------------------------------------------------------------------------------
Until , 2000, all dealers that effect transactions in these securities, whether
or not participating in this offering, may be required to deliver a prospectus.
This is in addition to the dealers' obligation to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth various expenses which will be incurred
in connection with the exchange offer. Other than the SEC registration fee, all
amounts set forth below are estimates:
<TABLE>
<S> <C>
SEC registration fee................................................. $7,988.47
Blue sky fees and expenses........................................... 10,000.00
Printing and engraving expenses...................................... 65,000.00
Legal fees and expenses.............................................. 150,000.00
Accounting fees and expenses......................................... 275,000.00
Transfer and Exchange Agent fees..................................... 8,000.00
NASDAQ listing fee................................................... 10,000.00
Miscellaneous expenses............................................... 10,000.00
-----------
$535,988.45
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") makes
provision for the indemnification of officers and directors of corporations in
terms sufficiently broad to indemnify the officers and directors of the
registrant under certain circumstances for liabilities (including reimbursement
of expenses incurred) arising under the Securities Act of 1933, as amended (the
"Act").
The registrant's Bylaws (the "Bylaws") provide that the registrant may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the registrant), by reason of the fact that he is or was a
director, officer, employee or agent of the registrant or is or was serving at
the request of the registrant as a director, officer, employee or agent of
another corporation or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding.
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth information relating to all securities of
Registrant sold by it since May 31, 1996:
In 1996:
o Existing shareholders of the Registrant (the "Senior Noteholders")
purchased $650,000 of senior secured exchangeable subordinated notes
(the "Senior Notes") paying interest of prime plus 2%. The Notes were
exchangeable for shares of the common stock of Medis El at $2.00 per
share. In March 1998, the Senior Noteholders exchanged the Senior Notes
for 325,000 of Medis El's ordinary shares held by Medis Inc., the
Registrant's wholly-owned subsidiary.
o The Registrant issued 175,308 shares of common stock in lieu of
interest of $350,616 due on subordinated notes of the Registrant (the
"Notes").
o Existing warrantholders surrendered an aggregate of $1,267,610 of the
Notes held by such warrantholders as payment in full for the exercise
of an aggregate of 316,902 warrants into such number of shares of
common stock of the Registrant.
In 1997:
o The Registrant issued 66,373 shares of common stock in lieu of interest
of $132,773 due on the Notes.
o Existing warrantholders surrendered an aggregate of $2,314,290 of the
Notes held by such warrantholders as payment in full for the exercise
of an aggregate of 578,573 warrants into such number of shares of
common stock of the Registrant.
o The Registrant issued 60,000 shares of common stock upon the exercise
of 60,000 warrants for an aggregate exercise price of $240,000.
o On December 15, 1997, the Registrant issued 3,600,457 shares of its
common stock to Israel Aircraft Industries Ltd. ("IAI") in exchange for
IAI's 40% equity ownership of Medis Inc., making Medis Inc. the
Registrant's wholly-owned subsidiary.
In 1998:
o In June 1998, the Registrant issued in a private placement 83,334 units
to the Stanoff Corporation, which is beneficially owned by Robert K.
Lifton and Howard Weingrow, the Registrants' chairman and chief
executive officer and president, respectively, and 98,092 units to
certain other existing stockholders, each unit consisting of three
shares of the Registrant's common stock and one warrant to purchase one
share of the Registrant's
II-2
<PAGE>
common stock at an exercise price of $5.00 per share, at a price of
$12.00 per unit (the "Units"). The net proceeds to the Registrant from
this financing was $2,177,112.
o In November 1998, the Registrant issued in a private placement 10,241
Units to certain existing stockholders and 166,667 Units to new
stockholders, all of which met the definition of "accredited investor,"
as such term is defined in the Securities Act of 1933, as amended
("accredited investor"). The net proceeds to the Registrant from this
financing was $2,122,896.
o In December 1998, the Registrant issued in a private placement 25,000
Units to the Stanoff Corporation. The net proceeds to the Registrant
from this financing was $300,000.
In 1999:
o In February 1999, the Registrant issued in a private placement 16,667
Units to an existing stockholder. The net proceeds to the Registrant
from this financing was $200,004.
o In March 1999, the Registrant issued in a private placement 50,334
Units to new stockholders, all of which were accredited investors. The
net proceeds to the Registrant from this financing was $604,004.
o In April and May 1999, the Registrant issued in a private placement
100,000 Units to existing stockholders. The net proceeds to the
Registrant from this financing was $1,200,000.
o In June 1999, the Registrant issued in a private placement 9,000 Units
to a new stockholder who is an accredited investor. The net proceeds to
the Registrant from this financing was $108,000.
o In August 1999, the Registrant issued in private placement 1,000 Units
to a new stockholder who is an accredited investor. The net proceeds to
the Registrant from this financing was $12,000.
o In September 1999, the Registrant issued in a private placement 16,667
Units to a new stockholder, who is an accredited investor. The net
proceeds to the Registrant from this financing was $200,004.
In 2000:
o In January and February 2000, the Registrant 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 the Registrant's common stock and
25,000 warrants to purchase one share each of the Registrant's common
stock at an
II-3
<PAGE>
exercise price of $5.75 per share, at a price of $300,000 per unit. The
net proceeds to the Registrant from this financing was approximately
$2,895,500.
Exemption from registration under the Securities Act of 1933, as
amended (the "Securities Act"), 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 Registrant's stock transfer records there against. None
of these sales involved participation by an underwriter or a broker-dealer.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of Exhibits filed herewith as part of the
Registration Statement:
3.(i)* Form of Restated Certificate of Incorporation of Registrant
3.(ii)* Form of By-Laws of Registrant
4.1* Form of certificate evidencing shares of common stock
5.1** Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C.
5.2** Opinion of Cooperman Levitt Winikoff Lester & Newman, P.C. regarding
tax matters
10.1* Registrant's 1999 Stock Option Plan
10.2* Distributorship Agreement dated as of August 13, 1992 by and between
Medis El Ltd. and CDS Distributor, Inc.
10.3* Exclusive Agency Agreement dated as of July 1, 1998 by and between
Medis El Ltd. and CDS Distributor, Inc.
10.4* Form of warrant agreement
10.5* Stock Purchase Agreement dated as of December 15, 1997 between Cell
Diagnostics Inc., Howard Weingrow and Robert K. Lifton and Israel
Aircraft Industries Ltd.
10.6* CDI Shareholders Agreement dated as of December 15, 1997 among Israel
Aircraft Industries Ltd., Howard Weingrow and Robert K. Lifton, Cell
Diagnostics Inc., Medis Inc., CDS Distributor, Inc. and Medis El Ltd.
10.7* Letter Agreement dated as of December 15, 1997 among Cell Diagnostics
Inc., Medis Inc., Medis El Ltd., Robert K. Lifton, Howard Weingrow and
Israel Aircraft Industries Ltd.
10.8* Employment Agreement dated November 2, 1999 between Zvi Rehavi and
Medis El Ltd.
10.9 Technology Development Agreement dated as of December 14, 1998 by and
between Medis El Ltd. and The Coca-Cola Company.
21.1 Subsidiaries of the Registrant, as amended
23.1 Consent of Grant Thornton LLP
23.2 Consent of Fahn, Kanne & Co.
23.3** Consent of Cooperman Levitt Winikoff Lester & Newman, P.C. (to be
included in Exhibit 5.1)
24.1* Power of Attorney (included on the signature page of Part II of this
Registration Statement)
II-4
<PAGE>
27.1 Financial Data Schedule
99.1 Transmittal Letter
99.2 Notice of Guaranteed Delivery
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and Other Nominees
99.4 Letter to Clients
- ----------
* Previously filed.
** To be filed by Amendment to this Registration Statement.
(b) Financial Statement Schedules.
No schedules are required to be filed.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this registration statement or amendment thereto
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York on February 11, 2000.
MEDIS TECHNOLOGIES LTD.
By: /s/ Robert K. Lifton
---------------------------
Robert K. Lifton
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Robert K. Lifton Chairman of the Board, Chief February 11, 2000
- ---------------------------------- Executive Officer and Secretary
Robert K. Lifton (principal executive officer)
/s/ Howard Weingrow President, Treasurer and February 11, 2000
- ---------------------------------- Director (principal accounting
Howard Weingrow and financial officer)
* Director February 11, 2000
- ----------------------------------
Amos Eiran
* Director February 11, 2000
- ----------------------------------
Jacob S. Weiss
* Director February 11, 2000
- ----------------------------------
Zeev Nahmoni
* Director February 11, 2000
- ----------------------------------
Shmuel Peretz
</TABLE>
* Robert K. Lifton, pursuant to Powers of Attorney (executed by each of the
officers and directors listed above and indicated by signing above, and filed
with the Securities and Exchange Commission), by signing his name hereto does
hereby sign and execute this Amendment to the Registration Statement on behalf
of each of the persons referenced above.
February 11, 2000 /s/ Robert K. Lifton
----------------------------
Robert K. Lifton
II-6
<PAGE>
EXHIBIT 10.9
TECHNOLOGY DEVELOPMENT AGREEMENT
This Technology Development Agreement is made as of the 14th day of December,
1998, by and between Medis-El LTD., an Israeli Corporation, (hereafter
"Medis-El," which term shall include all of Medis-El's related companies) and
The Coca-Cola Company, a Delaware Corporation, ("TCCC").
RECITALS
TCCC and Medis-El each have continuing programs to develop and commercialize
new technologies, and desire, as they may agree from time-to-time, to work
together to apply some of these technologies to the Beverage Field (defined
below in Section 2.3.1).
In particular, Medis-El is the owner or licensee of various technologies
having application to the Beverage Field, including technologies relating to
stirling cycle engines, toroidal compressors, and fuel cells. TCCC desires to
assist in the development of the stirling cycle engine, and to have the first
right to obtain, in connection with the Beverage Field, exclusive rights to
the other technologies, and to new technologies of Medis-El.
TCCC and Medis-El desire to set forth their agreement with respect to
Medis-El's technologies that may apply to the Beverage Field.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. NEW TECHNOLOGY
1.1 PERIODIC MEETINGS
Recognizing that both parties will benefit from a close working
relationship, TCCC and Medis-El will periodically meet (in-person
or electronically, with the frequency to be agreed upon) to discuss
new technology developed by Medis-El that may apply to the Beverage
Field. Medis-El will disclose such technologies to TCCC before it
discloses them to others for use in the Beverage Field.
1.2 RIGHTS TO NEW TECHNOLOGY
If Medis-El decides to develop or make available technology having
application to the Beverage Field, then TCCC shall have a right of
first refusal to obtain exclusive rights to use such technology in the
Beverage Field, on the best terms and conditions offered by Medis-El.
TCCC shall have a reasonable period of time to notify Medis-El if it is
interested in the technology. A
<PAGE>
reasonable period of time is targeted at three months, but may be longer
depending on the maturity and complexity of the technology. If TCCC is
interested, then Medis-El and TCCC will negotiate an appropriate
agreement.
2. DEVELOPMENT OF STIRLING CYCLE ENGINE
2.1 DEVELOPMENT
Medis-El has developed certain technology for a stirling cycle engine.
TCCC desires to assist in further development of Medis-El's stirling
cycle engine, for use in the Beverage Field, according to the attached
development plan (Exhibit A). Throughout the development effort, the
parties will openly discuss progress of the work and any issues that
arise, and discuss these issues reasonably as soon as they arise. TCCC
may choose, at any time, to discontinue its development efforts on
this development project, with no further obligation or liability
hereunder. If TCCC so chooses, it will be deemed to have notified
Medis-El that it is not interested in obtaining exclusive rights to
the stirling cycle technology pursuant to Section 1.2.
2.2 INTELLECTUAL PROPERTY
2.2.1 OWNERSHIP OF PRIOR INVENTIONS
Any inventions or technology made or developed, or patent
applications and patents filed or owned by or licensed to a party
hereto, prior to the effective date of this Agreement shall continue
to belong to such party.
2.2.2 OWNERSHIP OF SOLELY MADE INVENTIONS
All patent rights to any inventions or technology made solely by
either party shall vest in and be the property of the party that
made it.
2.2.3 OWNERSHIP OF JOINTLY MADE INVENTIONS
If any inventions or technology are jointly made by Medis-El and
TCCC, then Medis-El shall own the patent rights, but TCCC has a
royalty-free, fully paid-up, perpetual, world-wide, irrevocable,
non-exclusive license under any resulting patents on such inventions
or technology to make, have made, use, sell, import, and sublicense
products to the extent covered by such patents, but only for TCCC
and the Coca-Cola system and only in the Beverage Field. This
license shall not be construed as a license to Medis-El's solely
made inventions or technology. Furthermore, for
<PAGE>
such jointly-made inventions or technology, the parties will meet to
determine a royalty to TCCC for sales by or licensed by Medis-El,
of any products covered by such resulting patents. Such royalty is
to be in the same proportion to the total royalty received by
Medis-El on the product as the relative contribution of the jointly-
made invention is to other royalty-bearing inventions in the product.
2.2.4 ENFORCEMENT OF INTELLECTUAL PROPERTY RIGHTS
Medis-El will take reasonable efforts to obtain, maintain, and
enforce intellectual property rights covering the stirling cycle
engine developed hereunder.
2.3 EXCLUSIVITY AND CONTINUING RIGHTS
2.3.1 EXCLUSIVITY
Medis-El will not make, have made, use or sell, or license others
to do the same, directly or indirectly, any stirling cycle engine
for use in connection with the Beverage Field, except for and to
TCCC and its designees (as designated by TCCC in writing), subject
to the conditions below. The "Beverage Field" includes all uses in
connection with the marketing, selling, presentation, or
distribution of beverages, including, without limitation, uses in
vending machines, coolers, and fountain dispensing equipment,
(post-mix and pre-mix), including for commercial, office, and home
use, but not including refrigerators (which does not include
fountain dispensers) for home or office refrigeration not intended
for the sale of beverages.
The exclusivity of the foregoing paragraph applies (1) during the
carrying out of the development plan, and (2) then, if TCCC funds,
in its sole discretion, $500,000.00 worth of manufacturing tooling
for the stirling cycle engine for use in the Beverage Field (to be
covered by the attached Bailment Agreement and subject to a
recoupment fee for TCCC to be added to the cost of units made on
the tooling, regardless of whether exclusivity is continued), for
the following periods:
Two (2) years after first commercialization (not field testing) of
the stirling cycle engine in the Beverage Field; and
Yearly thereafter, for a total of 10 years (years three through
ten) after first commercialization, if TCCC or its designees
purchase at least the following amounts (these amounts are
conditions of exclusivity, not commitments to purchase):
<PAGE>
Year 3 50,000
Year 4 100,000
Year 5 100,000
Year 6 200,000
Year 7 200,000
Year 8 300,000
Year 9 500,000
Year 10 500,000
2.3.2 TCCC'S CONTINUING RIGHTS TO STIRLING TECHNOLOGY
In no event will Medis-El grant another a license or any rights that
restrict or disadvantage TCCC's and its designees' ability to
purchase Medis-El's stirling cycle engines for the Beverage Field,
and TCCC and its designees will always have the right to purchase
Medis-El's stirling cycle engines for the Beverage Field. While
exclusivity is in effect, TCCC and its designees shall have the
first call on manufacturing capacity. Furthermore, if TCCC's
exclusivity lapses, TCCC and its designees will have, through
year 10, the first call on manufacturing capacity for uses in the
Beverage Field.
2.4. THIRD-PARTY MANUFACTURERS AND DUE DILIGENCE
2.4.1 THIRD-PARTY MANUFACTURERS
If TCCC chooses to move forward with tooling funding as provided in
Section 2.3 above and advises Medis-El, Medis-El will grant
manufacturing licenses at terms acceptable to Medis-El in its sole
discretion, and, once Medis-El reaches terms with a manufacturer at
the terms as provided below, TCCC will then release such funding. If
Medis-El is not able to reach terms with a third party
manufacturer, TCCC will not fund tooling in the event that TCCC had
decided to fund tooling. Medis-El will ensure that any third-party
licenses are limited in accordance with TCCCs exclusive license
rights as provided herein. Furthermore, Medis-El will require that
third-party manufacturers sell to TCCC and its designees, and that
such sales will be on terms and conditions, including price and
delivery scheduling, that are at least as favorable (from the
standpoint of the buyer) as the third-party manufacturer offers to
others. Furthermore, Medis-El and any third party manufacturer will
provide commercial warranties on the products, including warranties
of quality and against intellectual property infringement claims,
and indemnification against third party claims of personal injury
and intellectual property infringement.
Medis-El will provide, to any third-party manufacturers, product
designs, manufacturing plans, and ongoing engineering support for
the product and
<PAGE>
its manufacture, as well as appropriate de-bugging support of
production. Furthermore, Medis-El will provide engineering support
for on-going improvement to the product design and its manufacture,
throughout the life of the product.
Medis-El will require that any manufacturers implement
state-of-the-art quality control management processes.
2.4.2 DUE DILIGENCE
Medis-El will use good faith efforts to have the stirling cycle
engine commercialized in products suitable for the Beverage Field,
as soon as reasonably possible, and throughout the world.
2.5 WARRANTY OF RIGHT TO GRANT RIGHTS
Medis-El warrants to TCCC that Medis-El has the full right and power to
grant the rights referred to in this Agreement and to enter into this
Agreement.
2.6 WARRANTY OF NON-INFRINGEMENT
Medis-El warrants that the stirling cycle engine developed hereunder will
not infringe any patent, copyright, or other proprietary right of any
other person.
3. COMPENSATION
TCCC shall pay Medis'Inc. (designated by Medis-El as its agent for receipt of
funds) $100,000.00 within 30 days of the signing of this Agreement for the
rights granted in Section 1 above.
TCCC shall pay Medis'Inc. (designated by Medis-El as its agent for receipt of
funds) $100,000.00 within 30 days of the signing of this Agreement to assist
in the development of the stirling cycle engine as provided in Section 2
above. During the carrying out of the development plan, TCCC will consider
paying an additional $50,000.00 to assist in development, to be paid in
TCCC's discretion, depending upon the progress of the project.
Neither party will be liable hereunder to the other for the party's indirect,
special, or consequential damages.
<PAGE>
4. SECRECY
4.1. SECRECY PROVISION
During the term of this Agreement, Medis-El and TCCC may exchange
information of a confidential or proprietary nature that the
disclosing party does not want published or disclosed to third
parties. Medis-El and TCCC agree that all confidential information
which has been disclosed in writing by one party and received by
the other party, or which has been confidentially disclosed orally
shall be held in confidence for a term of five (5) years from the
date of the disclosure, and shall not be disclosed to a third party
without the prior written consent of the disclosing party.
4.2. EXCEPTIONS
Neither party shall be obligated to maintain in confidence:
4.2.1 Information which is, or subsequently may become within
the knowledge of the public generally, through no fault of
the receiving party;
4.2.2 Information which the receiving party can show was
previously known to it at the time of receipt;
4.2.3 Information which may subsequently be obtained lawfully from
a third party who has obtained the information through no
fault of the receiving party; or
4.2.4 Information which the receiving party can establish was
subsequently developed by the receiving party independently
of the disclosure.
5. PUBLICITY
Medis-El shall not publish, reveal, or use, without TCCC's prior written
approval, this Agreement, its terms, or the fact that it has been
entered, or any advertising, sales, promotion or publicity material
relating to this Agreement, services, equipment, materials, products,
or reports furnished by Medis-El wherein in any of the foregoing the
names of TCCC, its subsidiaries, affiliates or authorized bottlers are
mentioned or their identity implied.
6. PATENT AND TRADEMARK RIGHTS
Other than as expressly provided in this Agreement, nothing contained
nor resulting from this Agreement shall give either party any rights in
the patents or trademarks of the other party.
<PAGE>
7. TERMINATION AND SURVIVAL
7.1. TERMINATION FOR BREACH
This Agreement may be terminated at any time by either party in
the event that the other party has breached this Agreement, by
giving the breaching party thirty (30) days notice in writing of
the intention to terminate and the reasons therefor. Should the
breaching party cure such breach and perform its obligation during
the notice period, the Agreement shall continue in full force and
effect.
7.2 SURVIVAL
Sections 2.2, 2.3.2, 2.4, 2.5, 2.6, 4, 5, 6, 9, 10, 11, 12, and 13 will
survive the expiration or earlier termination of this Agreement.
8. NOTICE
All notice and correspondence shall be sent by either party to the other
in all matters dealing with this Agreement to the following addresses:
If to TCCC:
The Coca-Cola Company
One Coca-Cola Plaza
Atlanta, Georgia 30313
Attention: Director, Engineering Development Function
with a copy by facsimile to the Senior Patent and Technology Counsel of
The Coca-Cola Company, at (404) 676-8414.
<PAGE>
If to Medis-El, to:
Medis El LTD.
805 Third Avenue
New York, NY 10022
Attention: Robert K. Lifton, Chairman of the Board
with a copy by facsimile to the project manager at Medis-El LTD., in
Jerusalem, at 972-5870454.
or any other address provided written notice is given to the other party.
9. INDEPENDENT CONTRACTOR
Medis-El shall be deemed to be an independent contractor, and neither TCCC
nor Medis-El shall have the authority to contract on the other's behalf.
10. ENTIRE AGREEMENT
The Agreement constitutes the entire agreement between TCCC and Medis-El.
This Agreement supersedes all prior oral or written agreements between TCCC
and Medis-El. This Agreement shall be binding upon and inure to the benefit
of Medis-El and TCCC and their respective successors and permitted assigns.
11. APPLICABLE LAW
This Agreement shall be construed in accordance with the laws of the State of
Georgia and appliable laws of the United States, regardless of any other laws
chosen by choice-of-law rules. Any disputes arising under this Agreement
shall be brought exclusively in the federal or state courts located in the
State of Georgia, and the parties consent to the jurisdiction of such courts.
12. AMENDMENT
No amendment to the Agreement shall be binding unless it is in writing and
signed by both parties.
13. ASSIGNMENT
Neither party shall assign or transfer this Agreement or any interest herein
without prior written consent of the other party, and any unauthorized
assignment shall be null and void, except that TCCC may assign this Agreement
to a wholly owned subsidiary after notice to Medis-El.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate effective as of the date first above written.
THE COCA-COLA COMPANY MEDIS-EL LTD.
By: [Illegible] By: /s/ Robert K. Lifton
--------------------------- ---------------------------
Name: [Illegible] Name: Robert K. Lifton
------------------------- --------------------------
Title: [Illegible] Title: Chairman of the Board
------------------------- --------------------------
<PAGE>
Exhibit A
DEVELOPMENT PLAN
This Development Plan is incorporated by reference into the Agreement to
which it is attached. All dates below are target dates, it being understood
that actual completion may be before or after the targets. Medis-El will,
however, use its best efforts to perform the development to reach the target
dates.
PHASE I - DEVELOPMENT OF 100 WATT PROTOTYPES
Starting at the execution of the Agreement, Medis-El will develop two 65 watt
prototype stirling cycle engine prototypes, to be completed by May 1999. TCCC
will own these physical units (but not any Medis-El intellectual property in
the units), and will analyze them in its, or a third-party laboratory. The
analysis will measure the units against various criteria to be established
between the parties, relating to performance, cost (manufacturing and total)
scalability, and reliability, among others. The parties agree to share
information on such criteria.
During the same period, TCCC and Medis-El will work together to determine the
size of the units that will be needed for TCCC's applications in coolers and
vending machines, and Medis-El will begin development of these larger units.
PHASE II - DEVELOPMENT OF LARGER UNITS
Once prototypes of Phase I meet the requirements of TCCC and Medis-El, then
Medis-El will complete development of the larger units suitable for TCCC's
applications in coolers and vending machines. It is estimated that it will
take approximately three months to make prototypes of the larger units.
Medis-El will provide TCCC with at least four prototypes of the larger units.
During this same period, Medis-El and TCCC will share information on
projected performance, manufacturing and total costs, scalability, and
reliability, and Medis-El will develop manufacturing processes for the
larger units.
PHASE III - TESTING OF THE LARGER UNITS
Once prototypes are available that are substantially the same as the
projected commercial units, TCCC will test the larger units for up to 7
months to evaluate their performance and reliability, and share the results
with Medis-El. At the end of this testing and evaluation of the data from the
testing, TCCC will make a decision, in its sole discretion, on whether to fund
tooling as provided in the Agreement, to obtain exclusivity in the Beverage
Field. Before TCCC makes such a decision, Medis-El will commit to a
not-to-exceed price for the stirling cycle engines, to facilitate TCCC's
decision.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
MEDIS INC., a Delaware corporation - The Registrant directly owns 100% of the
common stock of Medis Inc.
CDS DISTRIBUTOR, INC., a Delaware corporation - The Registrant directly owns
100% of the common stock of CDS Distributor, Inc.
MEDIS EL LTD., an Israel corporation - The Registrant, through Medis Inc., its
wholly-owned subsidiary, owns approximately 63% of the common equity of Medis El
Ltd. Medis El will become an indirect wholly-owned subsidiary of the Registrant
upon the closing of the Registrant's exchange offer for all of Medis El's common
equity not beneficially owned by the Registrant, assuming all such common equity
are tendered.
MORE ENERGY LTD., an Israel corporation - The Registrant indirectly owns
approximately 54.5% of the common equity of More Energy Ltd. Such indirect
ownership is through Medis El Ltd.'s 86.5% interest in More Energy Ltd.
NEW DEVICES ENGINEERING A.K.O. LTD., an Israel corporation - The Registrant
indirectly owns approximately 15.75% of the common equity of New Devices
Engineering A.K.O. Ltd. Such indirect ownership is through Medis El Ltd.'s 25%
interest in New Devices Engineering A.K.O. Ltd.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 11, 1999 (except for Notes F and J-5 as
to which the date is September 30, 1999 and Note N as to which the date
is February 9, 2000) accompanying the consolidated financial statements of
Medis Technologies Ltd. and Subsidiaries (formerly Cell Diagnostics Inc. and
Subsidiaries) contained in the Registration Statement and Prospectus. We
consent to the use of the aforementioned report in the Registration Statement
and Prospectus, and to the use of our name as it appears under the caption
"Experts."
GRANT THORNTON LLP
New York, New York
February 9, 2000
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated March 29, 1999, accompanying the consolidated
financial statements of Medis El Ltd. and Subsidiary contained in the
Registration Statement and Prospectus. We consent to the use of the
aforementioned report in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts."
Fahn Kanne & Co
Certified Public Accountants
(Isr.).
Tel Aviv, Israel
February 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF MEDIS TECHNOLOGIES, INC. AS OF
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,219,000
<SECURITIES> 0
<RECEIVABLES> 130,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,484,000
<PP&E> 1,731,000
<DEPRECIATION> 769,000
<TOTAL-ASSETS> 12,173,000
<CURRENT-LIABILITIES> 779,000
<BONDS> 12,000
0
0
<COMMON> 100,000
<OTHER-SE> 10,096,000
<TOTAL-LIABILITY-AND-EQUITY> 12,173,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,146,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,000
<INCOME-PRETAX> (4,011,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,011,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,011,000)
<EPS-BASIC> (.41)
<EPS-DILUTED> (.41)
</TABLE>
<PAGE>
Exhibit 99.1
LETTER OF TRANSMITTAL
With Respect to
the Exchange of Ordinary Shares
of
MEDIS EL LTD.
for shares of Common Stock
of
MEDIS TECHNOLOGIES LTD.
PURSUANT TO THE PROSPECTUS DATED ______________, 2000
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 2000 UNLESS EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed, and submitted to the Exchange Agent:
American Stock Transfer & Trust Company
(the "Exchange Agent"):
IF BY OVERNIGHT COURIER: IF BY HAND:
American Stock Transfer & Trust American Stock Transfer & Trust
Company Company
6201 15th Avenue, Floor 3L 40 Wall Street, 46th Floor
Brooklyn, New York 11219 New York, New York 10005
IF BY MAIL:
American Stock Transfer & Trust
Company
40 Wall Street
New York, New York 10005
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (800)
937-5449, EXT. 6820 (TOLL FREE).
The undersigned hereby acknowledges receipt of the prospectus dated
______________ , 2000 (the "Prospectus") of Medis Technologies Ltd., a
Delaware corporation (the "Issuer"), and this Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Issuer's offer (the
"Exchange Offer") to exchange 1.37 shares of common stock, par value $.01, of
the Issuer (the "Exchange Stock"), which have been registered under the
Securities Act (as hereinafter defined) pursuant to a Registration Statement,
for each ordinary share, par value 0.1 NIS (the "Shares"), of
<PAGE>
Medis El Ltd., an Israeli Corporation ("Medis El"), outstanding. Capitalized
terms used but not defined herein have the meanings ascribed to them in the
Prospectus.
The undersigned hereby tenders the Shares described in Box I below (the
"Tendered Shares") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Shares and, if not also the beneficial owner thereof,
the undersigned represents that it has received from each beneficial owner of
the Tendered Shares ("Beneficial Owners") a duly completed and executed form of
"Instruction to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner of Medis El Ltd.," a copy of which accompanies
this Letter of Transmittal, instructing the undersigned to take the action
described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the
Tendered Shares, the undersigned hereby exchanges, assigns and transfers to, or
upon the order of, the Issuer, all right, title, and interest in, to and under
the Tendered Shares.
Please issue the Exchange Stock in exchange for Tendered Shares in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the Exchange Stock (and accompanying documents, as appropriate)
to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent as the true and lawful agent and attorney-in-fact of the
undersigned with respect to the Tendered Shares, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver the Tendered Shares to the Issuer or cause ownership
of the Tendered Shares to be transferred to, or upon the order of, the Issuer,
on the books of the registrar for the Shares and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Issuer upon
receipt by the Exchange Agent, as the undersigned's agent, of the Exchange Stock
to which the undersigned is entitled upon acceptance by the Issuer of the
Tendered Shares pursuant to the Exchange Offer and (ii) receive all benefits and
otherwise exercise all rights of beneficial ownership of the Tendered Shares,
all in accordance with the terms of the Exchange Offer, except as set forth
below.
The undersigned hereby irrevocably appoints the designees of the
Issuer, and each of them, the attorneys-in-fact and proxies of the undersigned,
each with full power of substitution, to vote in such manner as each such
attorney and proxy or any substitute thereof shall deem proper in the sole
discretion of such attorney-in-fact and proxy or such substitute, and otherwise
act (including pursuant to written consent) with respect to all the Tendered
Shares which have been accepted by the Issuer prior to the time of such vote or
action, which the undersigned is entitled to vote at any meeting of shareholders
(whether annual or special and whether or not an adjourned meeting), of Medis El
or otherwise. This proxy and power of attorney is coupled with an interest in
the Tendered Shares and is irrevocable and is granted in consideration of, and
is effective upon, the acceptance of such Tendered Shares by the Issuer in
accordance with the terms of the Offer. Such acceptance for exchange shall
revoke any other proxy granted by the undersigned at any time with respect to
such Tendered Shares and no subsequent proxies will be given (or, if given, will
not be deemed effective) with respect thereto by the undersigned. The
undersigned understands that in order for Tendered Shares to be deemed validly
tendered, immediately upon the Issuer's acceptance of such Tendered Shares for
exchange, the Issuer or its designee must be able to exercise full voting rights
with respect to such Tendered Shares.
The undersigned understands that tenders of Shares pursuant to the
procedures described in the caption "The Exchange Offer" in the Prospectus and
in the instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer-Withdrawal
Rights." All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and any Beneficial Owner(s), and
every obligation of the undersigned or any Beneficial Owners hereunder shall be
binding upon the heirs, representatives, successors and assigns of the
undersigned and such Beneficial Owner(s).
2
<PAGE>
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Tendered
Shares and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances and adverse
claims when the Tendered Shares are acquired by the Issuer as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Issuer or the
Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Stock to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired by
the undersigned and any Beneficial Owner(s) in the ordinary course of business
of the undersigned and any Beneficial Owner(s), (ii) the undersigned and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the Exchange Stock, (iii) except as otherwise disclosed in
writing herewith or in the Prospectus, neither the undersigned nor any
Beneficial Owner is an "affiliate," as defined in Rule 405 under the Securities
Act, of the Issuer or any of its subsidiaries and (iv) the undersigned and each
Beneficial Owner acknowledge and agree that any participating in the Exchange
Offer with the intention or for the purpose of distributing the Exchange Stock
must comply with the registration and prospectus delivery requirements of the
Securities Act of 1933, as amended (together with the rules and regulations
promulgated thereunder, "Securities Act"), in connection with a secondary resale
of the Exchange Stock acquired by such person. Each broker-dealer that will
receive Exchange Stock for its own account in exchange for Shares that were
acquired as a result of market-making activities or other trading activities
hereby acknowledges that it will deliver a Prospectus in connection with any
resale of such Exchange Shares; however, by so acknowledging and by delivering a
Prospectus, such broker-dealer is not deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED HEREWITH
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND COMPLETE
"USE OF GUARANTEED DELIVERY" BELOW (Box 4).
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "USE OF BOOK-ENTRY TRANSFER" BELOW (Box 5).
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE ADDITIONAL
COPIES OF THE PROSPECTUS AND COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
Number of Additional Copies:
3
<PAGE>
<TABLE>
<CAPTION>
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
- ---------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------------------
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED SHARE HOLDER(S), CERTIFICATE NUMBER OF SHARES AGGREGATE
EXACTLY AS NAME(S) APPEAR(S) ON SHARE CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY NUMBER OF SHARES
(PLEASE FILL IN, IF BLANK) SHARES* CERTIFICATE(S) TENDERED
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
-----------------------------------------------------------
TOTAL
- ---------------------------------------------------------------------------------------------------------------------
* Need not be completed by persons tendering by book-entry transfer.
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
BOX 2
- ---------------------------------------------------------------------------------------------------------------------
BENEFICIAL OWNER(S)
- ---------------------------------------------------------------------------------------------------------------------
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED SHARES
BENEFICIAL OWNER OF TENDERED SHARES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
BOX 3
- --------------------------------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE STOCK EXCHANGED FOR TENDERED SHARES ARE TO
BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE UNDERSIGNED AT AN
ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Stock to:
Name(s):
________________________________________________________________________________
(PLEASE PRINT)
Address:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Tax Identification or Social Security Number:
________________________________________________________________________________
- --------------------------------------------------------------------------------
BOX 4
- --------------------------------------------------------------------------------
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
TO BE COMPLETED ONLY IF SHARES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
________________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Institution which Guaranteed Delivery: _________________________________
- --------------------------------------------------------------------------------
5
<PAGE>
BOX 5
- --------------------------------------------------------------------------------
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED SHARES IS TO BE MADE BY BOOK-ENTRY
TRANSFER
Name of Tendering Institution: ________________________________________________
Account Number: _______________________________________________________________
Transaction Code Number: ______________________________________________________
- --------------------------------------------------------------------------------
6
<PAGE>
<TABLE>
<CAPTION>
BOX 6
- --------------------------------------------------------------------------------------------------------
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
<S> <C>
X ___________________________________________ Signature Guarantee
(IF REQUIRED BY INSTRUCTION 5)
X ___________________________________________
(SIGNATURE OF REGISTERED HOLDER(S) OR
AUTHORIZED SIGNATORY) Authorized Signature
Note: The above lines must be signed by the registered X ___________________________________________
holder(s) of Shares as their name(s) appear(s) on the
Shares or on a security position listing or by person(s) Name:________________________________________
authorized to become registered holder(s) (evidence of (PLEASE PRINT)
which authorization must be transmitted with this Letter
of Transmittal). If signature is by a trustee, executor, Title:_______________________________________
administrator, guardian, attorney-in-fact, officer or
other person acting in a fiduciary or representative Name of Firm:________________________________
capacity, such person must set forth his or her full (MUST BE AN ELIGIBLE INSTITUTION
title below. See Instruction 5. AS DEFINED IN INSTRUCTION 2)
Name(s): ____________________________________ Address:_____________________________________
____________________________________ _____________________________________
Capacity: ____________________________________ _____________________________________
(INCLUDE ZIP CODE)
____________________________________
Street Address:_______________________________
____________________________________ Area Code and Telephone Number:
____________________________________ _____________________________________________
(INCLUDE ZIP CODE)
Dated:_______________________________________
Area Code and Telephone Number:
______________________________________________
Tax Identification or Social Security Number:
______________________________________________
- --------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
PAYOR'S NAME: MEDIS TECHNOLOGIES LTD.
- --------------------------------------------------------------------------------------------------------------------------
<S> <C>
Name (if joint names, list first and circle the name of the person or entity whose
number you enter in Part 1 below. See instructions if your name has changed.)
_____________________________________________________________________________________________
SUBSTITUTE Address
FORM W-9
DEPARTMENT OF THE TREASURY _____________________________________________________________________________________________
INTERNAL REVENUE SERVICE City, State and ZIP Code
_____________________________________________________________________________________________
List account number(s) here (optional)
---------------------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE YOUR TAXPAYER Social Security Number or TIN
IDENTIFICATION NUMBER ("TIN") IN THE BOX
AT RIGHT AND CERTIFY BY SIGNING AND
DATING BELOW. __________________________________
---------------------------------------------------------------------------------------------
PART 2--Check the box if you are NOT subject to backup withholding under the provisions of
section 3406(a)(1)(C) of the Internal Revenue Code because (1) you have not been notified
that you are subject to backup withholding as a result of failure to report all interest
or dividends or (2) the Internal Revenue Service has notified you that you are no longer
subject to backup withholding. / /
- --------------------------------------------------------------------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM PART 3--
IS TRUE, CORRECT AND COMPLETE.
Awaiting TIN / /
SIGNATURE________________ DATE__________
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE W-9 FOR ADDITIONAL DETAILS.
8
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SHARES. A properly
completed and duly executed copy of this Letter of Transmittal, including
Substitute Form W-9, and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein, and either certificates for Tendered Shares must be received by the
Exchange Agent at its address set forth herein or such Tendered Shares must be
transferred pursuant to the procedures for book-entry transfer described in the
Prospectus under the caption "Exchange Offer-Procedures for Tendering Medis El
Shares" (and a confirmation of such transfer received by the Exchange Agent), in
each case prior to 5:00 p.m., New York City time, on the Expiration Date. The
method of delivery of certificates for Tendered Shares, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the tendering holder and the delivery will be deemed made
only when actually received by the Exchange Agent. If delivery is by mail,
registered mail with return receipt requested, property insured, is recommended.
Instead of delivery by mail, it is recommended that the holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. No Letter of Transmittal or Shares should be sent to the
Issuer. The Issuer is not under any obligation to notify any tendering holder of
the Issuer's acceptance of Tendered Shares prior to the closing of the Exchange
Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
Shares but whose Shares are not immediately available, and who cannot deliver
their Shares, this Letter of Transmittal or any other documents required hereby
to the Exchange Agent prior to the Expiration Date must tender their Shares
according to the delivery procedures set forth below, including completion of
Box 4. Pursuant to such procedures: (i) such tender must be made by or through a
firm which is a member of a recognized Medallion Program approved by the
Securities Transfer Association Inc. (an "Eligible Institution") and the Notice
of Guaranteed Delivery must be signed by the holder; (ii) prior to the
Expiration Date, the Exchange Agent must have received from the holder and the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by mail or hand delivery) setting forth the name and address of the
holder, the certificate number(s) of the Tendered Shares and the principal
amount of Tendered Shares, stating that the tender is being made hereby and
guaranteeing that, within five New York Stock Exchange trading days after the
Expiration Date, this Letter of Transmittal together with the certificate(s)
representing the Shares and any other required documents will be deposited by
the Eligible Institution with the Exchange Agent; and (iii) such properly
completed and executed Letter of Transmittal, as well as all other documents
required by this Letter of Transmittal and the certificate(s) representing all
Tendered Shares in proper form for transfer, must be received by the Exchange
Agent within three New York Stock Exchange trading days after the Expiration
Date. Any holder who wishes to tender Shares pursuant to the delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery relating to such Shares prior to 5:00 p.m., New York City
time, on the Expiration Date. Failure to complete the guaranteed delivery
procedures outlined above will not, of itself, affect the validity or effect a
revocation of any Letter of Transmittal form properly completed and executed by
an Eligible Holder who attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder
in whose name Tendered Shares are registered on the books of the registrar (or
the legal representative or attorney-in-fact of such registered holder) may
execute and deliver this Letter of Transmittal. Any Beneficial Owner of Tendered
Shares who is not the registered holder must arrange promptly with the
registered holder to execute and deliver this Letter of Transmittal on his or
her behalf through the execution and delivery to the registered holder of the
Instructions to Registered Holder and/or Book Entry Transfer Facility
Participant from Beneficial Owner form accompanying this Letter of Transmittal.
4. PARTIAL TENDERS. If less than all the Tendered Shares evidenced by
any certificate submitted are tendered, the tendering holder should fill in the
number of Medis El Shares to be tendered in the column labeled "Aggregate Number
of Shares Tendered" of the box entitled "Description of Shares Tendered" (Box 1)
above. All
9
<PAGE>
Tendered Shares represented by certificates delivered to the Exchange Agent will
be deemed to have been tendered unless otherwise indicated. If less than all of
the Tendered Shares held by the holder are tendered, new certificate(s) for the
remainder of the Tendered Shares that were evidenced by the Holder's old
certificate(s) will be sent to the Holder at his or her registered address
unless otherwise provided in the box entitled "Special Delivery Instructions"
(Box 3) above as soon as practicable following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL: STOCK POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder(s) of the Tendered Shares, the signature must
correspond with the name(s) as written on the face of the Tendered Shares
without alteration, enlargement or any change, whatsoever.
If any of the Tendered Shares are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Shares are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Shares are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Shares, and Exchange Stock issued in exchange therefor are to be issued
(and any untendered Shares are to be reissued) in the name of the registered
holder(s), then such registered holder(s) need not and should not endorse any
Tendered Shares, nor provide a separate stock power. In any other case, such
registered holder(s) must either properly endorse the Tendered Shares or
transmit a properly completed stock power with this Letter of Transmittal, with
the signature(s) on the endorsement or stock power guaranteed by an Eligible
Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Shares, such Tendered Shares must be
endorsed or accompanied by appropriate stock powers, in each case, signed as the
name(s) of the registered holder(s) appear(s) on the Tendered Shares, with the
signature(s) on the endorsement or stock power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Shares or stock powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by the
Issuer, evidence satisfactory to the Issuer of their authority to so act must be
submitted with this Letter of Transmittal.
Endorsements on Tendered Shares or signatures on stock powers required
by this Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution unless the Tendered Shares are tendered (i) by a registered
holder who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should
indicate, in the applicable box (Box 3), the name and address to which the
Exchange Stock for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the taxpayer identification or social security number of the person
named must also be indicated
7. TRANSFER TAXES. The Issuer will pay or cause to be paid all
transfer taxes, if any, applicable to the exchange of Tendered Shares
pursuant to the Exchange Offer. If, however, a transfer tax is imposed for
any reason other than the transfer and exchange of Tendered Shares pursuant
to the Exchange Offer, then the amount of any such transfer taxes (whether
imposed on the registered holder or on any other person) will be payable by
the tendering holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the
amount of such transfer taxes will be billed directly to such tendering
holder.
10
<PAGE>
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Shares listed in this Letter
of Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Shares which are accepted for exchange must provide
the Issuer (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuer is not provided with the correct TIN, the holder
may be subject to backup withholding and a $50 penalty imposed by the Internal
Revenue Service. (If withholding results in an over-payment of taxes, a refund
may be obtained). Certain holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that shareholder must file a Form W-8, signed under penalties
of perjury, attesting to that individual's exempt status. A Form W-8 can be
obtained from the Exchange Agent. See the enclosed Guidelines for Certification
of Taxpayer Identification Number on Substitute Form W-9 for additional
instructions.
To prevent backup withholding, each holder of Tendered Shares must
provide such holder's correct TIN by completing the Substitute Form W-9 set
forth herein, certifying that the TIN provided is correct (or that such holder
is awaiting a TIN), and that (i) the holder has not been notified by the
Internal Revenue Service that such holder is subject to backup withholding as a
result of failure to report all interest or dividends or (ii) the Internal
Revenue Service has notified the holder that such holder is no longer subject to
backup withholding.
Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
The Issuer reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Issuer's obligations regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Shares will be determined by the Issuer in its sole discretion, which
determination will be final and binding. The Issuer reserves the right to reject
any and all Shares not validly tendered or any Shares the Issuer's acceptance of
which would, in the opinion of the Issuer or its counsel, be unlawful. The
Issuer also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Shares as to any ineligibility of any
holder who seeks to tender Shares in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Issuer shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Shares must be cured within such time as the Issuer
shall determine. Neither the Issuer, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Shares, nor shall any of them incur any liability for
failure to give such notification. Tenders of Shares will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Shares received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waved will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal as soon as practicable following the
Expiration Date.
10. WAIVER OF CONDITIONS. The Issuer reserves the absolute right to
amend, waive or modify any of the conditions in the Exchange Offer in the case
of any Tendered Shares.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Shares or transmittal of this Letter of Transmittal will be
accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED SHARES. Any tendering holder
whose Shares have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
11
<PAGE>
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance and requests for additional copies of the Prospectus or
this Letter of Transmittal may be directed to the Exchange Agent at the address
indicated herein. Holders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Exchange
Offer.
14. ACCEPTANCE OF TENDERED SHARES AND ISSUANCE OF SHARES; RETURN OF
SHARES. Subject to the terms and conditions of the Exchange Offer, the Issuer
will accept for exchange all validly tendered Shares as soon as practicable
after the Expiration Date and will issue Exchange Shares therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Issuer shall be
deemed to have accepted tendered Shares when, as and if the Issuer has given
written or oral notice (immediately followed in writing) thereof to the Exchange
Agent. If any Tendered Shares are not exchanged pursuant to the Exchange Offer
for any reason, such unexchanged Shares will be returned, without expense, to
the undersigned at the address shown in Box 1 or at a different address as may
be indicated herein under "Special Delivery Instructions" (Box 3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the
procedures set forth in the Prospectus under the caption "The Exchange
Offer-Withdrawal Rights."
12
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
THE EXCHANGE OF ORDINARY SHARES
OF
MEDIS EL LTD.
FOR SHARES OF COMMON STOCK
OF
MEDIS TECHNOLOGIES LTD.
PURSUANT TO THE PROSPECTUS DATED _____________, 2000
This form must be used by a holder of ordinary shares, par value 0.1
NIS (the "Shares"), of Medis El Ltd., an Israeli corporation ("Medis El"), who
wishes to tender Shares to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer--Guaranteed Delivery
Procedures" of the Issuer's Prospectus dated , 2000 (the "Prospectus")
and in Instruction 2 to the related Letter of Transmittal ("Letter of
Transmittal"). Any holder who wishes to tender Shares pursuant to such
guaranteed delivery procedures must ensure that the Exchange Agent receives
this Notice of Guaranteed Delivery prior to the Expiration Date of the Exchange
Offer. Capitalized terms used but not defined herein have the meanings ascribed
to them in the Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 2000 UNLESS EXTENDED (THE "EXPIRATION DATE").
American Stock Transfer & Trust Company
(the "Exchange Agent"):
IF BY OVERNIGHT COURIER: IF BY HAND:
American Stock Transfer & Trust American Stock Transfer & Trust
Company Company
6201 15th Avenue, Floor 3L 40 Wall Street, 46th Floor
Brooklyn, New York 11219 New York, New York 10005
IF BY MAIL:
American Stock Transfer & Trust
Company
40 Wall Street
New York, New York 10005
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
This form is not to be used to guarantee signatures. If a signature on
a Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
Ladies and Gentlemen:
The undesigned hereby tenders to the Issuer, upon the terms and subject
to the conditions set forth in the Prospectus and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the number of Shares set forth below, pursuant to the
guaranteed delivery procedures set forth in the Prospectus and in Instruction 2
of the Letter of Transmittal.
<TABLE>
<CAPTION>
TOTAL NUMBER OF SHARES
CERTIFICATE NUMBER(S)(IF KNOWN) OF SHARES OR NUMBER OF SHARES REPRESENTED BY SHARE
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY TENDERED CERTIFICATES
- --------------------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
- --------------------------------------------------------- ----------------------------- -----------------------------
- --------------------------------------------------------- ----------------------------- -----------------------------
- --------------------------------------------------------- ----------------------------- -----------------------------
- --------------------------------------------------------- ----------------------------- -----------------------------
<CAPTION>
PLEASE SIGN AND COMPLETE
<S> <C>
Signatures of Registered Holder(s) or Authorized Date ____________________________________, 2000
Signatory:______________________________________ Address:_______________________________________
________________________________________________ _______________________________________________
________________________________________________ _______________________________________________
Name(s) of Registered Holder(s):________________ Area Code and Telephone No.:___________________
________________________________________________
</TABLE>
This Notice of Delivery must be signed by the Holder(s) exactly as their
name(s) appear on certificates for Shares or on a security position listing as
the owner of Shares, or by person(s) authorized to become Holder(s) by
endorsements and documents transmitted with this Notice of Guaranteed Delivery.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must provide the following information.
Please print name(s) and addresses
Name(s):________________________________________________________________________
________________________________________________________________________________
Capacity:_______________________________________________________________________
Address(es):____________________________________________________________________
________________________________________________________________________________
2
<PAGE>
- -------------------------------------------------------------------------------
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, (i) guarantees deposit with the Exchange Agent of the Letter of
Transmittal (or facsimile thereof), together with the Shares tendered hereby in
proper form for transfer (or confirmation of the book-entry transfer of such
Shares into the Exchange Agent's account at the Book-Entry Transfer Facility
described in the Prospectus under the caption "Exchange Offer-Guaranteed
Delivery Procedures" and in the Letter of Transmittal) and any other required
documents, all by 5:00 p.m., New York City time, on the fifth New York Stock
Exchange trading day following the Expiration Date, (ii) represents that the
holder on whose behalf this tender is being made owns the shares being tendered
within the meaning of Rule 14e-4 promulgated under the Securities Exchange Act
of 1934, as amended ("Rule 14e-4") and (iii) represents that the tendered Shares
complies with Rule 14e-4).
Name of __________________________________
Firm________________________________________ (Authorized Signature)
Address_____________________________________ Name______________________________
(Please print)
____________________________________________ Title_____________________________
(Including Zip Code)
Area Code and Tel. No.______________________ Dated_______________________, 2000
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF
TRANSMITTAL.
- -------------------------------------------------------------------------------
3
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly
completed and duly executed copy of this Notice of Guaranteed Delivery and
any other documents required by this Notice of Guaranteed Delivery must be
received by the Exchange Agent at its address set forth herein prior to the
Expiration Date. The method of delivery of this Notice of Guaranteed Delivery
and any other required documents to the Exchange Agent is at the election and
sole risk of the holder, and the delivery will be deemed made only when
actually received by the Exchange Agent. If delivery is by mail, registered
mail with return receipt requested, property insured, is recommended. As an
alternative to delivery by mail, the holders may wish to consider using an
overnight or hand delivery service. In all cases, sufficient time should be
allowed to assure timely delivery. For a description of the guaranteed
delivery procedures, see Instruction 2 of the Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice
of Guaranteed Delivery is signed by the registered holder(s) of the Shares
referred to herein, the signature must correspond with the name(s) written on
the face of the Shares without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant
of the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Shares, the signature must correspond with the
name shown on the security position listing as the owner of the Shares.
If this Notice of Guaranteed Delivery is signed by a person other than
the registered holder(s) of any Shares listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate stock powers, signed as the name of the registered holder(s) appears
on the Shares or signed as the name of the participant shown on the Book-Entry
Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and
requests for assistance and requests for additional copies of the Prospectus
may be directed to the Exchange Agent at the address specified herein.
Holders may also contact their broker, dealer, commercial bank, trust company
or other nominee for assistance concerning the Exchange Offer.
4
<PAGE>
EXHIBIT 99.3
BROKER/DEALER LETTER
Offer by Medis Technologies Ltd. for all (but not less than 80%) of the
outstanding ordinary shares of Medis El Ltd. not beneficially owned by Medis
Technologies Ltd. on the basis of 1.37 shares of common stock of Medis
Technologies Ltd. for each ordinary share of Medis El Ltd.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
_______________, 2000 UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
MEDIS EL SHARES WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
________________, 2000
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
Medis Technologies Ltd., a Delaware corporation ("MTL"), has offered to
exchange 1.37 shares of common stock, par value $.01 per share, of MTL (the "MTL
Common Stock") for each outstanding ordinary share, par value 0.1 NIS per share
(each, a "Medis El Share" and collectively, the "Medis El Shares"), of Medis El
Ltd., an Israeli corporation ("Medis El"), upon the terms and subject to the
conditions set forth in the Prospectus, dated ___________________, 2000 (the
"Prospectus"), and in the related Letter of Transmittal ("Letter of
Transmittal;" which together with the Prospectus, constitute the "Offer"),
enclosed herewith.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, MTL HAVING RECEIVED VALID
TENDERS (THAT ARE NOT SUBSEQUENTLY WITHDRAWN) FOR A SUFFICIENT NUMBER OF
MEDIS EL SHARES TO EQUAL, WHEN ADDED TO MEDIS EL SHARES ALREADY OWNED BY MTL,
AT LEAST 80% OF THE OUTSTANDING MEDIS EL SHARES. SEE ALSO "THE EXCHANGE
OFFER--ACCEPTANCE OF MEDIS EL SHARES" IN THE PROSPECTUS.
For your information and for forwarding to your clients for whom you
hold Medis El Shares registered in your name or in the name of your nominees, or
who hold Medis El Shares registered in their own names, we are enclosing the
following documents:
a. Prospectus dated _________________, 2000;
b. Letter of Transmittal (together with accompanying Substitute
Form W-9) to be used by holders of Medis El Shares in
accepting the Offer and tendering Medis El Shares;
c. Notice of Guaranteed Delivery to be used to accept the Offer
if certificates for Medis El Shares are not immediately
available, if time will not permit all required documents to
reach the Exchange Agent prior to the Expiration Date or if
the procedure for book-entry transfer cannot be completed on a
timely basis.
d. A letter which may be sent to your clients for whose accounts
you hold Medis El Shares registered in your name or in the
name of your nominees, with space provided for obtaining such
clients' instructions with regard to the Offer;
e. Guidelines of the Internal Revenue Service for Certification
of Taxpayer Identification Number
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on Substitute Form W-9; and
f. A return envelope addressed to the Exchange Agent.
MTL will, upon request, reimburse you for customary mailing and
handling expenses incurred by you in forwarding the enclosed materials to your
clients. MTL will pay or cause to be paid any stock transfer taxes with respect
to the transfer and sale of Medis El Shares to it or its order pursuant to the
Offer, except as otherwise provided in Instruction 7 of the Letter of
Transmittal.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS PROMPTLY AS
POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON ______________, 2000 UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer, and any other required documents, should be sent to the Exchange
Agent, and certificates evidencing the tendered Medis El Shares should be
delivered or such Medis El Shares should be tendered by book-entry transfer, all
in accordance with the instructions set forth in the Letter of Transmittal and
the Prospectus.
If holders of Medis El Shares wish to tender Medis El Shares, but it
is impracticable for them to forward their certificates or other required
documents prior to the Expiration Date, a tender may be effected by following
the guaranteed delivery procedures specified under "The Exchange
Offer--Guaranteed Delivery Procedures" in the Prospectus.
Any inquiries you may have with respect to the Offer should be
addressed to MTL or the Exchange Agent at their respective addresses and
telephone numbers set forth in the Prospectus.
Additional copies of the enclosed materials may be obtained from the
undersigned, telephone (212) 935-8484, or by calling the Exchange Agent,
American Stock Transfer & Trust Company at (800) 937-5449, ext. 6820 (toll
free) or from brokers, dealers, commercial banks or trust companies.
Very truly yours,
MEDIS TECHNOLOGIES LTD.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON AS AN AGENT OF MTL, THE EXCHANGE AGENT, OR ANY AFFILIATE OF
EITHER OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM
IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE
STATEMENTS CONTAINED THEREIN.
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Exhibit 99.4
CLIENT LETTER
Offer by Medis Technologies Ltd. for all (but not less than 80%) of the
outstanding ordinary shares of Medis El Ltd. not beneficially owned by Medis
Technologies Ltd. on the basis of 1.37 shares of common stock, par value $.01,
of Medis Technologies Ltd. for each ordinary share, par value 0.1 NIS, of
Medis El Ltd.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
________________, 2000, UNLESS THE OFFER IS EXTENDED (THE "EXPIRATION DATE").
MEDIS EL SHARES WHICH ARE TENDERED PURSUANT TO THE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
_______________________, 2000
To Our Clients:
Enclosed for your consideration are the prospectus dated
__________________, 2000 (the "Prospectus") and the related Letter of
Transmittal ("Letter of Transmittal", which together with the Prospectus
constitute the "Offer") in connection with the offer by Medis Technologies Ltd.,
a Delaware corporation ("MTL"), to exchange 1.37 shares of common stock, par
value $.01 per share, of MTL (the "MTL Common Stock") for each outstanding
ordinary share, par value 0.1 NIS per share (each, a "Share" and collectively,
the "Shares"), of Medis El Ltd., an Israeli corporation ("Medis El"), not
beneficially owned by MTL, upon the terms and subject to the conditions set
forth in the Offer.
Shareholders whose certificates evidencing Medis El Shares ("Share
Certificates") are not immediately available or who cannot deliver their Share
Certificates and all other documents required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date or who cannot complete the
procedure for delivery by book-entry transfer to the Exchange Agent's account at
a book-entry transfer facility (as discussed in "The Exchange Offer--Book-Entry
Transfer") in the Prospectus ("Book-Entry Transfer Facility") on a timely basis
and who wish to tender their Shares must do so pursuant to the guaranteed
delivery procedure described in "The Exchange Offer--Guaranteed Delivery
Procedures" in the Prospectus. See Instruction 2 of the Letter of Transmittal.
Delivery of documents to a Book-Entry Transfer Facility in accordance
with the Book-Entry Transfer Facility's procedures does not constitute delivery
to the Exchange Agent.
THIS MATERIAL IS BEING FORWARDED TO YOU AS THE BENEFICIAL OWNER OF SHARES HELD
BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE THE HOLDER OF
RECORD OF SHARES HELD BY US FOR YOUR ACCOUNT. A TENDER OF SUCH SHARES CAN BE
MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE
LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT
BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish to have us
tender on your behalf any or all of the Shares held by us for your account, upon
the terms and subject to the conditions set forth in the Offer. Please note the
following:
1. MTL is offering to acquire each outstanding Share in exchange
for 1.37 shares of MTL Common Stock.
2. The Offer is being made for all of the outstanding Shares not
beneficially owned by MTL.
3. The Offer and withdrawal rights will expire at 5:00 p.m., New
York City time, on ______________, 2000, unless the Offer is
extended.
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4. The Offer is conditioned upon, among other things, MTL having
received valid tenders (that are not subsequently withdrawn)
for a sufficient number of Shares to equal, when added to
Shares already owned by MTL, at least 80% of the outstanding
Shares. See also "The Exchange Offer--Acceptance of Medis El
Shares" in the Prospectus.
5. Tendering shareholders will not be obligated to pay brokerage
fees or commissions or, except as set forth in Instruction 7
of the Letter of Transmittal, stock transfer taxes on the
transfer of Shares pursuant to the Offer.
The Offer is made solely by the Prospectus, dated _____________, 2000,
and the related Letter of Transmittal and any amendments or supplements thereto
and is being made to all holders of Shares. The Offer is not being made to, nor
will tenders be accepted from or on behalf of, holders of Shares in any
jurisdiction in which the making or acceptance thereof would not be in
compliance with the laws of such jurisdiction. However, MTL may, in its sole
discretion, take such action as it may deem necessary to make the Offer in any
such jurisdiction and extend the Offer to holders of Shares in such
jurisdiction.
If you wish to have us tender your Shares, please so instruct us by
completing, executing, detaching and returning to us the instruction form
contained in this letter. An envelope in which to return your instructions to us
is enclosed. Please forward your instructions to us as soon as possible to allow
us ample time to tender Shares on your behalf prior to the expiration of the
Offer.
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INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
MEDIS EL LTD.
ORDINARY SHARES, PAR VALUE 0.1 NIS PER SHARE
To Registered Holder and/or Participant of the Book-Entry Transfer
Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated
, 2000 (the "Prospectus") of Medis Technologies Ltd., a Delaware
corporation (the "Issuer"), and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), that together constitute the Issuer's offer (the
"Exchange Offer") to exchange 1.37 shares of common stock, par value $.01, of
the Issuer (the "Exchange Stock") for each outstanding ordinary share, par
value 0.1 NIS (the "Ordinary Shares"), of Medis El Ltd. ("Medis El").
This will instruct you, the registered holder and/or book-entry
transfer facility participant, as to action to be taken by you relating to the
Exchange Offer with respect to the Ordinary Shares of Medis El held by you for
the account of the undersigned.
The aggregate number of Ordinary Shares held by you for the account of
the undersigned is (FILL IN AMOUNT):
_______________________________________________________________________________
The aggregate number of Ordinary Shares held by you for the account of
the undersigned to be tendered (FILL IN AMOUNT):*
_______________________________________________________________________________
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* Unless otherwise indicated, it will be assumed that all of your Ordinary
Shares held by us for your account are to be tendered.
If the undersigned instructs you to tender the Ordinary Shares held
by you for the account of the undersigned, it is understood that you are
authorized (a) to make, on behalf of the undersigned (and the undersigned, by
its signature below, hereby makes to you), the representations and warranties
contained in the Letter of Transmittal that are to be made with respect to
the undersigned as a beneficial owner, including but not limited to the
representations that (i) the undersigned's principal residence is in the
state of (FILL IN STATE) , (ii) the undersigned is acquiring the
Exchange Stock in the ordinary course of business of the undersigned, (iii)
the undersigned is not participating, does not participate, and has no
arrangement or understanding with any person to participate, in the
distribution of the Exchange Stock, (iv) the undersigned acknowledges that
any person participating in the Exchange Offer for the purpose of
distributing the Exchange Stock must comply with the registration and
prospectus delivery requirements of the Securities Act of 1933, as amended
(the "Act"), in connection with a secondary resale of the Exchange Notes
acquired by such person and (v) except as otherwise disclosed in writing
herewith or in the Prospectus, the undersigned is not an "affiliate," as
defined in Rule 405 under the Act, of the Issuer or any of its subsidiaries;
(b) to agree, on behalf of the undersigned, as set forth in the Letter of
Transmittal; and (c) to take such other actions as necessary under the
Prospectus or the Letter of Transmittal to effect the valid tender of such
Notes.
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SIGN HERE
Name of Beneficial Owner(s) (PLEASE PRINT):___________________________________
Account Number: ______________________________________________________________
Signature(s): ________________________________________________________________
Address: ____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Telephone Number: ____________________________________________________________
Taxpayer Identification or Social Security Number: ___________________________
Date: ________________________________________________________________________
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