<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2000
COMMISSION FILE NUMBER: 0-30391
MEDIS TECHNOLOGIES LTD.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3669062
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
805 THIRD AVENUE
NEW YORK, NEW YORK 10022
(Address of Principal Executive Offices and Zip Code)
(212) 935-8484
(Registrant's Telephone Number, Including Area Code)
CHECK WHETHER THE REGISTRANT: (1) FILED ALL REPORTS REQUIRED TO BE
FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE
PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED
TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR
THE PAST 90 DAYS. YES |X| NO | |
The number of shares of Common Stock, par value $.01 per share,
outstanding as of August 14, 2000 was 16,811,789.
1
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MEDIS TECHNOLOGIES LTD.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
PART I. FINANCIAL INFORMATION Page Number
-----------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets
December 31, 1999 and June 30, 2000 (Unaudited) 3
Condensed Consolidated Statements of Operations (Unaudited)
Three and six months ended June 30, 1999 and 2000 4
Condensed Consolidated Statements of Cash Flows (Unaudited)
Six months ended June 30, 1999 and 2000 5
Notes to Condensed Consolidated Financial Statements
(Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ---------------
ASSETS (1) (UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 1,842,000 $ 6,054,000
Accounts receivable - other 58,000 82,000
Prepaid expenses 101,000 123,000
------------- -------------
Total current assets 2,001,000 6,259,000
Property and equipment, net 983,000 959,000
Intangible assets, net 7,242,000 88,416,000
------------- -------------
$ 10,226,000 $ 95,634,000
============= =============
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt and short-term
credit $ 86,000 $ 11,000
Accounts payable 102,000 185,000
Accrued expenses 730,000 873,000
------------- -------------
Total current liabilities 918,000 1,069,000
Long-term debt, excluding current maturities 11,000 7,000
Other long-term liabilities 109,000 150,000
------------- -------------
1,038,000 1,226,000
Minority interest in subsidiary 627,000 --
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; 10,000 shares
authorized; none issued
Common stock, $.01 par value; 25,000,000 shares
authorized; 9,988,619 and 16,762,289 issued
and outstanding, at December 31, 1999, and
June 30, 2000, respectively 100,000 168,000
Additional paid-in capital 32,450,000 129,378,000
Accumulated deficit (23,615,000) (32,965,000)
Deferred compensation costs (374,000) (2,173,000)
------------- -------------
8,561,000 94,408,000
------------- -------------
$ 10,226,000 $ 95,634,000
============= =============
</TABLE>
The accompanying notes are an integral part of these statements
(1) derived from audited financial statements
3
<PAGE>
MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
\ THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------------- --------------------------
1999 2000 1999 2000
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ $ $ $
------------ ------------ ------------ -----------
Cost of sales - - - -
Gross profit -- -- -- --
Operating expenses
Research and development costs, net 872,000 1,804,000 1,256,000 2,585,000
Selling, general and administrative 457,000 1,016,000 785,000 1,846,000
expenses
Amortization of intangible assets 612,000 2,360,000 1,223,000 2,973,000
------------ ------------ ------------ -----------
Total operating expenses 1,941,000 5,180,000 3,264,000 7,404,000
------------ ------------ ------------ -----------
Loss from operations (1,941,000) (5,180,000) (3,264,000) (7,404,000)
Other income (expenses)
Interest and other income 48,000 34,000 76,000 74,000
Interest expense (8,000) (3,000) (11,000) (6,000)
------------ ------------ ------------ ------------
40,000 31,000 65,000 68,000
------------ ------------ ------------ ------------
Loss before minority interest (1,901,000) (5,149,000) (3,199,000) (7,336,000)
Minority interest in loss of subsidiary 418,000 391,000 686,000 873,000
------------ ------------ ------------ ------------
NET LOSS $ (1,483,000) $ (4,758,000) $ (2,513,000) $ (6,463,000)
Value of warrants issued $ - $ (2,887,000) $ - $ (2,887,000)
------------ ------------ ------------ ------------
Net loss attributable to common
shareholders $ (1,483,000) $ (7,645,000) $ (2,513,000) $ (9,350,000)
------------ ------------ ------------ ------------
Basic and diluted net loss per share $ (.15) $ (.59) $ (. 26) $ (.80)
============ ============ ============ ============
Weighted-average shares outstanding 9,816,531 12,882,874 9,642,059 11,656,112
============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
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MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
------------------------------
1999 2000
------------ ------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (2,513,000) $ (6,463,000)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation 186,000 182,000
Amortization of intangible assets 1,223,000 2,973,000
Changes in other long-term liabilities 17,000 41,000
Losses of minority interest (686,000) (873,000)
Charge of inventory to research and development expense 255,000 --
Compensation expense 63,000 584,000
Write-off of acquired in-process research and
development -- 885,000
Changes in operating assets and liabilities
Accounts receivable - other (19,000) (24,000)
Inventory (47,000) --
Prepaid expenses (129,000) (22,000)
Accounts payable 31,000 83,000
Accrued expenses 214,000 33,000
------------ ------------
Net cash used in operating activities (1,405,000) (2,601,000)
------------ ------------
Cash flows from investing activities
Purchase of property and equipment (171,000) (180,000)
Sale of securities and short-term deposits 500,000 --
Proceeds from sale of property and equipment -- 22,000
Acquisition by Medis El of shares of More Energy Ltd. -- (320,000)
Acquisition of shares of Medis El -- (289,000)
------------ ------------
Net cash provided by (used in)
investing activities 329,000 (767,000)
------------ ------------
Cash flows from financing activities
Repayment of long-term debt (98,000) (83,000)
Proceeds from exercise of stock options - Medis El -- 336,000
Proceeds from issuance of common stock 2,091,000 7,323,000
Proceeds of short-term credit 14,000 4,000
------------ ------------
Net cash provided by financing activities 2,007,000 7,580,000
------------ ------------
Net increase in cash and cash equivalents 931,000 4,212,000
Cash and cash equivalents at beginning of period 3,155,000 1,842,000
------------ ------------
Cash and cash equivalents at end of period $ 4,086,000 $ 6,054,000
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 12,000 $ 7,000
Income taxes $ 4,000 $ 4,000
Non-cash investing and financing activities:
Grant of stock options to employees $ -- $ 2,185,000
Decrease in inventory through increase in fixed assets $ 197,000 $ --
Acquisition of minority interest through exchange of shares $ -- $ 85,224,000
Acquisition of Medis El shares through increase in accrued liabilities $ -- $ 110,000
Value of warrants issued to exercising warrantholders $ -- $ 2,887,000
</TABLE>
The accompanying notes are an integral part of these statements
5
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MEDIS TECHNOLOGIES LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A - NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Medis Technologies Ltd., a Delaware corporation ("MTL" or the
"Company"), is a holding company, which through its wholly-owned indirect
subsidiary, Medis El Ltd. ("Medis El"), engages in research and development
activities. The Company currently indirectly owns, in whole or in part, a number
of different technologies in various stages of development. Its strategy is to
become a greenhouse for the development of technology products to license, sell,
or enter into joint ventures with large corporations. The Company's technologies
include the CellScan, fuel cells, the toroidal internal combustion engine and
compressor, stirling cycle linear system, reciprocating electric machine, direct
current regulating device and water technologies.
The accompanying condensed consolidated financial statements should be
read in conjunction with the following notes and with the consolidated financial
statements for the year ended December 31, 1999 and related notes included in
the Company's Registration Statement, as amended, on Form S-1 filed with the
Securities and Exchange Commission (Registration No. 333-83945). Information in
the accompanying condensed consolidated financial statements for the three and
six months ended June 30, 1999 and 2000 is unaudited. The condensed consolidated
financial statements as of June 30, 2000 and for the three and six months ended
June 30, 1999 and 2000 have been prepared in accordance with generally accepted
accounting principles applicable to interim financial information and the rules
and regulations promulgated by the Securities and Exchange Commission.
Accordingly, such condensed consolidated financial statements do not include all
of the information and footnote disclosures required in annual financial
statements. In the opinion of the Company's management, the June 30, 1999 and
2000 unaudited condensed consolidated interim financial statements include all
adjustments, consisting of normal recurring adjustments necessary for a fair
presentation of such condensed consolidated financial statements. The results of
operations for the three and six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the entire year.
Certain reclassifications have been made to the 1999 financial
statements to conform to the current year presentation.
NOTE B - CERTAIN TRANSACTIONS
1. ISSUANCE OF COMMON STOCK - In January and February 2000, the Company
completed a private placement of units of its common stock, each unit
consisting of 66,000 shares of its common stock and 25,000 warrants.
Each warrant is exercisable into one share of common stock and has an
exercise price of $5.75 per share. An aggregate of 637,000 shares and
240,833 warrants were issued for aggregate cash proceeds of
approximately $2,895,000. The Company also issued common stock in June
2000 pursuant to the exercise of warrants (see note B-10).
2. EXERCISES OF MEDIS EL STOCK OPTIONS - During January and February 2000,
employees, including certain officers and a director of Medis El,
exercised options to purchase an aggregate of 66,100 ordinary shares
of Medis El stock. Such exercise generated aggregate cash proceeds
to Medis El of approximately $336,000.
3. ACQUISITION BY MEDIS EL OF MINORITY INTEREST IN MORE ENERGY LTD. - In
January 2000, Medis El purchased an additional 5% of its majority-owned
subsidiary, More Energy Ltd. ("More Energy"), for an aggregate purchase
price of $75,000. Furthermore, in April 2000, Medis El
7
<PAGE>
entered into an agreement to purchase an additional 6.5% of More Energy
for an aggregate purchase price of $245,000, which was paid in April
and June 2000. Medis El accounted for these acquisitions of minority
interests using purchase accounting. The excess of purchase price over
the book value of the net assets acquired aggregated $320,000. This
excess purchase price was allocated to in-process research and
development and, therefore, was charged to research and development
costs as of the dates of the acquisitions. More Energy is developing
fuel cell technology. Medis El currently owns a 93% interest in More
Energy.
4. INVESTMENT IN MEDIS EL - On February 23, 2000, Medis El issued an
additional 107,759 of its ordinary shares to the Company for a capital
contribution of $2,500,000.
5. OPTION GRANTS - On February 21, 2000, the Board of Directors of the
Company granted options to purchase an aggregate of 165,000 shares of
common stock under the 1999 Stock Option Plan to employees, including
an officer, director, and a consultant of the Company and to Medis El
employees and consultants. The options, which may be exercised at $5.00
per share, vest after two years and expire after four years. Deferred
compensation of approximately $6,505,000, which will be charged to
expense ratably over the vesting period, was recorded for such options.
During the six months ended June 30, 2000, compensation expense of
approximately $355,000 was recorded relating to such options. In June
2000, the Board of Directors of the Company granted, under the 1999
Stock Option Plan, options to purchase 100,000 shares of common stock
to its Chairman and Chief Executive Officer and options to purchase
100,000 shares of common stock to its President and Treasurer. Such
stock options issued do not vest until June 15, 2001, and may be
exercised at a price of $16.42 per share until June 15, 2002. Deferred
compensation of approximately $716,000, which was recorded during the
six months ended June 30, 2000, will be charged to expense over the
vesting period. Approximately $30,000 of such expense was charged to
operations during the six months ended June 30, 2000.
6. AGREEMENT WITH PERUVIAN COMPANY - In April and May 2000, pursuant to
the terms of a June 1999 agreement, as supplemented, with a Peruvian
company, the Company transferred payments aggregating $110,000 to such
Peruvian company for the repurchase of a CellScan machine.
7. ADDITIONAL OPTIONS ON TECHNOLOGY - Medis El has an option to
purchase an additional 50% interest for aggregate consideration of
$60,000, in a company that owns a patent and related applications to
one of its technologies. Medis El currently owns 25% of such Company.
The option, which was scheduled to expire on June 30, 2000, was
extended through October 31, 2000.
8. PURCHASE OF SHARES OF MEDIS EL - During the six months ended June
30, 2000, the Company repurchased or exercised its right to repurchase,
pursuant to the terms of a settlement agreement entered into in
November 1999 ("November Settlement") with an Argentinean company, an
aggregate of 60,000 shares of Medis El from the designee of such
Argentinean company. The Company paid aggregate cash consideration of
approximately $289,000 in exchange for 45,000 shares of Medis El of
which 42,000 shares were tendered to the Company. The Company recorded
a liability of $110,000 which represents the purchase price of 15,000
shares of Medis El shares pursuant to the November Settlement. The
Company recorded approximately $379,000 of intangible assets and
goodwill and $4,000 of acquired in-process research and development
costs arising from these transactions during the six months ended
June 30, 2000. On June 8, 2000, the Company commenced an action
entitled MEDIS TECHNOLOGIES LTD. V. CELLSCAN ARGENTINA, S.A., in the
Supreme Court of the State of New York, County of New York, alleging
that Cellscan Argentina's refusal to transfer to the Company the
remaining 18,000 shares pursuant to the option provision was a material
breach of the settlement agreement.
8
<PAGE>
9. EXCHANGE OFFER - On April 24, 2000, the Company commenced an offer
for the approximately 36% of Medis El it did not already beneficially
own, offering 1.37 of its shares of common stock for each ordinary
share tendered (the "Exchange Offer"). At the expiration of the offer
on June 5, 2000, shareholders of Medis El tendered an aggregate of
3,643,241 ordinary shares, giving the Company ownership of
approximately 98% of Medis El's outstanding ordinary shares. The
remaining 207,169 shares passed to the Company by operation of Israeli
law upon the expiration of the exchange offer. The Company accounted
for the exchange using the purchase method. The Company calculated the
purchase price of the 3,850,410 shares of Medis El not owned by it
based on the market price of Medis El ordinary shares. Such purchase
price was $85,224,000. The company allocated the excess of purchase
price over net assets acquired to goodwill ($77,697,000), acquired
technology assets ($6,071,000) and in-process research and development,
which was charged to research and development expense on the
acquisition date ($561,000). The Company intends to amortize the
acquired technology assets over their remaining useful lives of three
years and the goodwill over five years. During the three and six months
ended June 30, 2000, the Company recorded amortization expense
aggregating approximately $1,732,000 related to this transaction. The
following unaudited pro-forma information gives effect to the Exchange
Offer as if it had occurred at the beginning of each of the periods
presented:
Six months ended Six months ended
June 30, 1999 June 30, 2000
----------------- ---------------
Net loss $12,541,000 $14,946,000
Net loss attributable to common
shareholders $12,541,000 $17,833,000
Net loss per common share $ (.84) $ (1.12)
The pro forma data is for informational purposes only and may not
necessarily reflect results of operations had the Exchange Offer
occurred on the above dates.
10. EXERCISE AND ISSUANCE OF WARRANTS AND ISSUANCE OF COMMON STOCK - In
June 2000, the Company issued 859,544 shares of its common stock and
429,778 warrants (the "June Warrants") upon exercise of existing
warrants for an aggregate exercise price of approximately $4,428,000.
The June Warrants were issued as an inducement to the Company's
existing warrant holders to exercise such warrants, at the rate of one
June Warrant issued, exercisable at $16.42 per share until June 15,
2002, for every two existing warrants exercised. The Company estimated
the value of the June Warrants and warrants issued in July 2000
pursuant to the same offering, in the aggregate, to be $2,887,000 (See
Note C-3).
11. CONSULTING AGREEMENT - In June 2000, the Company entered into an
agreement with CIBC World Markets Corp. ("CIBC") for capital markets
and financial and strategic advisory services. The agreement commenced
on July 15, 2000, has a term of one year and may be terminated by
either party with 30 days written notice. The Company will pay CIBC
during the term of the agreement five-year common stock warrants to
purchase an aggregate of 250,000 shares of common stock, with an
exercise price to be calculated based on the 30 day average closing
price preceding delivery of the warrants. If the Company requests CIBC
to pursue a financing transaction, an additional fee would be paid
based on a schedule included in the agreement.
9
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NOTE C - SUBSEQUENT EVENTS
1. APPOINTMENT OF ADVISORY BOARD - In July 2000, the Company appointed
a corporate advisory board to assist it with its business strategy and
to build relationships with third parties to assist in the development
of its technologies. The advisory board is initially comprised of three
individuals. As of July 12, 2000, the Company issued warrants to
purchase an aggregate of 25,000 shares of its common stock to each of
the members of the advisory board.
2. In July 2000, an existing warrantholder exercised warrants to
purchase 30,000 shares of common stock for an aggregate exercise price
of $150,000.
3. In July 2000, warrants to purchase 19,500 shares of the Company's
common stock were exercised pursuant to the same offer to
warrantholders described in Note B-10, for aggregate proceeds of
$99,500. The Company issued an additional 9,750 warrants pursuant to
such exercise.
4. In August 2000, the Company entered into a stipulation and order of
settlement with Cellscan Argentina dismissing with prejudice MEDIS
TECHNOLOGIES LTD. V. CELLSCAN ARGENTINA, S.A., which requires Cellscan
Argentina to tender to the Company 18,000 shares of Medis El for
aggregate cash consideration of $130,000. In return, the Company
granted certain "piggy-back" registration rights to Cellscan Argentina
with respect to shares underlying warrants issued to Cellscan Argentina
pursuant to the November Settlement.
5. As of July 15, 2000, the Company issued warrants to purchase 100,000
shares of common stock to CIBC (See Note B-11).
NOTE D - LIQUIDITY
Since inception, the Company has incurred operating losses and has used
cash in its operations. Accordingly, the Company has relied on financing
activities, principally the sale of its stock, to fund its research and
development activities. The Company believes this dependence will continue
unless it is able to successfully develop and market its technologies. However,
there can be no assurance that the Company will be able to continue to obtain
financing or successfully develop and market its technologies
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
Some of the information in this quarterly report contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," and "continue" or similar words.
You should read statements that contain these words carefully because they:
o discuss our future expectations;
o contain projections of our future results of operations or of our
financial condition; or
o state other "forward-looking" information.
We believe it is important to communicate our expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or over which we have no control. The risk factors listed in
our most recent registration statement, as well as any cautionary language in
this quarterly report, provide examples of risks, uncertainties and events that
may cause our actual results to differ materially from the expectations we
describe in our forward-looking statements. You should be aware that the
occurrence of the events described in these risk factors and elsewhere in this
quarterly report could have a material adverse effect on our business, operating
results and financial condition.
INTRODUCTION
This presentation includes the operations of our wholly and majority
owned subsidiaries, including Medis El, unless we tell you otherwise.
RESULTS OF OPERATIONS
From our inception in April 1992 through June 30, 2000, we have
generated a cumulative net loss of $32,965,000. We expect to incur additional
operating losses during the remainder of 2000 and perhaps beyond, principally as
a result of our continuing anticipated research and development costs, and due
to anticipated limited sales of our technologies. We do not expect to
substantially increase in the future our research and development expenses
beyond current levels until we are able to generate revenues or receive funds
from third parties for research and development. If our funds continue to
decrease due to our current spending levels and we are unable to generate
revenues or receive funds from third parties for research and development, we
expect to curtail development of one or more technologies. Furthermore, for so
long as our technologies remain in the development or testing phase, we do not
expect our selling, general and administrative expenses to increase
substantially from historical levels. If we begin to market and sell any of our
technologies, we will increase such expenses to the extent necessary, which we
expect to fund out of our revenues.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999 AND
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
We sustained net losses of $6,463,000 and $4,758,000 during the six and
three months ended June 30, 2000, respectively, compared to $2,513,000 and
$1,483,000 during the six and three months ended June 30, 1999, respectively.
The increases in net losses can primarily be attributed to increases in
amortization of intangible assets acquired, research and development costs and
selling, general and administrative expenses.
11
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Research and development costs increased to $2,585,000 and $1,804,000
for the six and three months ended June 30, 2000, respectively, as compared to
$1,256,000 and $872,000 during the six and three months ended June 30, 1999,
respectively. The increases in both periods can be largely attributed to
increased research and development activity pertaining to:
o the further refinement of the CellScan, in which we incurred
costs of approximately $1,126,000 and $641,000 during the six
and three months ended June 30, 2000, respectively, compared
to approximately $840,000 and $553,000 in the same periods of
1999;
o development of the fuel cell technology, in which we incurred
costs of approximately $770,000 and $627,000 during the six
and three months ended June 30, 2000, respectively. This
includes expenditures aggregating $320,000 and $270,000 during
the six and three months ended June 30, 2000, respectively, to
acquire additional interests in Medis El's majority owned
subsidiary, More Energy, which represents acquired in-process
research and development, and an allocation of the write-off
of acquired in-process research and development in connection
with the exchange offer to fuel cell technologies of
approximately $182,000. This is compared to costs incurred
during the six and three months ended June 30, 1999 of
approximately $96,000 and $58,000; and
o development of the toroidal engine, in which we incurred costs
of approximately $282,000 and $233,000 during the six months
and three months ended June 30, 2000, including an allocation
of the write-off of acquired in-process research and
development in connection with the exchange offer to the
toroidal engine of approximately $151,000. This is compared to
cost incurred of approximately $96,000 and $43,000 during the
six months and three ended June 30, 1999.
Additionally, during the six months ended June 30, 1999, we recorded as a credit
to research and development expense a payment of $200,000 received during the
first quarter of 1999 under a December 1998 technology development agreement
with The Coca-Cola Company.
Selling, general and administrative expenses for the six and three
months ended June 30, 2000 amounted to approximately $1,846,000 and $1,016,000,
respectively, compared to approximately $785,000 and $457,000 for the six and
three months ended June 30, 1999. These increases can be primarily attributed to
additional legal, accounting and related fees relating to our registration and
tender offer in April 2000 for the approximately 36% of Medis El's outstanding
ordinary shares not owned by us, as well as non-cash charges related to stock
options and higher personnel costs.
Amortization of intangible assets amounted to $2,973,000 and $2,360,000
during the six and three months ended June 30, 2000, compared to
$1,223,000 and $612,000 for the six and three months ended June 30, 1999.
These increase were primarily the result of amortization expense of
approximately $1,732,000 during each of the six and three month periods relating
to goodwill approximating $77,697,000 and acquired technology assets
approximating $6,071,000 acquired upon the consummation of the exchange offer.
Shareholders of Medis El tendered an aggregate of 3,643,241 ordinary shares,
giving us ownership of approximately 98% of Medis El's outstanding ordinary
shares. The remaining 207,169 ordinary shares passed to us by operation of
Israeli law upon the expiration of the exchange offer.
Management believes that, as an additional operational measurement,
earnings (loss) before interest, taxes, depreciation, and amortization or
EBITDA, is useful and meaningful to an understanding of our operating
performance. EBITDA should not be considered in isolation or as a substitute
for net income (loss), cash flow from operations or other consolidated income
(loss) or cash flow data or as a measure of our profitability or liquidity.
Items excluded for EBITDA, such as depreciation and amortization, are
significant components in understanding and assessing our financial
performance. All companies do not calculate EBITDA the same way.
The computation of EBITDA for the six and three months ended June
30, 2000 and 1999 is set forth in the table below:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Loss attributable to
common shareholders ($2,513,000) ($9,350,000) ($1,483,000) ($7,645,000)
Add: Value of warrants issued -- 2,887,000 -- 2,887,000
Add: Interest Expense 11,000 6,000 8,000 3,000
Less: Interest Income (76,000) (74,000) (48,000) (34,000)
Add: Amortization 1,223,000 2,973,000 612,000 2,360,000
Add Depreciation 186,000 182,000 101,000 90,000
----------- ----------- ----------- -----------
EBITDA ($1,169,000) ($3,376,000) ($810,000) ($2,339,000)
=========== =========== =========== ===========
</TABLE>
EBITDA for the six months ended June 30, 2000 and 1999 includes
non-cash equity based compensation of $584,000 and $63,000, respectively.
Increases in loss before interest, taxes, depreciation, and
amortization, for the six and three months ended June 30, 2000 as compared to
the prior year occurred due to increases in research and development costs,
and selling, general and administrative expenses for the reasons discussed
earlier in this section.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations primarily through the
proceeds of investor equity financing, long-term bank loans, grants from the
Chief Scientist of the Ministry of Industry and Commerce of Israel with respect
to the CellScan, initial sales of our products and fees from the granting of
exclusive distribution rights.
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In 1999, we issued a total of 581,004 shares of our common stock and
warrant to purchase 193,668 shares of common stock for an aggregate of
$2,324,000. The proceeds of such offerings were used:
o for research and development projects with respect to our
products and technologies; and
o for selling, general and administrative expenses.
In 2000, as of June 30, 2000, we issued a total of 1,496,544 shares of
our common stock and warrants to purchase 670,611 shares of common stock for
aggregate proceeds of approximately 7,323,000. Furthermore, in July 2000, we
issued a total of 49,500 shares of our common stock and warrants to purchase
9,750 shares of our common stock for an aggregate of $249,500. We used and
intend to use the proceeds of such offerings to fund the further research and
development of our products and technologies and for selling, general and
administrative expenses. Additionally, in the first quarter of 2000, employees,
including Medis El's executive vice president and vice president-finance, and a
director exercised options to purchase an aggregate of 66,100 ordinary shares of
Medis El, for an aggregate exercise price of approximately $336,000. The
proceeds of such option exercises are similarly being used for research and
development and selling, general and administrative expenses. We do not intend
to cause Medis El to issue any more of its shares to third parties, either
through exercise of stock options or otherwise, as we intend
that all future financings of Medis El will be effected through us.
For the six months ended June 30, 2000, we used cash of $2,601,000 in
connection with our operating activities, as compared to $1,405,000 for the six
months ended June 30, 2000. The increase was primarily attributable to increases
in research and development and selling general and administrative expenses
during the period, for the reasons discussed above.
For the six months ended June 30, 2000, we used $767,000 of cash in our
investing activities, compared to $329,000 being provided from investing
activities during the six months ended June 30, 1999. During the six months
ended June 30, 2000 the cash used in investing activities was due to purchases
of shares of Medis El and More Energy not owned by us aggregating $609,000 and
purchases of property and equipment of $180,000, offset by proceeds from
disposals of fixed assets of $22,000. During the six months ended June 30, 1999,
the cash provided from investing activities was due principally to the maturity
of a short-term investment of $500,000, offset by purchases of property and
equipment of $171,000.
For the six months ended June 30, 2000, we had cash provided by
financing activities of $7,580,000 compared to $2,007,000 for the six months
ended June 30, 1999. The increase was due to an increase in funds raised from
private placements of our securities and the exercise of our outstanding
warrants which aggregated $7,323,000 for the six months ended June 30, 2000, as
compared to $2,091,000 for the six months ended June 30, 1999. Cash provided
from financing activities during the six months ended June 30, 2000 also
included proceeds of $336,000 from the exercise of Medis El stock options, of
which there were none during the six months ended June 30, 1999.
As of June 30, 2000, we had approximately $6,054,000 in cash and cash
equivalents. Our working capital and capital requirements at any given time
depend upon numerous factors, including, but not limited to:
o the progress of research and development programs;
o the status of our technologies;
o the results of pre-clinical testing and clinical trials;
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o the level of resources that we devote to the development of
our technologies, patents, marketing and sales capabilities.
Another contributing factor is the status of collaborative arrangements with
businesses and institutes for research and development.
Management expects that our present funds are sufficient to support our
present activities for at least 12 months. Beyond such time, we will require
capital infusions of cash from investors, whether private investors or through
companies or other organizations assisting in the development of our
technologies, to continue our operations. To the extent we are unable to acquire
additional funds, we will curtail research and development of one or more
technologies until such time as we acquire additional funds.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DISCLOSURE ABOUT MARKET RISK
IMPACT OF INFLATION AND DEVALUATION ON RESULTS OF OPERATIONS, LIABILITIES AND
ASSETS
In connection with our currency use, we operate in a mixed environment.
Payroll is paid in our local currency and the local currency of each of our
subsidiaries. Consideration for virtually all sales and Medis El's bank loans
are either in dollars or dollar-linked currency. As a result, not all monetary
assets and all monetary liabilities are linked to the same base in the same
amount at all points in time, which may cause currency fluctuation related
losses. In order to help minimize such losses, Medis El currently invests its
liquid funds in both dollar-linked and 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:
1991 11.5%
1992 21.1
1993 8.0
1994 1.1
1995 3.9
1996 3.7
1997 8.8
1998 17.6
1999 (0.17)
During the three years ended December 31, 1991 and the four years ended December
31, 1996, the rate of inflation in Israel exceeded the rate of devaluation of
the NIS against the dollar, but in 1998, 1997 and 1992, the rate of devaluation
of the NIS against the dollar exceeded the rate of inflation in Israel. In 1999,
the rate of Israeli inflation was 1.3% and the NIS appreciated by .17% against
the dollar.
IMPACT OF POLITICAL AND ECONOMIC CONDITIONS
The state of hostility which has existed in varying degrees in Israel
since 1948, its unfavorable balance of payments and its history of inflation and
currency devaluation, all represent uncertainties which may adversely affect our
business.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pursuant to a settlement agreement dated November 22, 1999 dismissing
with prejudice an action pending in the Supreme Court of the State of New York,
County of New York, entitled CellScan Argentina, S.A. v. Medis El Ltd., et. al.,
we commenced in January 2000 pursuant to a put/call
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provision in the settlement agreement, the repurchase of 3,000 of Medis El's
ordinary shares per week from a designee of the plaintiff, initially at $6.00
per share, and increasing by $.50 per share every month thereafter beginning
March 1, 2000. Pursuant to the settlement agreement, we exercised our right to
repurchase 60,000 of such shares. Cellscan Argentina refused to transfer 18,000
of such shares. Consequently, on June 8, 2000, we commenced an action entitled
Medis Technologies Ltd. v. Cellscan Argentina, S.A., in the Supreme Court of the
State of New York, County of New York, alleging that Cellscan Argentina's
refusal to transfer 18,000 of such shares to us pursuant to the put/call
provision was a material breach of the settlement agreement.
In August 2000, we entered into a stipulation and order of
settlement with Cellscan Argentina dismissing the action with prejudice,
which requires Cellscan Argentina to tender to us 18,000 shares of Medis El
for aggregate cash proceeds of $130,000. In return, we granted certain
"piggy-back" registration rights to Cellscan Argentina with respect to shares
of our common stock underlying warrants owned by Cellscan Argentina.
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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In June 2000, we issued 859,544 shares of our common stock and
429,778 warrants, exercisable at $16.42 per share until June 15, 2002, upon
exercise of existing warrants. Our net proceeds from the exercise of the
existing warrants was approximately $4,428,000. Also in June 2000, we issued
options under our 1999 stock option plan to purchase 100,000 shares of our
common stock to each of our chief executive officer and our president,
exercisable beginning June 15, 2001 at $16.42 per share until June 15, 2002.
In July 2000, we issued 19,500 shares of our common stock and 9,750
warrants, exercisable at $16.42 per share until June 15, 2002, pursuant to
the same offer described above. Our net proceeds from the exercise of the
existing warrants was approximately $99,500. Also in July 2000, we issued
30,000 shares of our common stock upon exercise of warrants for an aggregate
exercise price of $150,000. We also issued warrants to purchase an aggregate
of 100,000 shares of our common stock pursuant to a consulting agreement,
exercisable at $20.44 per share until July 14, 2001, and warrants to
purchase an aggregate of 25,000 shares of our common stock to each member of
our advisory board, exercisable at $20.00 per share until July 11, 2003.
Exemption from registration under the Securities Act of 1933, as
amended, in connection with the foregoing transactions, is claimed under Section
4(2) of the Securities Act as a transaction by the issuer not involving a public
offering. Each certificate evidencing such shares of common stock bears an
appropriate restrictive legend and "stop transfer" orders are maintained on our
stock transfer records. None of these sales involved participation by an
underwriter or a broker-dealer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized
/s/ ROBERT K. LIFTON
--------------------------
Robert K. Lifton
Chairman and Chief
Executive Officer
/s/ ISRAEL FISHER
-------------------------
Israel Fisher
Vice President Finance
(Principal Financial and
Accounting Officer)
Date: August 14, 2000
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