SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549
                                 --------------

                                    FORM 10-K

                                  ANNUAL REPORT
                     PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000

                         COMMISSION FILE NUMBER: 0-30391

                             MEDIS TECHNOLOGIES LTD.
             (Exact name of registrant as specified in its charter)


        DELAWARE                                       13-3669062
(State of incorporation)                  (I.R.S. Employer Identification No.)

                                805 THIRD AVENUE
                            NEW YORK, NEW YORK 10022
          (Address of principal executive offices, including zip code)


                                 (212) 935-8484
              (Registrant's telephone number, including area code)


SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE

     INDICATE BY CHECK MARK  WHETHER THE  REGISTRANT:  (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15 (D) OF THE  SECURITIES  EXCHANGE ACT OF
1934  DURING  THE  PRECEDING  12 MONTHS  (OR FOR SUCH  SHORTER  PERIOD  THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),  AND (2) HAD BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES |X| NO |_|

     INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT  FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S  KNOWLEDGE,  IN DEFINITIVE PROXY OR INFORMATION  STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. |_|

     AS OF MARCH 15,  2001,  THE  AGGREGATE  MARKET VALUE OF THE COMMON STOCK OF
MEDIS  TECHNOLOGIES LTD. HELD BY  NON-AFFILIATES OF MEDIS  TECHNOLOGIES LTD. WAS
APPROXIMATELY $147,000,000.

     AS OF MARCH 15,  2001,  THERE  WERE  OUTSTANDING  16,830,991  SHARES OF THE
REGISTRANT'S COMMON STOCK.

<PAGE>
<TABLE>
<CAPTION>
                             MEDIS TECHNOLOGIES LTD.
                          2000 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS


                                                                                                    PAGE
                                                                                                    ----
                                     PART 1
<S>        <C>
ITEM 1.   BUSINESS.......................................................................................1
ITEM 2.   PROPERTIES....................................................................................10
ITEM 3.   LEGAL PROCEEDINGS.............................................................................10
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........................................10

                                 PART 2

ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS........................11
ITEM 6.   SELECTED FINANCIAL DATA.......................................................................11
ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........13
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....................................24
ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................................................25
ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........25

                                 PART 3

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............................................26
ITEM 11.  EXECUTIVE COMPENSATION........................................................................29
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................................32
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................................................33

                                 PART 4

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K..............................35
                                                        --------------
</TABLE>

     References  in this  Annual  Report  to "we,"  "us," or "our"  are to Medis
Technologies Ltd. and its direct and indirect  subsidiaries,  unless the context
specifies or requires otherwise.

<PAGE>


                                     PART 1

ITEM 1.  BUSINESS

INTRODUCTION

     Our primary  business is the  development and  commercialization  of direct
liquid methanol (DLM) fuel cells and attendant  refueling  cartridges for use in
portable   electronic   devices  which  currently  use  as  their  power  source
rechargeable or disposable batteries. Such devices include cell phones, personal
digital assistants (PDAs), laptop computers and certain military devices.

     We expect that as portable  electronic  devices  become more  advanced  and
offer greater  functionality,  battery  manufacturers  will seek to acquire fuel
cells offering significantly  increased and longer lasting sources of energy. We
believe  that our DLM fuel  cell  technology,  the  components  of which are our
highly   electrically   conductive   polymers   (HECPs),   catalyst  and  liquid
electrolyte,  will enable us to meet this  requirement.  We also believe that we
can be  responsive  to  manufacturers'  demands  for  reduced  size and  weight,
increased length of operating time and competitive pricing.

     While our primary  focus is on the  development  and  commercialization  of
refuelable  fuel cells,  we are also in discussions  with battery  manufacturers
about the  possibility  of using our fuel cell  technology to develop  batteries
that can compete in the disposable  market.  We also intend to  manufacture  and
sell  our  HECPs as a  stand-alone  product.  Furthermore,  we own  patents  and
intellectual  property  rights to other  technologies  relating to clean energy,
which we are looking to exploit commercially, including:

        o toroidal technologies;
        o stirling cycle linear compressor  technology; and
        o reciprocating  electrical machine.

     We also own rights relating to the CellScan system, which we have
recently  renamed  CellMatrix,  which is a detection and  monitoring  system for
human and other cells  which may have many  potential  applications  relating to
disease  detection  and cure.  We intend to transfer the assets  relating to the
CellScan to a newly formed subsidiary which will have independent management and
its own research and development  team. We are currently seeking private venture
financing  for that  company  with a view  ultimately  to  spinning  it off as a
separate entity.

     We are a  Delaware  corporation  organized  in April  1992.  Our  executive
offices are located at 805 Third Avenue, New York, New York 10022; our telephone
number is (212) 935-8484.  Our website is located at  www.medistechnologies.com.
The information on our website is not a part of this Annual Report.

CORPORATE RESTRUCTURING

     On  June  6,  2000,  we  completed  a  transaction  in  which  we  acquired
approximately   36%  of  the  ordinary  shares  of  Medis  El  Ltd.,  an  Israel
corporation,  being those not already owned by us, in exchange for approximately
5,000,000  shares  of  our  common  stock.   Prior  to  such  time,  we  were  a
privately-held company. Upon the completion of this transaction, Medis El became
our wholly-owned,  indirect subsidiary, serving as our operating company for the
development  of our  technologies,  and our common  stock  began  trading on the
Nasdaq  SmallCap  Market.  At the same time,  Medis El's  ordinary  shares  were
delisted  from that market and Medis El ceased to be a reporting  company  under
the  Securities  Exchange  Act of 1934.  Our common  stock began  trading on the
Nasdaq National Market on October 3, 2000 under the symbol "MDTL".

FUEL CELLS

     A fuel cell is an electro-chemical device that converts the chemical energy
of a fuel, such as hydrogen, methanol or ethanol, into electrical energy.

     Fuel cells are not currently available for widespread commercial use. Types
of fuel cells being developed for commercial applications include:

        o DIRECT METHANOL.  Uses include portable and transportation
          applications.
        o PROTON EXCHANGE MEMBRANE.  Uses include transportation and stationary
          power generation applications.
        o PHOSPHORIC ACID.  Used for stationary power generation applications
          and larger vehicles, such as buses and locomotives.
        o MOLTON CARBONATE.  Uses include stationary power generation
          applications.
        o SOLID OXIDE.  Uses include industrial and large-scale central
          electricity generating stations.
        o ALKALINE.  Used by NASA on space missions, they are considered too
          costly for commercial applications.
        o REGENERATIVE.  Another technology being researched by NASA.

We believe that except for direct methanol and PEM fuel cells, none of the above
fuel cell  technologies  have  applications in the portable  electronic  devices
market.

     Fuel cells have many of the characteristics of batteries without some
of   their   negative   attributes.   While   they   share   similar   operating
characteristics,  a key distinguishing  feature is that a fuel cell relies on an
external fuel supply while  batteries are energy storage  devices.  As a result,
fuel cells are more  convenient to operate because they produce power as long as
fuel is supplied,  unlike a battery which  provides power only as long as it has
stored power. Because methanol has many times the energy storage capacity as the
operative  components in batteries,  the DLM fuel cell has the potential for far
greater  operating time than any of today's  batteries.  Moreover,  the external
fuel supply can be refilled or replaced  quickly,  unlike a battery which either
has to be disposed of or go through a long  recharging  process of three or more
hours. Finally, from an environmental perspective, fuel cells are far easier and
less  costly to dispose of than  batteries  since they have no or minimal  metal
components.

      MARKET OPPORTUNITIES

     PORTABLE  ELECTRONIC  DEVICE MARKET.  It has been widely reported that over
$100 billion has been committed by the  telecommunications  companies to license
radio spectrum space for the development of wireless  networks and equal amounts
are estimated as the cost of building out these wireless  systems.  Furthermore,
recent announcements by large handset  manufacturers reflect the fact that sales
of handsets  are slowing as the  available  demand for present  state-of-the-art
cell phones is increasingly  being satisfied.  To justify these huge investments
and in order for the cell phone  companies to  significantly  increase  sales of
handsets,  these  companies  are  expected to offer a more  advanced  cell phone
offering greater functionality, i.e., many more applications, such as e-mail and
internet  availability,  shopping,  banking and stock  purchasing  capabilities,
music,  movies and the like. Whether offered on a next-generation 3G cell phone,
a currently available cell phone or some other device such as a combination of a
PDA and a cell phone, such  functionality  will require greater power capability
than  that  possessed  by  currently   available   devices,   as  well  as  much
longer-lasting power to extend use time, if the consumer  expectation  regarding
the availability of those applications is to be fully satisfied.

     CIBC World Markets estimates the worldwide  rechargeable  battery market to
be in excess of 2 billion units totaling almost $5 billion in revenue,  of which
more than $3 billion is for portable  applications  including  cellular  phones,
cordless phones,  notebook  computers and PDAs.  Furthermore,  published reports
project  growth  over the next  several  years for  today's  cellular  phones to
increase  from  roughly 415 million  units in 2000 to 1.6 billion  units by 2005
(Source: IDC, Dataquest, Nokia, Motorola & McDonald Investments, Inc.).

     MILITARY  APPLICATIONS.  The Department of Defense has stated that it has a
pressing  need for  lighter and more  compact  electrical  power  sources as the
modern  soldier  is  increasingly  equipped  with many new  portable  electronic
devices.  As with the latest portable  electronics for consumers,  these devices
have  increased  power  needs  that our DLM fuel  cells are being  developed  to
satisfy.  The DOD may therefore be presumed to have an interest in developing or
acquiring  fuel cell power  sources  for use by the  individual  soldier and for
other uses.

     OUR FUEL CELLS COMPARED TO OTHER FUEL CELLS

     Our DLM fuel cell  differs  from other fuel cells being  developed  for the
portable   electronic  device  market  in  that  we  use  a  proprietary  liquid
electrolyte  instead of a solid polymer membrane (proton exchange  membrane,  or
PEM).  The  presence of a PEM makes it difficult to reduce size and increase the
power densities to a needed level for portable  electronic  devices. In a direct
methanol  fuel cell with a PEM,  the  concentration  of  methanol  is  generally
limited to 3% to 5%,  reducing the  performance  of the fuel cell.  As a result,
some direct methanol fuel cells are planned with an external  delivery system to
feed the  methanol  into the fuel cell  which  have some  form of  regulator  to
control  the  amount of  methanol.  This  direct  methanol  fuel cell  therefore
requires additional  delivery mechanisms  involving more complexity and cost. By
reason of our fuel  cell's  design  and  architecture  and the use of our liquid
electrolyte which replaces the PEM in our fuel cell, we are able to increase the
methanol  concentration,  thereby  increasing the power,  electrical  output and
service life of the fuel cell between each  refueling,  without harming the fuel
cell and without additional  mechanisms to regulate the methanol intake. Our DLM
fuel cells are presently capable of carrying a 30% concentration of methanol,  a
far larger proportion of methanol than any other DLM fuel cell we know of.

     There are three proprietary components used in our DLM fuel cells that help
us achieve these results--our HECPs, catalyst and liquid electrolyte.  The HECPs
act to protect our DLM fuel cell's  electrodes  from impurities in the fuel that
would normally cause  deterioration of the electrodes and a shorter life span to
the fuel cell.  Based on laboratory  tests, our proprietary  catalyst,  which is
used  for  oxidation  of  liquid  fuel,  acts  more  effectively  than  standard
catalysts, improving performance of the fuel cell. Because of its effectiveness,
we have been able to reduce the amount of platinum  needed in our DLM fuel cell,
thus  enabling  us to lower  the  component  costs of our  product.  Our  liquid
electrolyte replaces the PEM in our fuel cell, enabling the substantial increase
in the concentration of methanol in our fuel.

     OUR FUEL CELL TECHNOLOGY

     We are working to supply  increased  energy while also reducing the size of
the DLM fuel  cell.  One  important  criterion  affecting  size is the amount of
energy density the fuel cell can generate,  which helps determine the ability to
supply more energy at smaller  sizes.  At this time,  in laboratory  tests,  our
individual fuel cell has attained a maximum energy density of 60mW/cm2,  or 0.06
watts per  square  centimeter.  We believe  that this  energy  density  level is
substantially  higher  than that of any other DLM fuel cell that we know of. Our
target by the end of this year is 80mW/cm2.

     Other important criteria are the discharge  characteristics  and the length
of operating  time of the fuel cell, as that  determines how much power the fuel
cell can deliver over a period of time before  refueling.  Our  individual  fuel
cell with a volume of 16cc, or cubic  centimeters,  and an active electrode area
of 4/cm2 can operate for ten hours at 380mA  (milliamperes)  at 0.5 volts,  then
reducing  to 220mA at 0.5  volts  for a total of 3000 mA  hours,  in  laboratory
tests.  Our target for the end of the year is to  increase  the power  after ten
hours of use time to 320mA-350mA,  for a total of 4000 mA hours. We believe that
these  results are  superior to those  achieved in any other DLM fuel cell using
methanol  that we know of and, if we attain this goal,  of which there can be no
assurance,  we may be able to satisfy the power  requirements of today's and the
next generation of portable electronic devices.

OUR PROPOSED FUEL CELL PRODUCTS

     POWER PACK

     Presently,  we expect that our first attempt at a  commercially  viable DLM
fuel cell product will be a miniature power pack,  capable of charging the phone
at the same  time  that it is being  used,  as if the user had  connected  to an
electrical outlet. By taking this approach, we are looking to serve an immediate
large potential  market - all of the users who already have cell phones or other
wireless devices.  We would not have to wait until the new generation of devices
is  ready  for  market  to  offer  a  fuel  cell  product.   Electronic   device
manufacturers  could  benefit  by  having  a fuel  cell  power  source  actually
operating in the market place that they can immediately offer to their customers
and later decide to add it as original equipment in their products.

     We intend for our power pack to  consist of several  individual  fuel cells
enclosed in a plastic casing with an adapter cord that can fit directly into the
handset's  recharging  outlet.  The life of the power pack is  targeted to be 20
hours, significantly longer than existing battery technology. Once the fuel runs
out,  it  is  simply  refilled  via  our  refueling  cartridges  that  hold  the
electrolyte and the methanol, effectively "recharging" the power pack.

     PEM GAS FUEL CELL

     While our major  focus is on the DLM fuel  cell,  we believe  that  certain
technologies  used to  develop  our DLM fuel  cell can be  applied  towards  the
development  of a gas PEM fuel cell which would be superior in certain  respects
to other gas PEM fuel cells  currently  under  development  by others.  Although
comparative  figures  for other  PEM fuel  cells are not  widely  available,  we
believe that we may be able to improve  upon the power  density,  the  catalytic
performance  and the  electrode  life of  such  other  PEM  fuel  cells.  We are
developing  one PEM fuel cell that is intended to provide us the  opportunity to
test our technologies in that context.  Although we have no current intention to
manufacture  gas PEM fuel  cells,  we might  seek a  strategic  partner or other
arrangement so that we can exploit this technology.

     HIGHLY ELECTRICALLY CONDUCTIVE POLYMERS

     HECPs are an important  component of our DLM fuel cell.  These polymers are
endowed  with  high   conductivity  of  certain  metals  and  the  non-corrosive
properties,  superior  flexibility and durability of plastics;  properties which
may have  applications  in  civilian  and  military  products,  particularly  in
electronic  products such as sensors and capacitors.  We have  demonstrated  our
HECPs for these uses to a few potential customers who have expressed interest in
them. However, we still have to demonstrate that we can make the transition from
advanced  polymers  made in small  quantities  in the  laboratory to large scale
production of uniform, attractively priced, commercially acceptable products. We
have leased space near our offices in Israel and ordered  equipment  with a view
to having a small HECP  manufacturing  facility operating before the end of this
year.

     We  believe  that the  catalyst  component  of our fuel cells may also have
stand-alone  applications  in such  fields as  electro  and  organic  synthesis,
producing mineral  fertilizer and reforming,  cleaning and purifying  industrial
and automotive gases and exhaust fumes,  however,  we are not looking to exploit
the catalyst as a stand-alone product at the present time.

BUSINESS STRATEGY

     Our business  strategy is to translate  our advanced  fuel cell  technology
into commercially  viable products that will compete with and ultimately replace
rechargeable  batteries  and other  power  sources  in the  portable  electronic
devices market. We hope to be the first fuel cell development  company to make a
commercially  viable fuel cell  product for  portable  electronic  devices,  and
consequently capture a large market share of what promises to be a multi-billion
dollar  industry.  In  making  the  transition  from  laboratory  to  commercial
production,  use and sales, we will seek assistance in the  engineering,  design
and,  particularly,  the  production of our fuel cells from large  multinational
battery and electronic device  manufacturers with whom we have, and are entering
into, cooperation agreements.

     We intend to acquire  additional  equipment  capable of measuring  our fuel
cell  components  and  testing  our fuel  cells,  in an effort to further  their
performance.   If  we  are  able  to  successfully  complete  the  technological
development  of  our  DLM  fuel  cells,  we  intend  to  build,  subject  to the
availability of commercially  reasonable financing, a pilot plant to demonstrate
the  ability to  manufacture  these  products  in  commercial  quantities  at an
attractive price and profit margin. We have commenced discussions with the State
of  Israel  to build  such a pilot  plant.  If and when we can  demonstrate  the
viability of manufacturing  our fuel cell products,  we intend to either license
the production of our fuel cell products to our strategic  partners and/or other
manufacturers or sell our technology to them.

     As we are hopeful that our fuel cell technology will be able to provide the
greatest  amount of power for portable  electronic  devices when compared to the
most  advanced  batteries  that we are  currently  aware  are  offered  or under
development  by  our  competitors,   we  believe  both  consumers  and  portable
electronics manufacturers would prefer our DLM fuel cell as an alternative power
source, as long as the cost and other factors are competitive. Moreover, our DLM
fuel cell offers the  possibility of being  refueled in seconds  compared to the
approximately  3 hours  required  to  charge  the phone  with the most  advanced
rechargeable technology - the lithium polymer battery.

STRATEGIC ALLIANCES

     To accomplish  our strategy of achieving a successful  transition  from the
laboratory to  commercial  use, we must  determine  how best to design  products
employing our fuel cells that are attractive to the consumer,  as well as how to
connect them to the circuitry inside the phones and other electronic  devices as
the original  equipment power sources.  This includes such decisions as the best
way to package and market the refills to satisfy consumer demands.  We also have
to develop the  know-how  to produce  the fuel cells using the newest  automated
equipment that enables the most efficient  production.  We believe that the most
effective  and least costly way for us to achieve  these  objectives is to enter
into strategic  alliances with  manufacturers of portable  electronic devices so
that  together  we can  develop  a fuel  cell  product  that  will  satisfy  the
consumer's  demand for maximum power and operating time for their equipment.  We
are also looking to these alliances to provide us with  manufacturing  expertise
and  distribution  channels.  Additionally,  we expect to look to our  strategic
partners to help us develop our pilot plant for producing our fuel cells.

     To date, we have entered into the following strategic arrangements:

     o    We  have  entered  into a  non-exclusive  cooperative  agreement  with
          France-based Sagem, SA, one of Europe's largest  manufacturers of cell
          phone handsets and other electronic  equipment with sales in year 2000
          of approximately $4 billion.

     o    We have  entered  into an exclusive  agreement  with General  Dynamics
          Government   Systems   Corporation,   a  unit  of   General   Dynamics
          Corporation,  to develop and market  fuel cells and fuel  cell-powered
          portable  electronic  devices  for the  United  States  Department  of
          Defense.  As part of  such  agreement,  among  other  things,  General
          Dynamics  agrees to market  our DLM fuel  cells to the  Department  of
          Defense.

     We are looking to enter into  additional  agreements with other cell phone,
laptop computer,  portable  electronic device and battery  manufacturers who can
help us  expedite  the  development  of a  commercial  fuel cell,  as well as to
demonstrate the viability of our fuel cell and battery  technologies and develop
a  product  designed  to each  of such  companies'  specifications  and  product
requirements.

PRODUCTION

     We are working to develop engineering  prototypes for our liquid fuel cells
by mid-2001 and plan to commence  production  of our HECPs by the end of 2001 in
our Or-Yehuda,  Israel manufacturing facility. Assuming our ability to adhere to
this  timetable,  we are  hopeful  that we will be able by  sometime  in 2002 to
establish an additional manufacturing facility in Israel to produce on a limited
basis the catalyst and electrolyte, which are essential elements of our DLM fuel
cells,  with  capital  costs for the two plants  expected to  approximate  US$10
million.  On a long range basis and  subject to the  availability  of  requisite
financing, we plan to commence production of individual fuel cells by the end of
2003 or during  2004,  attaining a maximum  fuel cell  production  of 30 million
individual fuel cells (enough for approximately 5 million cellular phones). This
will enable us to test the  manufacturing  process and  validate  our  estimated
production costs and sales price. Our preliminary  estimates are that we will be
able to deliver a fuel cell  system to  original  equipment  manufacturers  at a
price of $15 and that the gross profit on that product will amount to $6.00.

     We  do  not  intend  to  develop  or  invest  in  full-scale  manufacturing
facilities for our proposed fuel cell products,  if and when developed.  We plan
to  satisfy  such  demand by  entering  into  license,  joint  venture  or other
arrangements  with a company or  companies  that are capable of  worldwide  mass
production of our products.

    REFILL CARTRIDGES

     We also intend to  separately  offer  proprietary  refueling  cartridges to
power the power packs and fuel cells once the fuel has depleted.  We see this as
a "razorblade" equivalent,  holding out the prospect of repeated sales. Assuming
that a next  generation  phone is used an average of two hours a day (60 hours a
month) and that our fuel cell  provides  power for twenty  hours,  the user will
need three refueling cartridges a month. Our preliminary estimates are that at a
sales  price to the user of $3.00 per month,  the gross  profit  potential  from
refill cartridges could amount to $1.00 per month for each cell phone unit sold.

RESEARCH AND DEVELOPMENT

     Our research and development  programs are generally  pursued by scientists
employed by us in Israel on a full-time basis or hired as per diem  consultants.
Most of the  scientists  working  in the fuel cell  field are  emigres  from the
former  Soviet Union where they worked on  developing  fuel cells for as much as
fifteen years. Our programs are also pursued in collaboration with multinational
companies with interests in our fuel cell technologies.

     Currently,  our major  focus is upon  achieving a greater  power  output at
smaller  sizes and extending the length of use time and standby time for our DLM
fuel  cell.  Our  development  team is also  working  to  lower  the cost of the
components  of the fuel  cell.  We are  further  working  to lower the  platinum
content of our catalyst, which represents a significant expense in manufacturing
a fuel cell.

     Another  objective of our research and development  programs is to find new
applications for the components that make up our fuel cells, including our HECPs
and catalysts.

COMPETITION

     We expect to compete  against other fuel cell developers as well as against
other advanced battery technologies.

     We expect that our direct  competitors  will be companies  developing  fuel
cells for the portable  electronics market, such as Manhattan  Scientifics Inc.,
which  reports that it is  developing a fuel cell to power  cellular  phones and
pagers,  as well as mid-range  fuel cells to power larger  applications  such as
laptop computers.  That company has not yet publicly  announced an expected date
for commercialization.  Motorola,  along with the Los Alamos National Laboratory
in New Mexico,  is also developing a direct methanol fuel cell for mobile phones
that it expects to run up to ten times longer than existing batteries.  Motorola
has announced  they expect to have a  commercially  viable product in 3-5 years.
Mechanical  Technology  Inc. has recently  announced  their intention to develop
direct  methanol  fuel cells and are  working  with  talent  formerly of the Los
Alamos National  Laboratory and have also licensed  certain fuel cell technology
from Los Alamos National Laboratory to further such intentions.

     We believe  that most other fuel cell  companies  are focusing on different
markets than the portable electronic device market that we are targeting.  Other
fuel cell companies, including Plug Power, Avista Systems Inc., Fuel Cell Energy
Inc. and H Power are not primarily  targeting the portable  electronics  market,
although at any time these  companies  could introduce new products that compete
directly in the markets we are  targeting.  Ballard  Power  Inc.,  a  recognized
leader in PEM fuel cell  technology,  has announced they are developing a direct
methanol fuel cell for transportation and portable applications,  however, we do
not know if this is intended for the portable electronic device market.

     We also expect indirect competition from battery  manufacturers who utilize
existing  battery  technologies  (both  chargeable and  rechargeable).  Existing
battery  technologies  have the  significant  advantage  of having  commercially
available  products  today,  and are backed by  companies  who are  continuously
investing in marketing  and further  research and  development  to improve their
existing products and explore alternative technologies.

     We  expect  our fuel  cell  products  to  compete  on the bases of size and
weight, length of operating time, ease of use and cost.

GOVERNMENT REGULATION

     Currently,  the only  regulations we encounter are the regulations that are
common to all businesses, such as employment legislation, implied warranty laws,
and  environmental,  health and safety standards,  both in the United States and
Israel,  to the  extent  applicable.  It is  likely we will  encounter  industry
specific  government  regulations in the future in the jurisdictions in which we
operate.  It may become the case that regulatory  approvals will be required for
the design and manufacture of our fuel cells. The use of methanol may be limited
by  government  regulation  in which  case we would  have to change  our fuel to
ethanol or another  hydrogen-based  fuel,  which may be less  effective and more
costly  than  methanol.  Furthermore,  we must  obtain  from the State of Israel
permits  to work with  certain  chemicals  used to make our fuel  cells.  To the
extent that there are delays in gaining regulatory approval, our development and
growth may be constrained.

OUR OTHER TECHNOLOGIES

     Starting  with our  formation in 1992,  we have been working to develop and
commercialize next generation technologies.  We seek to exploit our relationship
with Russian  scientists  who have  immigrated  to Israel as well as with Israel
Aircraft  Industries  Ltd., a company  wholly owned by the State of Israel and a
leader in aerospace technology. Israel Aircraft is also our largest stockholder.

     With the exception of our CellScan system, all of these technologies are in
the development  stage and no successful  prototypes have as yet been developed,
nor can we  assure  you  that any  such  prototypes  will be  developed  or,  if
developed, commercialized.

     o    CELLSCAN.  The CellScan,  which we have renamed the  CellMatrix,  is a
          system  for the  viewing  and  testing of cells and cell  reaction  to
          stimulation  by antigens and other  stimuli.  Unlike  microscopes  and
          other existing technology, the CellScan allows viewing of thousands of
          cells in a living  state and provides the ability to revisit and probe
          each cell a number of  times.  The  CellScan  also  permits  real-time
          monitoring  of  on-going  cellular  events.  The cells are placed on a
          patented  matrix where they can be stimulated  and monitored to detect
          changes in the  intensity and  direction of light  emanating  from the
          cell which can then be measured and recorded.

          The CellScan can be used as a diagnostic  tool to detect diseases such
          as  breast,  prostate  and  gynecological  cancers,  tuberculosis  and
          atherosclerosis  as well as a  research  tool  to  develop  individual
          patient chemotherapy,  drugs,  vaccines,  antigens and aspects of gene
          therapy.

     o    TOROIDAL TECHNOLOGIES. We are seeking commercially viable applications
          of our toroidal technology in three areas.

          o    As a compressor for existing  refrigeration and air conditioning.
               We believe that a toroidal  compressor may achieve energy savings
               over existing  Rankine-cycle cooling systems, which is the system
               now used in most refrigeration and air conditioning  systems, and
               enable manufacturers to meet new energy standards.

          o    As an internal  combustion  engine  which could be up to one-half
               the size and weight of a conventional  internal combustion engine
               and could increase engine efficiency by as much as 30%.

          o    As an essential element, together with our electric reciprocating
               machine,  to develop a stationary  power  generation  system that
               would be more efficient than present systems.

          We own a basic patent for the toroidal  engine and we  indirectly  own
          25% and have options to purchase an  additional  50% of a company that
          owns other patents to the toroidal  technologies.  We intend either to
          exercise  the option  prior to its  expiration  or  negotiate  for its
          extension.

     o    RECIPROCATING ELECTRICAL MACHINE. Our reciprocating electrical machine
          seeks to use the  reciprocating  motion of energy sources such as wind
          or sea waves to convert such energies' motion into electricity,  while
          achieving  cost  savings of up to 30%,  while also being  cleaner  and
          environmentally safer than traditional power sources.  Furthermore, we
          are exploring the  possibility of applying the  technology  underlying
          the reciprocating  electrical  machine to advance the development of a
          power generation system using our toroidal technology.

     o    STIRLING CYCLE LINEAR TECHNOLOGY. Our stirling cycle linear technology
          is  based  upon a  century-old  thermodynamic  technique  that  may be
          capable of providing  greater energy  efficiency for refrigeration and
          air-conditioning  systems.  A major  advantage to the  stirling  cycle
          system is that it uses helium as its working  gas,  which is a natural
          gas found in the atmosphere that is environmentally  friendly. The use
          of a stirling cycle system would therefore replace the use of freon or
          freon compounds found in existing  refrigeration and  air-conditioning
          systems.  These  substances  contain  chlorofluorocarbons,  which  are
          commonly  believed to deplete the  atmosphere  and  contribute  to the
          "greenhouse effect" and global warming.

     MISCELLANEOUS

     We also own 25% of a  company  that  owns a patent  and  other  rights to a
technology that switches and regulates direct current, or DC, electricity. Using
existing  power  lines,  the device is  expected to enable the  transmission  of
two-thirds  more current than the existing  system and would  eliminate the need
for alternate current,  or AC, power lines and the transformers which convert DC
electricity  to  AC  electricity.   Furthermore,  we  may  commence  testing  of
technologies that, if successfully developed,  would be used to generate potable
water from the  atmosphere or brackish  water.  We have no current  intention to
develop  such  technologies  due to our  inability  to  commit  further  limited
resources to such undertakings. We may continue research and development of such
technologies upon our obtaining additional funds for such purposes.

INTELLECTUAL PROPERTY

     We rely on a combination of patent, copyright,  trademark, trade secret and
contract laws, as well as  international  treaties,  to protect our  proprietary
rights to our intellectual property which includes technical know-how,  designs,
special materials,  manufacturing techniques,  test equipment and procedures for
fuel cells,  fuel cell  components  and fuel cell systems,  as well as our other
technologies.   Our  policy  is  to  secure,   directly  or  through   licensing
arrangements,  patent  protection  for  significant  innovations  to the fullest
extent practicable.

     We have six  patents  pending  on our fuel cell  technology  in the  United
States.  Corresponding applications have been filed under the Patent Cooperation
Treaty, which allows us limited protection in all of its 45 member countries for
periods ranging from 24-30 months,  during which time patent applications can be
filed in such countries.  Although we expect to file patent applications in most
of the larger  markets that are member  countries,  we have not yet  ascertained
which of these  jurisdictions  we will  file in. We are  contemplating  filing a
number of additional patents in the United States and elsewhere as it relates to
our fuel cell technology.  Patent  applications  filed in foreign  countries are
subject to laws,  rules and  procedures  which  differ  from those of the United
States,  and even if foreign patent  applications  issue, some foreign countries
provide significantly less patent protection than the United States.

     We have been  granted  a patent  or  patents,  or we have  patents  pending
relating to, each of our toroidal  technologies,  stirling  cycle linear system,
reciprocating electrical machine and direct current regulating device.

     Furthermore,   we  are  the  exclusive   worldwide   licensee  of  Bar-Ilan
University's  patents,  patent  applications  and any other  proprietary  rights
relating to the  CellScan.  Bar-Ilan  owns,  or has applied  for,  corresponding
patents in Europe, Japan, Israel,  Canada and various other countries,  of which
we are the licensees.

     In addition to patent protection, we rely on the laws of unfair competition
and trade secrets to protect our licensed or proprietary  rights.  We attempt to
protect our trade secrets and other proprietary  information  through agreements
with our  collaborators,  through  confidentiality  agreements  with  employees,
consultants, potential joint ventures and licensees and other security measures.

EMPLOYEES

     As  of  February  1,  2001,  we  had  33  full  time  employees,  of  which
approximately 27 were engineers,  scientists and other degreed professionals and
6  were  professional,   technical,  administrative  and  manufacturing  support
personnel.  We also employ  approximately  14  engineers,  scientists  and other
degreed professionals as consultants who work with us researching and developing
our technologies on a part time basis. We consider  relations with our employees
to be satisfactory.

ITEM 2.  PROPERTIES

     We  presently   maintain  our  U.S.   executive   offices  in  premises  of
approximately  3,000 square feet at 805 Third Avenue,  New York,  New York 10022
under a sublease from the Standoff Corporation, which is controlled by Robert K.
Lifton,  our chairman and chief  executive  officer,  and Howard  Weingrow,  our
president.  We pay approximately $72,000 for rent per year. The sublease is on a
month to month basis.

     Our research  laboratory and technology  center and Israel-based  executive
offices  and  back  office  functions  are  located  at  a  leased  facility  of
approximately  11,500 square feet in Yehud,  Israel. The rental expense for this
lease,  which has a term  until  December  2001 with two  one-year  options on a
portion  of  the  facilities   extending  to  December  2003,  is  approximately
US$164,000  per year. We also lease  manufacturing  facilities of  approximately
1,500  square  feet  in   Jerusalem,   Israel   relating  to  the  CellScan  and
approximately 2,000 square feet in Or-Yehuda,  Israel relating to the HECPs. The
Jerusalem lease expires on December 31, 2001,  with a two year option  extending
to December 31, 2003. The annual aggregate rent is approximately  US$27,000. The
Or-Yehuda  lease  expires on December  31, 2001 and has three  one-year  options
extending to December  31,  2004.  The annual  aggregate  rent is  approximately
US$12,000.  We have also commenced discussions with the State of Israel to build
a pilot  plant in Israel  to  manufacture  the  catalyst,  electrolytes  and the
individual fuel cells. Capital costs for the construction of the pilot plant and
equipping the Or-Yehuda facility is expected to be approximately  US$10 million,
with the construction  beginning in 2002. We believe our facilities are adequate
for our present purposes.

ITEM 3.  LEGAL PROCEEDINGS

     We are not party to any  material  litigation,  and we are not aware of any
threatened  litigation  that would have a material  adverse  effect on us or our
business.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     No matters were  submitted to a vote of  securityholders  during the fourth
quarter of the fiscal year ended December 31, 2000.
<PAGE>

                                     PART 2

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

     Our common  stock has been traded on the Nasdaq  National  Market under the
symbol "MDTL" since October 3, 2000.  Prior to that, our common stock was traded
on the Nasdaq  SmallCap Market under the same symbol since June 6, 2000, the day
subsequent  to the  completion  of the Medis El exchange  offer.  Prior to that,
there was no public market for our common stock,  but until that date from 1992,
Medis El's ordinary shares were traded on the Nasdaq SmallCap Market.

     The closing high and low sales prices of our common  stock,  as reported by
the Nasdaq  National  Market and the Nasdaq  SmallCap  Market,  for the quarters
indicated are as follows:

       QUARTER ENDED                                 HIGH         LOW
       -------------                                 ----         ---
       June 30, 2000 (from June 6, 2000)            22.750       16.563
       September 30, 2000                           24.875       14.063
       December 31, 2000                            22.500       10.250

     As of March 27, 2001, there were  approximately  110 stockholders of record
of our common  stock.  Such number does not include  beneficial  owners  holding
shares through nominee names.

     We have  never  declared  or paid any  dividends  on our common  stock.  We
currently  anticipate  that we will retain all of our future earnings for use in
the expansion and operation of our business.  Thus, we do not anticipate  paying
any cash  dividends on our common stock in the  foreseeable  future.  Our future
dividend  policy will be determined by our board of directors and will depend on
various  factors,  including  our results of  operations,  financial  condition,
capital requirements and investment opportunities. In addition, the terms of our
credit facility restrict our ability to pay dividends on our common stock.

ITEM 6.  SELECTED FINANCIAL DATA

     The selected consolidated  statement of operations data for the years ended
December 31, 1996 and 1997 and the selected  consolidated  balance sheet data as
of December  31, 1996,  1997 and 1998 have been  derived from audited  financial
statements not included in this report. The selected  consolidated  statement of
operations  data for the years ended  December 31, 1998,  1999, and 2000 and the
selected  consolidated  balance sheet data as of December 31, 1999 and 2000 have
been derived from our audited financial  statements  included  elsewhere in this
report. Such consolidated  financial statements include the financial statements
of all of our direct and indirect  subsidiaries,  including Medis Inc. and Medis
El,  beginning on December 15, 1997. Prior to that date, our investment in Medis
Inc. and Medis El had been  accounted for using the equity method of accounting.
The  data  should  be  read  in  conjunction  with  the  consolidated  financial
statements  and the notes to such  statements and  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere in
this report.
<PAGE>
<TABLE>
<CAPTION>

STATEMENT OF OPERATIONS DATA:


                                                                   For the Year Ended December 31,
                                       --------------------------------------------------------------------------

                                            1996           1997           1998            1999            2000
                                       ------------    ------------   ------------    ------------   ------------

<S>                                    <C>             <C>            <C>             <C>            <C>
Revenues.........................            $   --          $   --      $   8,000           $  --          $  --
Cost of sales....................                --              --          3,000              --             --
                                       ------------    ------------   ------------    ------------   ------------
Gross profit.....................                --              --          5,000              --             --
OPERATING EXPENSES
Research and development costs, net              --       1,406,000      1,646,000       2,749,000      4,493,000
Selling, general and administrative
    expenses.....................           193,000       1,303,000      1,399,000       2,467,000      5,405,000
Amortization of intangible assets                --         102,000      2,445,000       2,574,000     13,668,000
                                       ------------    ------------   ------------    ------------   ------------
Total operating expenses.........           193,000       2,811,000      5,490,000       7,790,000     23,566,000
                                       ------------    ------------   ------------    ------------   ------------
Loss from operations.............          (193,000)     (2,811,000)    (5,485,000)     (7,790,000)   (23,566,000)
Other income (expenses)
Interest and other income........             9,000          64,000         63,000         150,000        214,000

Interest expense.................        (1,660,000)       (381,000)      (101,000)        (22,000)       (13,000)
                                       ------------    ------------   ------------    ------------   ------------
Loss before minority interest....        (1,844,000)     (3,128,000)    (5,523,000)     (7,662,000)    23,365,000
Equity in net losses of
    unconsolidated subsidiaries..         (789,000)             --              --             --             --
Minority interest in loss of
    subsidiaries.................                --       1,584,000      1,105,000       1,697,000        873,000
                                       ------------    ------------   ------------    ------------   ------------
Net loss.........................        (2,633,000)     (1,544,000)    (4,418,000)     (5,965,000)   (22,492,000)
Value of warrants issued                         --              --             --              --      2,971,000
                                       ------------    ------------   ------------    ------------   ------------
Net loss attributable to common
    stockholders.................       $(2,633,000)    $(1,544,000)   $(4,418,000)    $(5,965,000)  $(25,463,000)
                                       ============    ============   ============    ============   ============
Basic and diluted net loss per share       $  (0.71)      $   (0.33)     $   (0.52)      $   (0.61)     $   (1.79)
                                       ============    ============   ============    ============   ============
Weighted average shares outstanding       3,734,129       4,645,232      8,581,774       9,807,101     14,238,104
                                       ============    ============   ============    ============   ============
</TABLE>

<TABLE>
<CAPTION>
BALANCE SHEET DATA:
                                                                       As of December 31,
                                      --------------------------------------------------------------------------

                                          1996            1997           1998            1999            2000
                                      ------------    ------------   ------------    ------------   ------------
<S>                                   <C>              <C>            <C>            <C>             <C>
                                          $                              $              $
Working capital (deficiency).........  (1,728,000)       $ 266,000      3,536,000      1,083,000      $2,522,000

Total assets.........................   3,621,000       14,443,000     14,755,000     10,226,000      87,202,000
Long-term debt, excluding current
   maturities........................   1,000,000          338,000         96,000         11,000              --

Accumulated deficit.................. (11,668,000)     (13,232,000)   (17,650,000)   (23,615,000)    (49,078,000)
Total stockholders' equity
(deficiency).........................  (1,645,000)      11,378,000     12,406,000      8,561,000      86,142,000
</TABLE>

<PAGE>
ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

INTRODUCTION

     This presentation  includes the operations of our wholly and majority owned
subsidiaries, including Medis El, unless we tell you otherwise.

     From  our  inception  in  April  1992  through  December  31,  2000 we have
generated  a  cumulative  net  loss  of  approximately  $46,107,000,   including
approximately  $18.6  million  from  amortization  expense.  We  expect to incur
additional operating losses during 2001 and possibly thereafter,  principally as
a result of our continuing  anticipated  research and development costs, and the
uncertainty  of  bringing  our  fuel  cell   technology  or  any  of  our  other
technologies  to  commercial   success.  We  have  increased  our  research  and
development  budget  since 1999 from  approximately  $2.7  million  annually  to
approximately $4.5 million annually;  however, we anticipate that our failure to
successfully  commercially  develop our fuel cell technology or any of our other
technologies  will force us to curtail our spending  levels until such time,  if
ever,  as we  generate  revenues  or  otherwise  receive  funds from third party
sources.  If we  begin to  market  and  sell  any of our  technologies,  we will
increase such expenses to the extent  necessary,  which we expect to fund out of
revenues.

RESULTS OF OPERATIONS

     YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     We sustained a net loss of  $22,492,000  during the year ended December 31,
2000,  compared to  $5,965,000  during the year ended  December  31,  1999.  The
increase in the net losses can  primarily be attributed to increases in research
and  development   costs,   selling,   general  and   administrative   expenses,
amortization of intangible assets acquired in connection with the acquisition of
shares in the Medis El  exchange  offer and costs  related to the  issuances  of
stock options and warrants.

     Research and  development  costs increased to $4,493,000 for the year ended
December 31, 2000 as compared to $2,749,000  during the year ended  December 31,
1999.  The  increases  can be  largely  attributed  to  increased  research  and
development activity pertaining to:

     o    Development  of our DLM fuel  cells,  in which  we  incurred  costs of
          approximately  $1,697,000  during the year  ended  December  31,  2000
          compared  to costs of  approximately  $336,000  during  the year ended
          December 31, 1999. The increase in costs in 2000 was partially due to:
          (i) expenditures  aggregating  $320,000 to acquire an additional 11.5%
          interest in More Energy, which represents acquired in-process research
          and development,  and (ii) an allocation to fuel cell  technologies of
          approximately   $182,000  of  the  write-off  of  acquired  in-process
          research  and  development  in  connection  with the Medis El exchange
          offer.

     o    The further refinement of the CellScan,  in which we incurred costs of
          approximately  $2,148,000  during the year ended  December  31,  2000,
          compared to costs of  approximately  $1,770,000  during the year ended
          December 31, 1999.

     o    Development of the toroidal compressor,  in which we incurred costs of
          approximately  $126,000  during  the year  ended  December  31,  2000,
          compared to none during the year ended December 31, 1999.

     o    Development  of the  toroidal  engine,  in which we incurred  costs of
          approximately  $322,000  during  the year  ended  December  31,  2000,
          compared  to costs of  approximately  $236,000  during  the year ended
          December  31,  1999.  The  increase  in  costs  in 2000  was due to an
          allocation  to the toroidal  engine of  approximately  $151,000 of the
          write-off  of  acquired   in-process   research  and   development  in
          connection  with the  Medis El  exchange  offer,  somewhat  offset  by
          reduced spending on research and development of the toroidal engine.

     Selling, general and administrative expenses during the year ended December
31,  2000  amounted  to  approximately  $5,405,000,  compared  to  approximately
$2,467,000 during the year ended December 31,1999. The increase can be primarily
attributed to non-cash  charges of  approximately  $2,789,000  relating to stock
options and warrants  issued to officers,  employees,  consultants  and advisory
board members, compared to approximately $125,000 in 1999.

     Amortization of intangible  assets amounted to $13,668,000  during the year
ended December 31, 2000,  compared to $2,574,000  during the year ended December
31, 1999.  This  increase was primarily  the result of  amortization  expense of
approximately  $11,013,000  during the year ended  December 31, 2000 relating to
goodwill approximating  $81,867,000 and acquired technology assets approximating
$6,071,000 acquired upon the completion of the Medis El exchange offer.

     Management  believes  that,  as  an  additional  operational   measurement,
earnings  (loss) before  interest,  taxes,  depreciation  and  amortization,  or
EBITDA,   is  useful  and  meaningful  to  an  understanding  of  our  operating
performance.  EBITDA should not be considered in isolation or as a  substitution
for net income (loss) or cash flow data or as a measure of our  profitability or
liquidity.  Items excluded from EBITDA,  such as depreciation and  amortization,
are  significant   components  in  understanding  and  assessing  our  financial
performance. All companies do not calculate EBITDA the same way.

     The computation of EBITDA for the years ended December 31, 2000 and 1999 is
set forth in the table below:

                                                         Year Ended
                                                         December 31,
                                               ------------------------------
                                                  2000                1999
                                               -------------      -----------
 Net   Loss   attributable   to   common
      shareholders                             $(25,463,000)      $(5,965,000)
 Add: value of warrants issued                    2,971,000                --
 Add: interest expense                               13,000            22,000
 Less: interest income                             (214,000)         (150,000)
 Add: amortization                               13,668,000         2,574,000
 Add: depreciation                                  363,000           388,000
                                               ------------       -----------
      EBITDA                                   $ (8,662,000)      $(3,131,000)
                                               ============       ===========

     EBITDA includes as an expense non-cash compensation related to the issuance
of stock options and stock  purchase  warrants of  approximately  $3,229,000 and
$187,000 for the years ended December 31, 2000 and 1999, respectively.

     The increase in loss before interest,  taxes, depreciation and amortization
for the year ended  December 31, 2000 as compared to the year ended December 31,
1999  occurred due to increases in research and  development  costs and selling,
general and  administrative  expenses for the reasons  discussed earlier in this
section.

     YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     We sustained a net loss of  $5,965,000  during the year ended  December 31,
1999  compared  to  $4,418,000  during the year ended  December  31,  1998.  The
increase  can  primarily be  attributed  to a  significant  rise in research and
development costs and increased selling,  general and  administrative  expenses,
partially  offset  by  increased  interest  income  due to higher  average  cash
balances and lower interest  expense due to lower debt balances  during the year
ended December 31, 1999, as compared to the year ended December 31, 1998.

     Research and  development  costs were up sharply at $2,749,000 for 1999, as
compared to $1,646,000  during the year ended  December 31, 1988.  This increase
can be  largely  attributed  to  increased  research  and  development  activity
pertaining to the CellScan,  stirling  cycle linear  technology  and fuel cells,
costs  aggregating  $115,000  to acquire an  additional  11.5%  interest in More
Energy,  depreciation  expense of $388,000 as compared to $101,000  for the year
ended  December  31,  1998 and  costs  incurred  of  $255,000  to write  off our
inventory of cell  carriers,  antigens and neuritors,  a technology  licensed to
Medis El, to research and  development  expense.  These  factors  were  somewhat
offset  by a  payment  of  $200,000  Medis El  received  under a  December  1998
technology development agreement with The Coca-Cola Company in which it:

     o    paid $100,000 to obtain a right of first  refusal to obtain  exclusive
          rights to use the stirling cycle, fuel cells and other technologies in
          its field of business; and

     o    paid  $100,000  to assist in the  development  of the  stirling  cycle
          technology for use in its field of business.

     Such  payments  aggregating  $200,000 were recorded as a credit to research
and development costs for the year ended December 31, 1999.

     Selling,  general and  administrative  expenses for the year ended December
31, 1999 were $2,467,000  compared to $1,399,000 for the year ended December 31,
1998.  This  increase  can be  primarily  attributed  to a charge of $437,000 to
selling  and  general  administrative  expenses  in the  fourth  quarter of 1999
pursuant to the terms of a settlement  agreement with an Argentine company and a
substantial increase to approximately  $425,000 in legal and accounting fees and
related expenses primarily relating to the Medis El exchange offer.

LIQUIDITY AND CAPITAL RESOURCES

     We have historically financed our operations primarily through the proceeds
of investor equity  financing,  long-term bank loans and grants to Medis El from
the Chief  Scientist  of the  Ministry of Industry  and  Commerce of Israel with
respect  to the  CellScan,  initial  sales of our  products  and  fees  from the
granting of exclusive distribution rights.

     In 1999,  we issued an  aggregate of 193,668  units at a purchase  price of
$12.00 per unit,  or an aggregate of  $2,324,000.  Each unit  consisted of three
shares of our  common  stock and a warrant to  purchase  one share of our common
stock at an  exercise  price of $5.00.  A total of 581,004  shares  and  193,068
warrants were issued.  The proceeds of such offerings were used for research and
development  projects with respect to our technologies and for selling,  general
and administrative expenses.

     In 2000,  we issued a total of  1,598,811  shares of our  common  stock and
warrants to purchase  680,361  shares of common stock for aggregate  proceeds of
approximately  $7,758,000.  We  used  and  intend  to use the  proceeds  of such
offerings  to fund the further  research  and  development  of our  products and
technologies and for selling, general and administrative expenses. Additionally,
in the first quarter of 2000,  prior to the Medis El exchange offer,  employees,
including Medis El's executive vice president and vice president-finance,  and a
director,  exercised  options to purchase an aggregate of 66,100 ordinary shares
of Medis El, for an aggregate  exercise  price of  approximately  $336,000.  The
proceeds  of  such  option  exercises  were  similarly  used  for  research  and
development and selling,  general and administrative  expenses. We do not intend
to cause  Medis El to issue  any more of its  shares to third  parties,  whether
through the exercise of stock options or otherwise, as we intend that all future
financings of Medis El will be effected through us.

     For the year ended December 31, 2000, net cash used in operating activities
was $5,418,000,  as compared to $3,362,000 for the year ended December 31, 1999.
The increase was primarily attributable to increases in research and development
and  selling  general and  administrative  expenses  during the period,  for the
reasons discussed above.

     For the year ended December 31, 2000, net cash used in investing activities
was  $1,141,000,  compared to $72,000  during the year ended  December 31, 1999.
During the year ended December 31, 2000,  the cash used in investing  activities
was due to  purchases  of  shares  of Medis El and More  Energy  not owned by us
aggregating $718,000 and purchases of property and equipment of $487,000, offset
by proceeds  from  disposals of fixed  assets of $64,000.  During the year ended
December 31, 1999, net cash used in investing activities was due to purchases of
shares of Medis El and More  Energy  not owned by us  aggregating  $253,000  and
purchases  of property and  equipment  of $330,000,  offset by the maturity of a
short-term investment of $500,000 and proceeds from disposals of fixed assets of
$11,000.

     For the year ended  December  31,  2000,  net cash  provided  by  financing
activities was $7,602,000 compared to $2,121,000 for the year ended December 31,
1999. The increase was primarily due to an increase in funds raised from private
placements of our  securities and the exercise of our  outstanding  warrants and
options which  aggregated  $7,758,000  for the year ended  December 31, 2000, as
compared to  $2,324,000  for year ended  December  31,  1999.  The  increase was
somewhat  offset by direct costs of the Medis El exchange offer of $395,000.  In
2000,  cash provided from  financing  activities  during year ended December 31,
2000 also  included  proceeds  of $336,000  from the  exercise of Medis El stock
options, of which there were none during the December 31, 1999.

     On December 29, 2000, we entered into a loan  agreement  which provides for
borrowings of up to an aggregate of $5 million in the form of a revolving credit
facility  that matures on December 29, 2002. We have not used any portion of the
facility at this time.

     As of December 31, 2000, we had  approximately  $2,885,000 in cash and cash
equivalents.  Our working  capital and  capital  requirements  at any given time
depend upon numerous factors, including, but not limited to:

     o    the progress of research and development programs;

     o    the status of our technologies; and

     o    the  level of  resources  that we  devote  to the  development  of our
          technologies, patents, marketing and sales capabilities.

     Another  contributing  factor is the status of  collaborative  arrangements
with businesses and institutes for research and development.

     We estimate that we will need  approximately  $10,000,000  to construct the
pilot  plant for the  development  of our fuel  cells,  which funds we expect to
obtain from the proceeds of the sale of our securities.

     Management  expects  that, as of December 31, 2000,  our  available  funds,
including our  $5,000,000  revolving  credit line, are sufficient to support our
operating  activities for at least 12 months.  Beyond such time, we will require
capital  infusions  of cash to continue  our  operations,  whether  through debt
financing, issuance of shares or from companies or other organizations assisting
in the development of our  technologies.  To the extent we are unable to acquire
additional  funds,  we will  curtail  research  and  development  of one or more
technologies until such time as we acquire additional funds.

TAX MATTERS

     As of December 31, 2000, for U.S. federal income tax purposes,  we have net
operating loss  carry-forwards of approximately  $5,299,000.  For Israeli income
tax  purposes,  we have  net  operating  loss  carry-forwards  of  approximately
US$28,847,000.  Since our inception,  we have not had any taxable income.  Also,
neither we nor Medis El have ever been  audited by the United  States or Israeli
tax  authorities  since  incorporation.  Pursuant to United  States  federal tax
regulations,  our  ability to  utilize  the United  States  net  operating  loss
carry-forwards  may be limited  due to changes in  ownership,  as defined in the
Internal Revenue Code.

GRANTS OBTAINED FROM THE STATE OF ISRAEL

     Medis El received  approximately  $1,800,000  in research  and  development
grants from the Office of the Chief  Scientist  of the  Ministry of Commerce and
Industry of the State of Israel from its inception to 1997. This is based upon a
policy of the  government of Israel to provide  grants of between 50% and 66% of
qualifying  approved  research and development  expenditures to promote research
and  development  by Israeli  companies.  Medis El  received  50% of  qualifying
approved  research and development  expenditures,  with $1,629,000 of such funds
being allotted for the CellScan and $167,000 allotted for the neuritor. Pursuant
to the  grant  arrangement,  Medis  El is  required  to pay 3% of its  sales  of
products  developed  with the grant  funds  until the grant  amounts are paid in
full. There is no requirement to repay the grants if the products developed with
the grant funds are not sold. If Medis El sells the underlying  technology prior
to repaying  the grant  funds,  it must first seek  permission  from the Israeli
government for such sale. Prior to Medis El receiving grant funds in 1992, Medis
El assumed from Israel  Aircraft  its  obligation  relating to the  repayment of
grants of approximately $805,000. As of the date of this prospectus,  Medis El's
total  contingent  obligation  for the repayment of grants,  which  includes the
$805,000, is $2,601,000. Medis El is not presently receiving any grants from the
State of Israel.

APPROVED ENTERPRISE

     Under the Law for the Encouragement of Capital Investments,  1959, Medis El
was issued a certificate of approval as an "Approved Enterprise." Under the law,
Medis El elected the "combined  path,"  pursuant to which Medis El had the right
to  receive  a  government  guaranteed  bank  loan of 66% of the  amount  of the
approved investment.  In addition,  Medis El had the right to receive a grant of
25% of the approved  investment,  in which case the loan would be reduced by the
amount of the  grant.  Medis El  received  investment  grants  of  approximately
$97,000 and loans of approximately  $893,000. The investment grants were used to
invest in equipment,  furniture and fixtures and commercial  vehicles.  The loan
proceeds  were  used for the  above as well as to  acquire  know-how,  leasehold
improvements,  marketing and working capital. The loans are bank loans from Bank
Leumi Le Israel and are  guaranteed  by the State of Israel  and are  secured by
substantially  all of Medis El's assets.  The loans were paid-off in full during
the year ended December 31, 2000. Additionally,  the tax liability in respect of
Medis El's income deriving from its Approved Enterprise activities is calculated
at a rate  of  20% of  income  for a  ten-year  period,  with  tax on  dividends
distributed of 15%,  instead of 25%. These tax benefits can be utilized at least
through 2006.

     In July 2000, More Energy applied for Approved  Enterprise  status relating
to our planned  manufacturing  facility for our catalyst,  electrolytes  and the
individual  fuel  cells in Israel.  If  approved,  More  Energy  will  receive a
complete  exemption from the payment of corporate taxes on undistributed  income
for a period ranging from 6 to 10 years and other benefits.

RISK FACTORS

WE  HAVE  NOT  BEEN   PROFITABLE   AND  CANNOT  PREDICT  WHEN  WE  WILL  ACHIEVE
PROFITABILITY

     We have  experienced  net losses since our inception in April 1992 and on a
consolidated  basis with Medis El since  1997.  We cannot  predict  when we will
achieve profitability,  if ever. Our inability to become profitable may force us
to curtail or temporarily  discontinue our research and development programs and
our  day-to-day  operations.   Furthermore,  there  can  be  no  assurance  that
profitability, if achieved, can be sustained on an ongoing basis. As of December
31,  2000,  we had an  accumulated  deficit  of  approximately  $49,078,000.  We
anticipate   incurring   substantial   future  losses  until  such  time  as  we
successfully  develop  our  fuel  cell  technology  or one or more of our  other
technologies and commercialize, market and sell the developed products.

WE MAY NEVER COMPLETE THE DEVELOPMENT OF COMMERCIALLY VIABLE FUEL CELLS

     We do not know when or whether we will  successfully  complete research and
development  of  commercially  viable  DLM fuel  cells for any of our target and
prospective markets. We must still develop substantial technological advances to
our DLM fuel cell  technology,  particularly  in the  areas of  energy  density,
operating time and integrating each fuel cell into a seamless power source which
can power various portable electronic  devices,  before we are able to produce a
commercially viable product.

     Developing  a  technology  into  a  marketable  product  is a  risky,  time
consuming and expensive  process.  You may anticipate that in seeking to develop
our  DLM  fuel  cells  and any of our  other  technologies,  we  will  encounter
setbacks,  discrepancies  requiring  time  consuming  and costly  redesigns  and
changes and the possibility of outright failure.

PROBLEMS OR DELAYS IN OUR  COLLABORATION  EFFORTS COULD HURT OUR  REPUTATION AND
THE REPUTATION OF OUR PRODUCTS

     We have  entered  into two and intend to enter into  additional  agreements
with  companies  to  assist  us with  developing  or  marketing  our  fuel  cell
technologies.  We also expect to enter into similar  agreements  with  companies
interested in our other technologies. These collaboration agreements contemplate
such companies  working with our  scientists to test the  feasibility of our DLM
fuel cells powering such companies' products. These tests may encounter problems
and delays for a number of reasons, including the failure of our technology, the
failure of the technology of others,  the failure to combine these  technologies
properly and the failure to maintain and service the test  prototypes  properly.
Many of these potential problems and delays are beyond our control. In addition,
these   collaboration   efforts,  by  their  nature,  will  involve  delays  and
modifications. Any problem or perceived problem with these collaboration efforts
could hurt our reputation and the reputation of our products.

CUSTOMERS  WILL  BE  UNLIKELY  TO BUY  OUR  FUEL  CELL  PRODUCTS  UNLESS  WE CAN
DEMONSTRATE THAT THEY CAN BE PRODUCED AT AFFORDABLE  PRICES,  OF WHICH THERE CAN
BE NO ASSURANCE

     To date, we have focused  primarily on research and development and have no
experience  manufacturing  DLM  fuel  cells  on  a  commercial  basis.  Although
ultimately we intend for third parties to manufacture  and produce our fuel cell
products,  we must first  demonstrate  that such  products  can be  produced  at
affordable  prices.  There can be no assurance  that we will develop  efficient,
automated,  low-cost manufacturing  capabilities and processes with our proposed
pilot  manufacturing  facility  that will enable us to meet the quality,  price,
engineering,  design and production  standards or production volumes required to
successfully  mass  market  our DLM fuel  cells.  Even if we are  successful  in
developing  manufacturing  capability and  processes,  we do not know whether we
will do so in time to meet our product commercialization  schedule or to satisfy
the   requirements  of  potential   customers.   Our  failure  to  develop  such
manufacturing processes and capabilities could have a material adverse effect on
our business and financial results.

     The price of DLM fuel  cells is  dependent  largely on  material  and other
manufacturing  costs.  We cannot  guarantee  that we will be able to lower these
costs to the level  where we will be able to  produce a  competitive  product or
that any product produced using lower cost materials and manufacturing processes
will not suffer from a reduction in performance, reliability and longevity.

WE MAY NOT MEET OUR PRODUCT DEVELOPMENT AND COMMERCIALIZATION MILESTONES

     We have established  product development and  commercialization  milestones
that we use to assess our progress  toward  developing  commercially  viable DLM
fuel cells.  These  milestones  relate to technology and design  improvements as
well as to  dates  for  achieving  development  goals.  If our  systems  exhibit
technical  defects or are unable to meet cost or  performance  goals,  including
power output, useful life and reliability,  our commercialization schedule could
be delayed and development  partners of our technology and potential  purchasers
of our initial  commercial  products  may decline to purchase  them or choose to
purchase alternative technologies.

     We will be unable to market or sell our DLM fuel cell  technology or any of
our other technologies if we are unsuccessful in entering into alliances,  joint
ventures or licensing agreements with third parties

     As we do not  have  nor do we  intend  to  develop  our  own  marketing  or
widescale manufacturing  infrastructure,  our ability to market, manufacture and
sell our DLM fuel cell technologies or any of our other technologies will depend
entirely upon entering into  alliances,  joint ventures or licensing  agreements
with third parties possessing such capabilities.  There can be no assurance that
we will be  successful  in  entering  into such  alliances,  joint  ventures  or
agreements. Furthermore, we may enter into agreements the terms of which may not
be entirely  beneficial to us. Failure to enter into  arrangements or agreements
would prevent us from marketing and selling our  technologies  if and when ready
for commercial exploitation.

A MASS  MARKET  FOR OUR DLM FUEL CELLS MAY NEVER  DEVELOP OR MAY TAKE  LONGER TO
DEVELOP THAN WE ANTICIPATE

     A mass market may never  develop for our DLM fuel cells or any of our other
technologies,  or may develop  more slowly  than we  anticipate.  DLM fuel cells
represent an emerging market,  and we do not know whether end-users will want to
use them. The development of a mass market for our DLM fuel cell may be affected
by many factors, some of which are out of our control, including:

     o    the emergence of newer, more competitive technologies and products;

     o    the  future  cost  of  methanol,  or any  other  hydrogen-based  fuels
          powering our fuel cells;

     o    regulatory requirements;

     o    consumer perceptions of the safety of our products; and

     o    consumer reluctance to try a new product.

     If a mass  market  fails  to  develop  or  develops  more  slowly  than  we
anticipate,  we may be unable to recover the losses we will have incurred in the
development of our products and may never achieve profitability.

OUR  EFFORTS TO  PROTECT  OUR  INTELLECTUAL  PROPERTY  MAY NOT OFFER  SUFFICIENT
PROTECTION, WHICH COULD HINDER OUR GROWTH AND SUCCESS

     We regard our patents,  trade secrets,  copyrights and similar intellectual
property  rights  as  essential  to our  growth  and  success.  We  rely  upon a
combination of patent,  copyright and trademark laws,  trade secret  protection,
confidentiality  and non-disclosure  agreements and contractual  provisions with
employees  and with third  parties to  establish  and  protect  our  proprietary
rights.  We own,  directly or indirectly  through  subsidiaries  or companies in
which we have an interest,  patents for certain  technologies  and are currently
applying for additional patents.  There can be no assurance that we will succeed
in receiving  patent and other  proprietary  protection in all markets we enter,
or, if successful,  that such protection will be sufficient.  If we successfully
develop and market any or all of our technologies,  we expect to face efforts by
larger companies and other organizations or authorities to undermine our patents
by  challenging or copying our  intellectual  property.  Moreover,  intellectual
property  rights are not protected in certain  parts of the world.  We intend to
vigorously  defend our  intellectual  property  against any challenges  that may
arise.  However, an infringement action by us may be very costly and require the
diversion of substantial funds from our operations and may require management to
expend efforts that might otherwise be devoted to our operations.

CLAIMS BY THIRD PARTIES THAT OUR TECHNOLOGY INFRINGES UPON THEIR PATENTS MAY, IF
SUCCESSFUL, PREVENT US FROM FURTHER DEVELOPING OR SELLING OUR TECHNOLOGIES

     Although we do not believe our business activities infringe upon the rights
of  others  nor are we aware of any  pending  or  contemplated  actions  to such
effect, we can give no assurance that our business  activities will not infringe
upon the  proprietary  rights of others,  or that other  parties will not assert
infringement claims against us.

IF WE DO NOT  OBTAIN  ADDITIONAL  FINANCING,  WE WILL BE FORCED TO  CURTAIL  OUR
RESEARCH AND DEVELOPMENT EFFORTS AND OUR OPERATIONS

     Our ability to sustain our research and development program and our ongoing
survival  will for the  immediate  future and possibly  longer,  depend upon our
ability to secure  additional  funding.  As of December 31, 2000,  our available
funds,  including our $5,000,000 revolving credit line, is sufficient to support
our  activities  for at least 12 months from such date.  After that date, we can
give no assurance that we will be able to secure additional  funding, or funding
on terms acceptable to us, to meet our financial obligations,  if necessary,  or
that a third party will be willing to make such funds available.  Our failure to
raise  additional  funds  could  require us to delay our  research  and  product
development  activities or the development of our pilot manufacturing  programs,
including  construction of our planned fuel cell manufacturing plant, as well as
default under the repayment terms of our revolving  credit  facility,  if we are
unable to pay back any borrowings under such facility.  Furthermore, our failure
to successfully  develop or market our DLM fuel cell technologies may materially
adversely affect our ability to raise additional  funds. In any event, it is not
possible to make any  reliable  estimate of the funds  required to complete  the
development of our DLM fuel cell technology or any of our other technologies.

IF WE  WERE TO  LOSE  MEMBERS  OF OUR  SENIOR  MANAGEMENT  AND  COULD  NOT  FIND
APPROPRIATE  REPLACEMENTS  IN A TIMELY  MANNER,  OUR BUSINESS COULD BE ADVERSELY
AFFECTED

     Our  success  depends to a  significant  extent  upon Zvi  Rehavi,  Gennadi
Finkelstain  and the  scientists,  engineers  and  technicians  that  seek  out,
recognize  and  develop  our  technologies,  as well as our highly  skilled  and
experienced  management.  The  loss  of  the  services  of  Messrs.  Rehavi  and
Finkelstain,  or any of our other technical talent could have a material adverse
effect on our ability to develop our DLM fuel cells into commercial  products or
any of our other  technologies into commercial  products.  We possess key-person
life  insurance  of  $245,000  on Mr.  Rehavi.  Although  to date  we have  been
successful  in  recruiting  and retaining  executive,  managerial  and technical
personnel, there can be no assurance that we will continue to attract and retain
the  qualified  personnel  needed for our  business.  The  failure to attract or
retain qualified personnel could have a material adverse effect on our business.

OUR RIGHT TO ISSUE PREFERRED STOCK MAY FACILITATE MANAGEMENT  ENTRENCHMENT WHICH
MAY  DELAY,  DEFER OR PREVENT A CHANGE IN OUR  CONTROL,  WHICH MAY NOT BE IN THE
BEST INTERESTS OF OUR STOCKHOLDERS

     Our board of directors  has the  authority to issue up to 10,000  shares of
preferred stock and to determine the price, rights, preferences,  privileges and
restrictions,  including voting rights,  of these shares without approval of our
stockholders. Any future issuance of shares of preferred stock could be employed
by our present  management to delay, defer or prevent a change in our control or
to  discourage  bids for our common  stock at a premium  above its market  price
solely to retain their respective management positions,  which may not be in the
best interests of our stockholders, generally. We have no present plans to issue
any shares of preferred stock.

OUR  CURRENT  STOCKHOLDERS  WILL  CONTINUE  TO CONTROL  OUR  AFFAIRS,  WHICH MAY
PRECLUDE OTHER STOCKHOLDERS FROM INFLUENCING OUR CORPORATE DECISIONS

     Our five  largest  stockholders,  which  includes  some of our officers and
directors  and  a  corporation   controlled  by  such  officers  and  directors,
collectively,  beneficially own approximately  55% of our outstanding  shares of
common stock.  These  stockholders  may be able to effectively  exercise control
over all matters requiring approval by our stockholders,  including the election
of directors and approval of significant corporate transactions.

THERE MAY BE ADVERSE  EFFECTS  ON OUR  EARNINGS  AND OUR STOCK  PRICE DUE TO THE
LARGE  AMOUNT OF  ACQUIRED  INTANGIBLE  TECHNOLOGY  ASSETS AND  GOODWILL  ON OUR
BALANCE SHEET

     At December 31, 2000, our balance sheet showed approximately $83 million of
acquired  intangible  technology  assets and goodwill,  which will be charged to
expense over the remaining useful lives of such assets of up to five years. Such
expense and the  consequent  adverse  effect on our earnings may have a material
adverse affect on our stock price.

RISKS ASSOCIATED WITH CONDUCTING OPERATIONS IN ISRAEL COULD MATERIALLY ADVERSELY
AFFECT OUR ABILITY TO COMPLETE THE  DEVELOPMENT OF OUR DLM FUEL CELL  TECHNOLOGY
OR ANY OF OUR OTHER TECHNOLOGIES

     Our research and development facilities,  planned manufacturing  facilities
as well as some of our executive offices and back-office functions,  are located
in the State of Israel. We are,  therefore,  directly affected by the political,
economic and military  conditions  in Israel.  Any major  hostilities  involving
Israel or the interruption or curtailment of trade between Israel and the United
States or Israel and Europe could have a material  adverse effect on our ability
to complete the development of any of our  technologies or our ability to supply
our technology to development partners or vendors. Furthermore, any interruption
or  curtailment  of trade between  Israel and any other country in which we have
strategic relationships could similarly adversely affect such relationships.  We
are unable to assess what impact, if any, these factors may have upon our future
operations.

     In addition, historically,  Israel has suffered from high inflation and the
devaluation of its currency,  the New Israeli  Shekel,  or NIS,  compared to the
U.S.  dollar.  Future  inflation or further  devaluations  of the NIS may have a
negative impact on our NIS-based  obligations over time upon  substantial  price
increases caused by inflation.

IT MAY BE  DIFFICULT  TO SERVE  PROCESS  ON OR ENFORCE A  JUDGMENT  AGAINST  OUR
ISRAELI  OFFICERS  AND  DIRECTORS,  MAKING IT  DIFFICULT  TO BRING A  SUCCESSFUL
LAWSUIT  AGAINST  US, OR OUR  OFFICERS  AND  DIRECTORS,  INDIVIDUALLY  OR IN THE
AGGREGATE

     Service of process upon our  directors  and  officers,  many of whom reside
outside the United States,  may be difficult to obtain within the United States.
Furthermore,  any judgment  obtained in the United States  against us may not be
collectible  within  the United  States to the  extent  our  assets are  located
outside the United States.  This could limit the ability of our  stockholders to
sue us based upon an alleged  breach of duty or other  cause of action.  We have
been  informed  by our  Israeli  legal  counsel  that  there  is doubt as to the
enforceability  of civil liabilities under the Securities Act and the Securities
Exchange Act of 1934,  as amended,  in original  actions  instituted  in Israel.
However,  subject to limitation,  Israeli courts may enforce United States final
executory  judgments for liquidated  amounts in civil matters,  obtained after a
trial  before a court  of  competent  jurisdiction,  according  to the  rules of
private  international law currently prevailing in Israel, which enforce similar
Israeli judgments, provided that:

     o    due service of process has been effected and the defendant was given a
          reasonable  opportunity  to defend;
     o    the obligation  imposed by the judgment is executionable  according to
          the laws  relating to the  enforceability  of  judgments in Israel and
          such  judgment  is  not  contrary  to  public   policy,   security  or
          sovereignty of the State of Israel;
     o    such judgments were not obtained by fraud and do not conflict with any
          other valid judgments in the same manner between the same parties; and
     o    an action  between the same  parties in the same matter is not pending
          in any  Israeli  court at the time the  lawsuit is  instituted  in the
          foreign court.

     Foreign  judgments  enforced by Israeli courts generally will be payable in
Israeli  currency,  which can then be converted  into United States  dollars and
transferred out of Israel. The judgment debtor may also pay in dollars. Judgment
creditors must bear the risk of unfavorable exchange rates.


WE INTEND TO RETAIN ALL OF OUR FUTURE EARNINGS,  IF ANY, FOR USE IN OUR BUSINESS
OPERATIONS AND DO NOT EXPECT TO PAY DIVIDENDS TO OUR SHAREHOLDERS

     We have not  paid  any  dividends  on our  common  stock to date and do not
anticipate  declaring any dividends  until such time as we are  profitable.  Our
board presently intends to retain all earnings,  if any, for use in our business
operations.

THE LARGE NUMBER OF SHARES  AVAILABLE FOR FUTURE SALE COULD ADVERSELY AFFECT THE
PRICE OF OUR COMMON STOCK

     As of December 31, 2000, options to purchase approximately 1,395,500 shares
of our common stock were  outstanding.  The weighted  average  exercise price of
such options was $9.25 per share. Warrants to purchase  approximately  1,231,030
shares of common  stock  were  outstanding  as of June 30,  2000.  The  weighted
average exercise price of such warrants was $11.65 per share.

     Future sales of any shares represented by outstanding options and warrants,
or the  anticipation of such sales,  could adversely  affect the market price of
our common stock and could materially impair our future ability to raise capital
through an offering of equity securities. Further, any issuance of a substantial
number of these shares could result in increased  volatility in the price of our
common stock.

WE CURRENTLY FACE AND WILL CONTINUE TO FACE SIGNIFICANT COMPETITION

     Our DLM fuel cells face and will continue to face significant  competition.
A large number of  corporations,  national  laboratories and universities in the
United States,  Canada, Europe and Japan are actively engaged in the development
and  manufacture  of  fuel  cells,  both  DLM and  other  types.  Each of  these
competitors has the potential to capture market share in various markets,  which
would have a material  adverse  effect on our  position in the  industry and our
financial results.

     We expect  competition  to  intensify  greatly  as the need for new  energy
alternatives  becomes  more  apparent and  continues  to  increase.  Some of our
competitors are well  established  and have  substantially  greater  managerial,
technical, financial, marketing and product development resources. Additionally,
companies,  both large and small,  are entering the markets in which we compete.
There can also be no assurance that current and future  competitors  will not be
more successful in the markets in which we compete than we have been, or will be
in the future.  There can be no assurance  that we will be  successful in such a
competitive environment.

WE  EXPECT  TO BE  DEPENDENT  ON THIRD  PARTY  SUPPLIERS  FOR THE  SUPPLY OF KEY
MATERIALS AND COMPONENTS FOR OUR PRODUCTS

     When we commence  production  of our fuel  cells,  of which there can be no
assurance, we expect to rely upon third party suppliers to provide materials and
components for our DLM fuel cells. A supplier's  failure to supply  materials or
components in a timely manner,  or to supply  materials and components that meet
our  quality,  quantity  or  cost  requirements,  or  our  inability  to  obtain
substitute  sources for these  materials and components in a timely manner or on
terms  acceptable  to us,  could harm our  ability to  manufacture  our DLM fuel
cells.  We may be unable to  obtain  comparable  materials  or  components  from
alternative  suppliers,  and that could adversely  affect our ability to produce
viable  DLM fuel cells or  significantly  raise our cost of  producing  DLM fuel
cells.

     In addition, platinum is a key component of our DLM fuel cells. Platinum is
a scarce natural resource and we are dependent upon a sufficient  supply of this
commodity. While we do not anticipate significant near or long term shortages in
the supply of platinum,  such shortages  could  adversely  affect our ability to
produce  commercially  viable DLM fuel cells or significantly  raise our cost of
producing DLM fuel cells.

FORWARD-LOOKING STATEMENTS

     You  should  carefully  review the  information  contained  in this  Annual
Report, but should  particularly  consider any risk factors that we set forth in
this Annual Report and in other  reports or documents  that we file from time to
time with the Securities  and Exchange  Commission.  In this Annual  Report,  we
state our beliefs of future events and of our future financial  performance.  In
some cases,  you can identify those  so-called  "forward-looking  statements" by
words  such  as  "may,"  "will,"  "should,"  "expects,"  "plans,"  anticipates,"
"believes,"  "estimates," "predicts," "potential," or "continue" or the negative
of those  words and other  comparable  words.  You  should be aware  that  those
statements  are only our  predictions.  Actual  events  or  results  may  differ
materially.  In evaluating those statements,  you should  specifically  consider
various  factors,  including  the risks  outlined in this Annual  Report.  Those
factors  may cause our  actual  results  to  differ  materially  from any of our
forward-looking  statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

IMPACT OF INFLATION AND  DEVALUATION ON RESULTS OF OPERATIONS,  LIABILITIES  AND
ASSETS

     In  connection  with our currency  use, we operate in a mixed  environment.
Payroll  is paid in our local  currency  and the local  currency  of each of our
subsidiaries.  Consideration  for virtually all sales and Medis El's bank loans,
which have been repaid in full as of December 31, 2000, are either in dollars or
dollar-linked  currency.  As a result,  not all monetary assets and all monetary
liabilities  are  linked  to the same base in the same  amount at all  points in
time,  which may cause currency  fluctuation  related  losses.  In order to help
minimize  such  losses,  Medis El  currently  invests  its liquid  funds in both
dollar-linked and NIS-based assets.

     For many years prior to 1986, the Israeli economy was characterized by high
rates of inflation and  devaluation of the Israeli  currency  against the United
States  dollar  and other  currencies.  However,  since the  institution  of the
Israeli  Economic  Program  in  1985,  inflation,  while  continuing,  has  been
significantly  reduced  and  the  rate of  devaluation  has  been  substantially
diminished. During 1989 and 1990, the dollar declined in value relative to major
world currencies.  Because governmental policies in Israel linked exchange rates
to a weighted basket of foreign  currencies of Israel's major trading  partners,
the exchange  rate  between the NIS and the dollar  remained  relatively  stable
during this period. However, Israel effected devaluations of the NIS against the
dollar as follows:

                        1991               11.5%
                        1992               21.1
                        1993                8.0
                        1994                1.1
                        1995                3.9
                        1996                3.7
                        1997                8.8
                        1998               17.6
                        1999               (0.17)
                        2000               (2.7)

     During the three  years  ended  December  31,  1991,  the four years  ended
December  31,  1996,  and in 1999 and  2000,  the rate of  inflation  in  Israel
exceeded  the rate of  devaluation  of the NIS against the dollar,  but in 1998,
1997 and 1992, the rate of  devaluation  of the NIS against the dollar  exceeded
the rate of inflation in Israel.  In 2000,  there was no inflation in Israel and
the NIS appreciated by 2.7% against the dollar.

IMPACT OF POLITICAL AND ECONOMIC CONDITIONS

     The state of hostility which has existed in varying degrees in Israel since
1948,  its  unfavorable  balance of payments  and its history of  inflation  and
currency devaluation, all represent uncertainties which may adversely affect our
business.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     Our  consolidated  financial  statements  and  corresponding  notes thereto
called for by this item appear at the end of this  document  commencing  on page
F-1.

ITEM 9.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     On October 4, 2000, we dismissed Grant Thornton LLP (the "Former  Auditor")
as our independent auditor.

     The Former Auditor's  report on our financial  statements for the two years
ended December 31, 1999 (the "Prior Fiscal Period") contained no adverse opinion
and no  disclaimer of opinion,  nor was such report  qualified or modified as to
uncertainty, audit scope, or accounting principles.

     Our dismissal of the Former Auditor was approved by our board of directors.

     There were no disagreements between us and the Former Auditor on any matter
of accounting  principles  or  practices,  financial  statement  disclosure,  or
auditing scope or procedure ("Disagreements") during either (i) the Prior Fiscal
Period or (ii) the period January 1, 2000 through  October 4, 2000 (the "Interim
Period"), which Disagreements, if not resolved to the satisfaction of the Former
Auditor,  would have caused the Former  Auditor to make reference to the subject
matter of the  Disagreement  in connection  with its report for the Prior Fiscal
Period.

     The Former Auditor has expressed no  Disagreement  or difference of opinion
regarding  any of the kinds of events  defined  as  "reportable  events" in Item
304(a)(1)(v) of Regulation S-K ("Reportable Events").

     We have  engaged  the  firm of  Arthur  Andersen  LLP,  Independent  Public
Accountants (the "New Auditor"),  as our independent auditor for our fiscal year
ending  December  31,  2000.  We did not consult the New Auditor with respect to
either the Prior Fiscal  Period or the Interim  Period as regards (i) either the
application  of  accounting  principles  to  a  specified  transaction,   either
completed  or proposed,  or the type of audit  opinion that might be rendered on
our  financial  statements  or (ii) any matter  that was either the subject of a
Disagreement or a Reportable Event.

     We have authorized and requested the Former Auditor to respond fully to the
inquiries of the New Auditor.

<PAGE>

                                     PART 3

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         Our executive officers and directors are as follows:

               Name              Age                  Position
------------------------------  ----    ---------------------------------------
Robert K. Lifton..............   73     Chairman of the Board,  Chief Executive
                                        Officer and Secretary

Howard Weingrow...............   78     President, Treasurer and Director

Zvi Rehavi....................   66     Executive Vice President

Jacob S. Weiss................   48     Senior Vice President-Business
                                        Development and Director

Israel Fisher.................   53     Vice President-Finance

Amos Eiran....................   64     Director

Zeev Nahmoni..................   60     Director

Jacob E. Goldman..............   82     Director

Seymour Heinberg..............   80     Director

Shmuel Peretz.................   61     Director

     ROBERT K.  LIFTON  has been our  chairman  of the  board,  chief  executive
officer and  secretary  since our  inception.  Prior to that,  Mr.  Lifton was a
director of Medis El since its inception in July 1992. He is principally engaged
in managing his own investments through the Stanoff Corporation,  of which he is
a major shareholder and a principal,  and other investment vehicles.  Mr. Lifton
is a director of Bank Leumi USA, the co-chairman of the U.S.-Middle East Project
of the  Council  on  Foreign  Relations,  chair of the  Public  Health  Research
Institute and serves on the boards of numerous philanthropic  organizations.  He
also is an officer and director of a number of privately  held  companies.  From
1988 to 1994,  he was  president  of the  American  Jewish  Congress  and is the
founding  chairman and chairman emeritus of the Israel Policy Forum. In 1983, he
was a founder of  Preferred  Health Care Ltd.  and served as its  president.  In
1961,  he  co-founded   with  Mr.   Weingrow  the   Transcontinental   Investing
Corporation,  serving as its president until 1968, when it was listed on the New
York Stock  Exchange,  and then  chairman of the board until its merger in 1972.
Mr.  Lifton  was an  associate  attorney  with the law  firm of  Kaye,  Scholer,
Fierman,  Hays and Handler in 1955 and 1956,  after  receiving a law degree from
Yale Law School and being  admitted to the New York Bar,  and has taught at Yale
and Columbia law schools.  Mr.  Lifton has written  extensively  on business and
political matters.

     HOWARD WEINGROW has been our president,  treasurer and one of our directors
since our inception and a director of Medis El since its inception. Mr. Weingrow
is  principally  engaged in  managing  his own  investments  through the Stanoff
Corporation,  of which he is a major  shareholder  and a  principal,  and  other
investment vehicle. Mr. Weingrow is a trustee of the Children's Medical Fund and
the North  Shore-Long  Island Jewish Health System.  He is also a trustee of the
James S. Brady Presidential  Foundation and the Nassau County Museum of Art. Mr.
Weingrow is the founder of the Weingrow Family Children's Research Laboratory of
Long Island Jewish  Hospital and the Weingrow  Collection of Avant Garde Art and
Literature  at Hofstra  University  He was  chairman  and a director  of Mercury
Paging &  Communications,  Inc.  from 1995 until its sale in 1997.  In 1961,  he
co-founded with Mr. Lifton the Transcontinental  Investing Corporation,  serving
as its executive vice president  until 1968 and then president  until its merger
in 1972. Mr. Weingrow served as treasurer of the Democratic  National  Committee
in 1971 and 1972.

     ZVI REHAVI has been our executive  vice  president  since June 2000 and the
executive  vice  president and General  Manager of Medis El since its inception.
Mr.  Rehavi is also general  manager of More Energy.  From 1989 to 1991,  he was
manager of  development  and  production  of Patriot  Missile  Sensors,  a joint
venture of Israel Aircraft and Martin Marietta. From 1984 to 1989, he was Israel
Aircraft's director of sensors and electro mechanical  components.  From 1966 to
1974, he was manager,  inertial components  laboratory at Israel Aircraft.  From
1958 to 1966, he served with the Technical  Office of the Ministry of Defense of
Israel.  He  has  a  Master  of  Engineering  Science  from  the  University  of
Pennsylvania.  He was a Ph.D. candidate in Applied Physics at Hebrew University,
Jerusalem, and an MBA candidate at the Wharton School.

     JACOB S.  WEISS has been our  senior  vice  president-business  development
since August 2000,  one of our  directors  since  December 1997 and one of Medis
El's  directors  since  October  1993. He was also engaged by us in a consulting
capacity  from  November  1999  through  August  2000.  Mr.  Weiss served as the
corporate vice president and general  counsel to Israel  Aircraft,  from 1996 to
2000.  Prior to that, he was deputy  general  counsel-international  division of
Israel  Aircraft.  Mr.  Weiss is also the chief  executive  officer of  ImageSat
International,  a company  established by Israel Aircraft to  commercialize  its
remote sensing satellite technology.

     ISRAEL FISHER has been our vice  president-finance  since June 2000 and the
vice president-finance and secretary of Medis El since its inception. Mr. Fisher
is also vice  president-finance  of More Energy. From 1990 to 1992, he served as
the  deputy  manager  of Israel  Aircraft  for  financial  planning  and  credit
management.  From 1987 to 1990, he served as the deputy  finance  manager of the
Tamam Plant of the Electronics  Division of Israel  Aircraft.  He has a MBA from
the University of Tel Aviv and two BA degrees from Bar-Ilan  University:  one in
accounting and the other in Economics and Business Administration.

     AMOS EIRAN has been one of our  directors  since  December  1997 and one of
Medis El's directors  since its  inception.  Mr. Eiran serves as chairman of the
Industrial  Cooperation  Authority,  the  agency  in  charge of the buy back and
offset program of the State of Israel,  for at least the past 5 years. Mr. Eiran
also serves as director for Clal Insurance Group, an Israeli insurance  company,
Clal  Electronics  Pension  Fund and serves as  chairman  of ATUDOT,  an Israeli
insurance  company.  Previously,  Mr.  Eiran was  director  general of the Prime
Minister's  office  during  Yitzhak  Rabin's  first term as Prime  Minister  and
director general and chairman of Mivtahim, the largest pension fund in Israel.

     ZEEV NAHMONI has been one of our directors  since  December 1997 and one of
Medis El's  directors  from August 1994 to March 1996 and from  October  1996 to
present.  Mr.  Nahmoni  is  the  vice  president  and  general  manager  of  the
Electronics  Group of Israel  Aircraft since 1997 and the Deputy General Manager
of the Electronics Group of Israel Aircraft from 1995 to 1997. Prior to that, he
was the general manager of the Tamam Division of the Electronics Group of Israel
Aircraft  from  1992 to  1995.  Mr.  Nahmoni  is  also a  director  of  ImageSat
International.

     JACOB E. GOLDMAN has been one of our directors  since  September  2000. Dr.
Goldman is chairman of the board and a  consultant  to Umbanet,  Inc., a company
developing software for securing e-mail messages, since April 2000. From 1996 to
1999, he was a consultant to Oxbridge  Inc.,  an investment  banking firm.  From
1977 to the present,  Dr.  Goldman has served on the board of directors and as a
member of the  executive  committee  of Bank  Leumi USA.  From 1983 to 1994,  he
founded and served as chairman and chief  executive  officer of Softstrip,  Inc.
From 1968 to 1983 he served as senior vice president and chief technical officer
of Xerox  Corporation  where he founded and presided over its Palo Alto Research
Center  (PARC).  Between  1955 and 1968 he  served  as  Director  of Ford  Motor
Company's  scientific research  laboratory.  Dr. Goldman has served on Boards of
various  corporations  and  institutions  including  Xerox,  GAF, Inc.,  General
Instrument  Corporation,  Lex Services PLC, Peerlogic Inc. and United Brands and
was president of the American Technion Society. He received his Ph.D. in physics
from the University of Pennsylvania.

     SEYMOUR  HEINBERG has been one of our directors  since  September 2000. Mr.
Heinberg was the founder in 1973 and principal of the accounting firm of Seymour
Heinberg,  CPA, P.C.  until 1992,  when that firm merged with Edward I. Isaacs &
Co. LLP,  where he was a retired  partner until October 2000 when it merged with
RSM McLadrey, Inc. Mr. Heinberg started his career at the public accounting firm
Escoe and Heinberg,  where he served as a general  partner form 1951 to 1973. In
1998 he received the first Special  Recognition  Award from the  Foundation  for
Accounting  Education of the New York State  Society of CPAs for his 50 years of
outstanding committee service and tax lectures.

     SHMUEL PERETZ has been one of our directors  since December 1997 and one of
Medis El's directors since its inception.  Mr. Peretz is currently the president
of Israel  Aircraft Europe and has served in such capacity since 1997. From 1988
to 1996, he was the corporate vice  president-finance  of Israel  Aircraft.  Mr.
Peretz  serves as a director of the Israeli  corporations  Elta Ltd.  and Magel,
Ltd.

     Messrs. Lifton,  Weingrow,  Eiran, Weiss and Nahmoni are directors of Medis
Inc. and, with Mr. Peretz, directors of CDS Distributor,  Inc., our wholly owned
subsidiaries.  Messrs.  Lifton,  Weingrow  and Weiss are also  directors of More
Energy,  with  Messrs.  Lifton and Weingrow  each  entitled to two votes for all
matters coming before the board of directors.

     Each  director  is  elected  for a one year term at our  annual  meeting of
shareholders.
<PAGE>

AUDIT COMMITTEE

     We have appointed an audit committee,  which currently  consists of Messrs.
Goldman,  Eiran  and  Heinberg  (chairman).  The  responsibilities  of the audit
committee include:

     o    reviewing and recommending to our board the appointment of independent
          accountants;

     o    reviewing the scope of our internal and external audits;

     o    ensuring the independence of our independent accountants;

     o    reviewing the adequacy of our internal accounting controls; and

     o    discussing with  management and our independent  accountants our draft
          annual and  quarterly  financial  statements  and key  accounting  and
          reporting matters.

ADVISORY BOARD

     We  recently  appointed a  corporate  advisory  board to assist us with our
business strategy and to build relationships with third parties to assist in the
development of our technologies. The advisory board consists of:

     o    Lester Crown,  the current  chairman of the  executive and  nominating
          committees  of General  Dynamics  Corporation,  chairman  of  Material
          Service  Corporation  and  president of Henry Crown and  Company.  Mr.
          Crown is also a principal of CVF, LLC, a major stockholder.

     o    Louis  Perlmutter,  a retired  senior  partner and executive  managing
          director of Lazard Freres & Co., LLC,  currently serves as chairman of
          the  science  and  technology  committee  of the Board of  Fellows  of
          Harvard Medical School.

     o    Fouad M.T.  Alghanim,  the chairman of Fouad  Alghanim & Sons Group of
          Companies,   consultants  to  multinational   commercial  contractors,
          chairman  of  Advanced  Technology  Company,   health-care   equipment
          suppliers  and  service  providers  in Kuwait and  chairman  of Energy
          International Petroleum Projects Company,  specialists in the field of
          oil exploration and production.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

     Section  16(a) of the Exchange Act requires  our  directors  and  executive
officers and persons who own  beneficially  more than 10% of our common stock to
file reports of ownership and changes in ownership of such common stock with the
Securities and Exchange Commission,  and to file copies of such reports with us.
Based solely upon a review of the copies of such reports filed with the Company,
the Company  believes that during 2000 such reporting  persons complied with the
filing requirements of said Section 16(a) except that Messrs. Zvi Rehavi, Israel
Fisher,  Jacob E. Goldman and Seymour  Heinberg were not timely in the filing of
their respective  Initial  Statements of Beneficial  Ownership of Securities and
the following were not timely in the filing of monthly reports:

           NAME                   NUMBER OF REPORTS     NUMBER OF TRANSACTIONS
           ----                   -----------------     ----------------------
 Robert K. Lifton                         3                       10
 Howard Weingrow                          3                        9
 Zvi Rehavi                               1                        1
 Jacob Weiss                              1                        1
 Zeev Nahmoni                             1                        1
 Israel Aircraft Industries Ltd.          1                        6
 CVF, LLC                                 1                        5

<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

         The following table sets forth information with respect to compensation
earned by Robert K.  Lifton,  our chief  executive  officer,  and Zvi Rehavi and
Israel  Fisher,  our only  other  executive  officers  who  earned  in excess of
$100,000, for the year ended December 31, 2000.
<TABLE>
<CAPTION>


                                                                                                  LONG-TERM
                                                    ANNUAL COMPENSATION                     COMPENSATION AWARDS
                                    ------------------------------------------------     -------------------------
                                                                           OTHER         RESTRICTED     SECURITIES
                                                                           ANNUAL          STOCK        UNDERLYING
NAME AND PRINCIPAL POSITION         YEAR      SALARY        BONUS       COMPENSATION      AWARD(S)       OPTIONS
---------------------------         ----      ------        -----      -------------      --------       -------
<S>                                 <C>     <C>            <C>          <C>                  <C>         <C>
Robert K. Lifton
   Chief Executive Officer.....     2000          --            --      $183,000(1)          --          300,000
Zvi Rehavi
   Executive Vice President....     2000    $198,000       $87,000      $113,000(2)          --          100,000
Israel Fisher
   Vice President-Finance......     2000    $134,000       $12,000       $32,000(3)          --           15,000

---------------
</TABLE>

(1)  Mr. Lifton is paid as an independent consultant for his services.
(2)  Includes  a monthly  apartment  allowance  aggregating  $44,000,  a $30,000
     payment  for an  educational  fund and a  contribution  of $19,700 to a key
     person life insurance  policy whereby upon  termination of employment,  Mr.
     Rehavi shall receive a lump sum distribution based upon the number of years
     of premium payout. Medis El is the death beneficiary of such policy.
(3)  Includes a  contribution  of $23,000  by Medis El to an  insurance  pension
     fund.

     We have  employment  agreements  with Zvi  Rehavi and  Israel  Fisher.  Mr.
Rehavi's agreement is for a two year term expiring on September 30, 2002 and Mr.
Fisher's  agreement  is for a one year  term  expiring  on March  23,  2002 with
automatic one year renewal terms commencing on the expiration of such term. Each
of the  agreements,  in addition to salary,  stock options and fringe  benefits,
provides for 6 months salary upon  notification  of resignation or dismissal and
upon a change of  ownership  of Medis El with  subsequent  dismissal  by the new
owners.

OPTION GRANTS IN LAST FISCAL YEAR

     The following table sets forth  information  with respect to options grants
issued by us in the fiscal year ended December 31, 2000.
<TABLE>
<CAPTION>

                                                   PERCENT OF TOTAL
                          NUMBER OF SECURITIES     OPTION GRANTED TO
                            UNDERLYING OPTION        EMPLOYEES IN         EXERCISE PRICE PER
Name                           GRANTED (1)            FISCAL YEAR               SHARE             EXPIRATION DATE
----------------------    --------------------     -----------------      ------------------      ---------------
<S>                              <C>                      <C>                  <C>                <C>
Robert K. Lifton                 100,000                  10.1                 $16.42             June 15, 2002
                                 200,000                  20.1                 $13.50             December 22, 2004
Zvi Rehavi                       100,000                  10.1                 $13.50             December 22, 2004
Israel Fisher                     15,000                   1.5                  $5.00             February 21, 2004
-----------
</TABLE>

(1)  Options to purchase ordinary shares of Medis El held by the named executive
     officers  were  exchanged  or we expect to exchange  shortly for options to
     purchase  shares of our commons stock in the following  aggregate  amounts:
     Robert K.  Lifton - 89,100;  Zvi  Rehavi -  109,600;  and  Israel  Fisher -
     13,700. The exercise prices of these options were adjusted for the terms of
     the Medis El exchange  offer.  The expiration  date and other terms did not
     change.

<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES

     The following table sets forth information with respect to each exercise of
stock options during the fiscal year ended December 31, 2000 and the fiscal year
end value of unexercised options.
<TABLE>
<CAPTION>

                                                           NUMBER OF SECURITIES              VALUE OF UNEXERCISED
                                                      UNDERLYING UNEXERCISED OPTIONS    IN-THE-MONEY OPTIONS AT FISCAL
                           SHARES                           AT FISCAL YEAR-END                     YEAR-END
                         ACQUIRED ON      VALUE       ------------------------------    ------------------------------
 Name                     EXERCISE       REALIZED     EXERCISABLE      UNEXERCISABLE    EXERCISABLE      UNEXERCISABLE
-------------------      -----------     --------     -----------      -------------    -----------      -------------
<S>                         <C>          <C>               <C>            <C>                <C>         <C>
Robert K. Lifton            20,550       $353,756          68,550         400,000            753,675     1,882,000
Zvi Rehavi(1)                   --             --               0         300,000                  0     2,939,000
Israel Fisher(2)                --             --               0          15,000                  0       168,750
-------------------
</TABLE>

(1)    Mr. Rehavi exercised  options to purchase an aggregate of 45,000 ordinary
       shares of Medis El in January and February  2000.  The value realized was
       approximately $763,450. Does not include options to purchase an aggregate
       of 80,000  ordinary shares of Medis El granted to Mr. Rehavi prior to the
       Medis El exchange  offer that will be  exchanged  for options to purchase
       109,600  shares of our common stock upon receipt of certain tax treatment
       from the Israeli tax  authorities.  The value of such  options  cannot be
       ascertained.
(2)    Mr. Fisher  exercised  options to purchase an aggregate of 9,500 ordinary
       shares of Medis El in January 2000. The value realized was  approximately
       $41,750.  Does not include  options to purchase  an  aggregate  of 10,000
       ordinary  shares of Medis El granted to Mr.  Fisher prior to the Medis El
       exchange  offer that will be  exchanged  for options to  purchase  13,700
       shares of our common stock  issued upon receipt of certain tax  treatment
       from the Israeli tax  authorities.  The value of such  options  cannot be
       ascertained.

COMPENSATION OF DIRECTORS

     Directors receive  reimbursement  for out-of-pocket  expenses or a flat per
diem for each board or committee meeting attended,  whether in the United States
or  Israel.  Directors  also  receive  stock  options  as fixed by the  board of
directors upon becoming a director and each year  thereafter,  at the discretion
of the board.

     We paid Amos Eiran a non-employee  director,  an aggregate of approximately
$15,000 for consulting services he provided to us during 2000. Additionally,  we
paid Jacob Weiss, a director and our senior vice president-business development,
an aggregate of approximately  $28,000 for consulting services he provided to us
during 2000 prior to becoming an officer in August 2000.

1999 STOCK OPTION PLAN

     We adopted our 1999 stock  option plan on July 13, 1999.  We have  reserved
2,000,000  shares  of common  stock  with  respect  to which  options  and stock
appreciation  rights  may be  granted  under the plan,  subject  to  stockholder
approval of 1,000,000 of such shares which we will seek at our annual meeting of
stockholders  planned  for June 2001.  The purpose of the plan is to promote our
interests and the interests of our stockholders by strengthening  our ability to
attract  and  retain  competent  employees,  to make  service  on our board more
attractive to present and  prospective  non-employee  directors and to provide a
means  to  encourage  stock   ownership  and   proprietary   interest  in  Medis
Technologies by officers,  non-employee directors and valued employees and other
individuals  upon whose  judgment,  initiative and efforts our financial  growth
largely depends.

     The plan may be  administered  by either  the entire  board or a  committee
consisting of two or more members of our board,  each of whom is a  non-employee
director. The plan is currently administered by our board.

         Incentive   stock   options  may  be  granted   only  to  our  and  our
subsidiaries'  officers and key employees.  Nonqualified stock options and stock
appreciation rights may be granted to our officers, employees, directors, agents
and  consultants.  In  determining  the  eligibility of an individual for grants
under the plan, as well as in determining the number of shares to be optioned to
any individual,  the stock option  committee takes into account the position and
responsibilities of the individual being considered,  the nature and value to us
of his or her  service  or  accomplishments,  his or her  present  or  potential
contribution to our success or the success of our  subsidiaries,  the number and
terms of options and stock appreciation rights already held by an individual and
such other factors as the stock option committee may deem relevant.

     The plan  provides for the granting of incentive  stock options to purchase
our  common  stock at not less  than  the fair  market  value on the date of the
option grant and the  granting of  nonqualified  options and stock  appreciation
rights with any exercise price. Stock appreciation rights granted in tandem with
an option have the same exercise price as the related option.  The plan contains
certain  limitations  applicable only to ISOs granted there under. To the extent
that the aggregate fair market value,  as of the date of grant, of the shares to
which  incentive  stock  options  become  exercisable  for the first  time by an
optionee during the calendar year exceeds  $100,000,  the option will be treated
as a nonqualified option. In addition,  if an optionee owns more than 10% of the
total voting  power of all of our capital  stock at the time the  individual  is
granted an  incentive  stock  options the option  price per share cannot be less
than 110% of the fair market value per share and the term of the incentive stock
options cannot exceed five years. No option or stock appreciation  rights may be
granted under the plan after June 30, 2009, and no option or stock  appreciation
rights may be outstanding for more than ten years after its grant.

     Upon the  exercise of an option,  the holder must make  payment of the full
exercise  price.  Such  payment  may be made in cash,  check or,  under  certain
circumstances,  in shares of our common stock, or any combination thereof. Stock
appreciation  rights,  which give the holder the privilege of surrendering  such
rights for the  appreciation  in the common stock  between the time of the grant
and the surrender,  may be settled, in the discretion of our board or committee,
as the case may be, in cash,  common stock, or in any combination  thereof.  The
exercise  of an stock  appreciation  rights  granted  in  tandem  with an option
cancels the option to which it relates with respect to the same number of shares
as to which the stock  appreciation  rights was  exercised.  The  exercise of an
option  cancels any related stock  appreciation  rights with respect to the same
number of shares as to which the option was  exercised.  Generally,  options and
stock  appreciation  rights may be exercised  while the  recipient is performing
services for us and within three months after termination of such services.

     The plan may be terminated  at any time by our board,  which may also amend
the plan,  except that  without  stockholder  approval,  it may not increase the
number of shares subject to the plan or change the class of persons  eligible to
receive options under the plan.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL STOCKHOLDERS

     The following table sets forth certain  information  regarding ownership of
our common stock as of December 31, 2000 by:

     o    each beneficial owner of five percent or more of our common stock;

     o    each of our directors and named executive officers; and

     o    all of our directors and executive officers as a group.

     Unless otherwise indicated,  we believe that all persons named in the table
have sole voting and investment power with respect to all shares of common stock
beneficially  owned by them.  A person is deemed to be the  beneficial  owner of
securities  which may be acquired by such person within 60 days from the date on
which  beneficial  ownership is to be determined,  upon the exercise of options,
warrants or convertible securities. Each beneficial owner's percentage ownership
is determined by assuming that options, warrants and convertible securities that
are held by such person,  but not those held by any other person,  and which are
exercisable  within such 60 day period,  have been exercised.  Unless  otherwise
noted, the address of each holder of five percent or more of our common stock is
our corporate address.
<PAGE>

                                                NUMBER OF SHARES
                                                OF COMMON STOCK      OWNERSHIP
NAME AND ADDRESS OF BENEFICIAL OWNER           BENEFICIALLY OWNED   PERCENTAGE
--------------------------------------------   ------------------   ----------
Israel Aircraft Industries Ltd. (1).........        5,528,957            32.9
Robert K. Lifton (2)........................        1,897,495            11.0
Howard Weingrow (3).........................        1,713,027            10.0
CVF, LLC (4)................................        1,346,252             8.0
Zvi Rehavi (5)..............................              ___             ___
Israel Fisher (6)...........................              ___             ___
All directors  and  executive  officers as a
   group (10 persons) (5)(6)(7).............        3,045,481            17.6%

-----------
* Less than 1%
(1)  Includes  25,000  shares of our common stock  underlying  warrants  held by
     Israel Aircraft.  Voting control of Israel Aircraft is held by the State of
     Israel. Israel Aircraft's address is Ben Gurion International  Airport, Tel
     Aviv 70100, Israel.
(2)  Includes 152,865 shares of our common stock underlying warrants held by Mr.
     Lifton and an  aggregate  of 569,836  shares of our common stock and common
     stock  underlying  warrants  held  by the  Stanoff  Corporation,  which  is
     beneficially owned by Messrs. Lifton and Weingrow. Also includes options to
     acquire 68,550 shares of our common stock which are currently  exercisable.
     Does not include an aggregate of 338,000 shares of our common stock held in
     trust for relatives of Mr. Weingrow of which Mr. Lifton is a trustee.
(3)  Includes 123,698 shares of our common stock underlying warrants held by Mr.
     Weingrow and an aggregate of 569,836  shares of our common stock and common
     stock  underlying  warrants  held  by the  Stanoff  Corporation,  which  is
     beneficially owned by Messrs. Lifton and Weingrow.
(4)  Includes  152,084  shares of our common stock  underlying  warrants held by
     CVF,  LLC.  CVF is  controlled  by Lester  Crown,  a member of our advisory
     board,  and Charles  Goodman,  as well as other members of the Crown family
     who have  interests  in, or  individually  are  officers or  directors  of,
     numerous publicly and privately held companies,  including energy concerns.
     CVF's address is 222 North LaSalle Street, Chicago, IL 60601.
(5)  Does not include  the  expected  exchange  of options to  purchase  109,600
     shares of our common stock for options to purchase  80,000  ordinary shares
     of Medis El granted to Mr.  Rehavi  prior to the Medis El  exchange  offer.
     Counting such shares  underlying  Medis  Technologies  options,  Mr. Rehavi
     would own less than 1% of our common stock.
(6)  Does not include the expected exchange of options to purchase 13,700 shares
     of our common stock for options to purchase 10,000 ordinary shares of Medis
     El granted to Mr.  Fisher  prior to the Medis El exchange  offer.  Counting
     such shares  underlying Medis  Technologies  options,  Mr. Fisher would own
     less than 1% of our common stock.
(7)  Includes our directors and executive officers and a corporation
     beneficially owned by some of our officers and directors.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     In January 2000, we sold in a private  placement units,  each consisting of
66,000 shares of our common stock and a warrant to purchase 25,000 shares of our
common stock, at a purchase price of $300,000 per unit. The following affiliates
purchased units in this offering:

     o    Israel Aircraft Industries Ltd. purchased one unit.

     o    Robert K. Lifton purchased one-quarter of one unit.

     o    Howard Weingrow purchased one-quarter of one unit.

     o    CVF, LLC purchased two and one-half units.

     o    Stanoff Corporation, which is beneficially owned by Messrs. Lifton and
          Weingrow, purchased one and one half units.

     In February 2000, we purchased from Medis El in a private placement 107,759
of its ordinary shares for an aggregate of $2,500,000.

     In January and February 2000, Zvi Rehavi  exercised  options to purchase an
aggregate of 45,000 ordinary shares of Medis El at an average  exercise price of
approximately $4.76 per share, or an aggregate of approximately $215,000.

     In January 2000,  Israel Fisher exercised  options to purchase an aggregate
of 9,500 ordinary  shares of Medis El at an exercise price of approximate  $7.43
per share, or an aggregate of approximately $70,538.

<PAGE>
     From January to June 2000, Medis El purchased an aggregate of an additional
11.5% of the  outstanding  shares of More Energy Ltd. for an aggregate  purchase
price of $320,000, giving Medis El a 93% interest in such company. Additionally,
in November 2000, we purchased an option for the remaining 7% of the outstanding
shares of More Energy held by its general  manager and director,  at an exercise
price of 1,714  shares  of our  common  stock for each More  Energy  share.  The
purchase  price of the option is  US$500,000,  which we are  required  to pay no
later  than  July  31,  2001  or the  option  expires.  Furthermore,  we paid an
aggregate of US$20,000 as consideration  for the right to pay the purchase price
until such date.

     In June 2000, Israel Aircraft  exercised warrants to purchase 50,000 shares
of our common  stock at an average  exercise  price of  approximately  $5.38 per
share,  or  aggregate  cash  consideration  of  approximately  $269,000.  As  an
incentive to exercise,  Israel  Aircraft  received  25,000 new warrants that are
exercisable at $16.42 per share until June 15, 2002.

     In June 2000, Robert K. Lifton exercised warrants to purchase 60,000 shares
of our common stock at an exercise  price of $5.00 per share,  or aggregate cash
consideration of approximately $300,000. As an incentive to exercise, Mr. Lifton
received 30,000 new warrants that are exercisable at $16.42 per share until June
15, 2002.

     In June 2000, Howard Weingrow  exercised warrants to purchase 60,000 shares
of our common stock at an exercise  price of $5.00 per share,  or aggregate cash
consideration  of  approximately  $300,000.  As an incentive  to  exercise,  Mr.
Weingrow  received  30,000 new warrants that are exercisable at $16.42 per share
until June 15, 2002.

     In June 2000, CVF, LLC exercised warrants to purchase 304,167 shares of our
common stock at an average exercise price of  approximately  $5.15 per share, or
aggregate cash  consideration  of approximately  $1,568,000.  As an incentive to
exercise,  CVF received  152,084 new warrants that are exercisable at $16.42 per
share until June 15, 2002.

     Medis El is presently  included as an  additional  insured  party on Israel
Aircraft's product,  casualty,  and third party liability  coverage.  During the
year ended  December  31,  2000,  Medis El  charged  IAI  approximately  $64,000
relating to property loss insurance claims.

     On April 24, 2000, we commenced an exchange offer for the approximately 36%
of Medis El we did not already  beneficially own, offering 1.37 of our shares of
common stock for each ordinary share tendered. At the expiration of the offer on
June 5, 2000,  shareholders  of Medis El  tendered  an  aggregate  of  3,643,241
ordinary shares,  giving us beneficial  ownership of approximately  98% of Medis
El's  outstanding  ordinary  shares.  The remaining  182,669 shares passed to us
under operation of Israeli law upon the expiration of the exchange offer.

     On December 29, 2000,  we entered into a $5 million  revolving  credit line
loan  agreement  with Fleet  National  Bank.  The loan  agreement,  which  bears
interest on the outstanding balances based on either the LIBOR or Prime Rate and
terminates on December 28, 2002, is  collateralized by all cash and other assets
on deposit with the bank at any time and an assignment  of certain  leases owned
by a partnership in which Robert K. Lifton and Howard Weingrow are partners.

     We pay rent of  approximately  $72,000 per year for the use of office space
in premises occupied by the Stanoff Corporation,  which is beneficially owned by
Messrs. Lifton and Weingrow.

     Except for  affiliates of which we are 100% owners,  all ongoing and future
transactions  between us and our  affiliates  will be on terms no less favorable
than  can be  obtained  from  unaffiliated  parties  and will be  approved  by a
majority of our independent and disinterested directors.
<PAGE>

                                     PART 4

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

     (a) Financial Statements.

     Our  financial  statements  as set  forth  in  the  Index  to  Consolidated
Financial   Statements  attached  hereto  commencing  on  page  F-1  are  hereby
incorporated by reference.

     (b) Exhibits.

     The following  exhibits,  which are numbered in accordance with Item 601 of
Regulation  S-K,  are filed  herewith  or, as noted,  incorporated  by reference
herein:
<TABLE>
<CAPTION>
 <S>       <C>
  3.(i)    Form of Restated Certificate of Incorporation of Medis Technologies Ltd. (1)
  3.(ii)   Form of Restated By-Laws of Medis Technologies Ltd., as amended (1)
  4.1      Form of certificate evidencing shares of common stock (1)
 10.1*     Medis Technologies Ltd.'s 1999 Stock Option Plan (1)
 10.2      Form of warrant agreement (1)
 10.3*     Employment Agreement dated November 2, 2000 between Zvi Rehavi and Medis El Ltd.
 10.4*     Employment Agreement dated March 23, 1999 between Israel Fisher and Medis El Ltd.
 10.5      Loan  Agreement  dated as of  December 29,  2000 between Fleet  National Bank, as the lender and Medis
           Technologies Ltd., as the borrower
 10.6      Technology  Development  Agreement  dated as of December 14, 1998 by and between Medis El Ltd. and The
           Coca-Cola Company (1)
 10.7      Cooperation Agreement dated February 6, 2001 by and between Sagem SA and Medis Technologies Ltd.
 10.8      Strategic  Agreement  dated  April  5,  2001  by  and  between  General  Dynamics  Government  Systems
           Corporation and Medis Technologies Ltd.
 10.9      Option  Agreement  dated  November  9, 2000,  by and  between  Medis  Technologies  Ltd.  and  Gennadi
           Finkelstain, and amendment thereto
 17.1      Letter from Grant Thornton LLP to the Securities and Exchange Commission, dated October 5, 2000 (2)
 21.1      Subsidiaries of the Registrant

------------------
</TABLE>
*Management contract or compensatory plan
(1)    Filed as an exhibit to the Registration Statement on Form S-1, as amended
       (File  No.:  333-83945),  of Medis Technologies Ltd.and incorporated
       herein by reference.
(2)    Filed as an exhibit to the Current Report on Form 8-K dated October 6,
       2000 of Medis  Technologies Ltd. and incorporated  herein by reference.

     (c) Reports on Form 8-K:

A Report on Form 8-K was filed on October 6, 2000.

<PAGE>


                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

Dated:  April 11, 2001           MEDIS TECHNOLOGIES LTD.


                                 By: /S/ ROBERT K. LIFTON
                                     ---------------------------------------
                                     Robert K. Lifton
                                     Chairman and Chief Executive Officer


     PURSUANT TO THE  REQUIREMENTS OF THE SECURITIES  EXCHANGE ACT OF 1934, THIS
REPORT  HAS  BEEN  SIGNED  BELOW  BY THE  FOLLOWING  PERSONS  ON  BEHALF  OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

         Signature                      Title                         Date
----------------------------- --------------------------------  ---------------

/S/ ROBERT K. LIFTON          Chairman and                       April 11, 2001
----------------------------- Chief Executive Officer, Director
         Robert K. Lifton

/S/ ISRAEL FISHER             Vice President-Finance             April 11, 2001
----------------------------- (Principal Financial Officer)
         Israel Fisher

/S/ HOWARD WEINGROW           President, Treasurer and Director  April 11, 2001
-----------------------------
         Howard Weingrow

/S/ JACOB WEISS               Senior Vice President-Business     April 11, 2001
----------------------------- Development and Director
         Jacob Weiss

/S/ AMOS EIRAN                Director                           April 11, 2001
-----------------------------
         Amos Eiran

----------------------------- Director
         Zeev Nahmoni

----------------------------- Director
         Jacob E. Goldman

----------------------------- Director
         Seymour Heinberg

/S/ SHMUEL PERETZ             Director                           April 11, 2001
-----------------------------
         Shmuel Peretz


<PAGE>

                                    I N D E X

                                                                          PAGE
                                                                          ----
MEDIS TECHNOLOGIES LTD. FINANCIAL STATEMENTS
--------------------------------------------
Report of Independent Public Accountants                              F-2 - F-3

Financial Statements

     Consolidated Balance Sheets as of December 31, 1999 and 2000           F-4

     Consolidated Statements of Operations for the years
         ended  December 31, 1998, 1999 and 2000                            F-5

     Consolidated Statements of Stockholders' Equity for the years
         ended December 31, 1998, 1999 and 2000                             F-6

     Consolidated Statements of Cash Flows for the years
         ended  December 31, 1998, 1999 and 2000                      F-7 - F-8

     Notes to Consolidated Financial Statements                       F-9 - F-36



<PAGE>


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS



Board of Directors and Stockholders of
    MEDIS TECHNOLOGIES LTD.


We  have  audited  the   accompanying   consolidated   balance  sheet  of  Medis
Technologies  Ltd. (a Delaware  corporation) and Subsidiaries as of December 31,
2000,  and the related  consolidated  statements  of  operations,  stockholders'
equity, and cash flows for the year then ended.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the financial  position of Medis  Technologies Ltd. and
Subsidiaries  as of December 31, 2000,  and the results of their  operations and
their  cash  flows  for the  year  then  ended  in  conformity  with  accounting
principles generally accepted in the United States.



ARTHUR ANDERSEN LLP

New York, New York
March 13, 2001




                                      F-2
<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 (a Delaware  corporation) as of December 31,
1999,  and the related  consolidated  statements  of  operations,  stockholders'
equity,  and cash flows for each of the two years in the period  ended  December
31, 1999.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the  United  States of  America.  Those  standards  require  that we plan and
perform the audit to obtain  reasonable  assurance  about  whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

In our opinion,  based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Medis  Technologies  Ltd. and  Subsidiaries  as of December  31,  1999,  and the
consolidated  results of their operations and their  consolidated cash flows for
each of the two years in the period ended  December 31, 1999 in conformity  with
accounting principles generally accepted in the United States of America.



GRANT THORNTON LLP

New York, New York
March 9, 2000






                                      F-3
<PAGE>
<TABLE>
<CAPTION>

                    Medis Technologies Ltd. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS


                                                                        DECEMBER 31,
                                   ASSETS                           1999            2000
                                                               ------------      ----------
<S>                                                            <C>             <C>

Current assets
    Cash and cash equivalents                                  $  1,842,000     $ 2,885,000
    Accounts receivable - other                                      58,000         228,000
    Prepaid expenses and other current assets                       101,000         245,000
                                                               ------------     -----------

         Total current assets                                     2,001,000       3,358,000

Property and equipment, net (Note E)                                983,000       1,045,000
Intangible assets, net (Note F)                                   7,242,000      82,799,000
                                                               ------------     -----------

         Total assets                                          $ 10,226,000     $87,202,000
                                                               ============     ===========

                              LIABILITIES AND
                            STOCKHOLDERS' EQUITY

Current liabilities
    Current portion of long-term debt (Note G)                 $     86,000     $         -
    Accounts payable                                                102,000         139,000
    Accrued expenses and other current liabilities                  730,000         697,000
                                                               ------------     -----------

         Total current liabilities                                  918,000         836,000

Long-term debt, excluding current maturities (Note G)                11,000               -

Accrued severance pay                                               109,000         224,000
                                                               ------------     -----------

                                                                  1,038,000       1,060,000

Minority interest in subsidiary                                     627,000               -

Commitments and contingencies (Note I)

Stockholders' equity (Note H)
    Preferred stock, $.01 par value; 10,000 shares
      authorized; none issued
    Common stock, $.01 par value;  25,000,000 shares
      authorized;  9,988,619 and 16,830,991 shares
      issued and outstanding, at December 31, 1999
      and 2000, respectively                                        100,000         168,000
    Additional paid-in capital                                   32,450,000     136,819,000
    Accumulated deficit                                         (23,615,000)    (49,078,000)
    Deferred compensation costs                                    (374,000)     (1,767,000)
                                                               ------------     -----------

         Total liabilities and shareholders' equity               8,561,000      86,142,000
                                                               ------------     -----------

                                                               $ 10,226,000    $ 87,202,000
                                                               =============   ============
</TABLE>

THE  ACCOMPANYING  NOTES ARE AN INTEGRAL  PART OF THESE  CONSOLIDATED  FINANCIAL
STATEMENTS.

                                      F-4
<PAGE>
<TABLE>
<CAPTION>

                    Medis Technologies Ltd. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                     YEAR ENDED DECEMBER 31,
                                                                                     -----------------------
                                                                            1998               1999               2000
                                                                            -----              ----               ----
<S>                                                                       <C>                <C>               <C>

Sales                                                                     $     8,000        $         -       $          -

Cost of sales                                                                   3,000                  -                  -
                                                                          -----------        -----------       ------------

           Gross profit                                                         5,000                  -                  -

Operating expenses
    Research and development costs, net                                     1,646,000          2,749,000          4,493,000
    Selling, general and administrative expenses                            1,399,000          2,467,000          5,405,000
    Amortization of intangible assets                                       2,445,000          2,574,000         13,668,000
                                                                          -----------        -----------       ------------

         Total operating expenses                                           5,490,000          7,790,000         23,566,000
                                                                          -----------        -----------       ------------

         Loss from operations                                              (5,485,000)        (7,790,000)       (23,566,000)

Other income (expenses)
    Interest and other income                                                  63,000            150,000            214,000
    Interest expense                                                         (101,000)           (22,000)           (13,000)
                                                                          -----------        -----------       ------------

                                                                              (38,000)           128,000            201,000
                                                                          -----------        -----------       ------------

         Loss before minority interest                                     (5,523,000)        (7,662,000)       (23,365,000)

Minority interest in loss of subsidiary                                     1,105,000          1,697,000            873,000
                                                                          -----------        -----------       ------------

         NET LOSS                                                          (4,418,000)        (5,965,000)       (22,492,000)

Value of warrants issued to exercising stockholders                                 -                -           (2,971,000)
                                                                          -----------        -----------       ------------

         Net loss attributable to common stockholders                     $(4,418,000)       $(5,965,000)      $(25,463,000)
                                                                          ===========        ===========       ============

Basic and diluted net loss per share                                           $(.52)             $(.61)            $(1.79)
                                                                                ====                ===               ====

Weighted-average shares used in computing basic and diluted net
       loss per share                                                       8,581,774          9,807,101         14,238,104
                                                                          ===========        ===========       ============

</TABLE>

THE  ACCOMPANYING  NOTES ARE AN INTEGRAL  PART OF THESE  CONSOLIDATED  FINANCIAL
STATEMENTS.

                                      F-5

<PAGE>
<TABLE>
<CAPTION>
                    Medis Technologies Ltd. and Subsidiaries

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                                      Additional                    Deferred         Total
                                               Common Stock            paid-in    Accumulated    compensation    Stockholders'
                                      ---------------------------       capital     deficit          costs           Equity
                                          Shares         Amount
                                      ------------   ------------   ------------  ------------    ------------   ------------
<S>                                   <C>            <C>            <C>           <C>              <C>            <C>
Balance at January 1, 1998               8,257,613       $ 83,000   $ 24,527,000  $(13,232,000)    $         -    $11,378,000
Net loss                                         -              -              -    (4,418,000)              -     (4,418,000)
Issuance of common stock                 1,150,002         11,000      4,589,000                                    4,600,000
Compensation expense                             -              -          9,000             -               -          9,000
Increase attributable to changes in
    a subsidiary's shares outstanding            -              -      1,549,000             -               -      1,549,000
Minority share of an investment in a
     subsidiary                                  -              -       (712,000)            -               -       (712,000)
                                      ------------   ------------   ------------  ------------    ------------   ------------
Balance at December 31, 1998             9,407,615         94,000     29,962,000   (17,650,000)              -     12,406,000
Net loss                                         -              -              -    (5,965,000)              -     (5,965,000)
Issuance of common stock                   581,004          6,000      2,318,000             -               -      2,324,000
Stock options granted to employees
    and directors                                -              -        435,000             -        (435,000)             -
Amortization of deferred compensation            -              -              -             -          61,000         61,000
Increase attributable to changes in
    a subsidiary's shares outstanding            -              -        344,000             -               -        344,000
Minority share of an investment in a
      subsidiary                                 -              -       (609,000)            -               -       (609,000)
                                      ------------   ------------   ------------  ------------    ------------   ------------

Balance at December 31, 1999             9,988,619        100,000     32,450,000   (23,615,000)       (374,000)     8,561,000

Net loss                                         -              -              -   (22,492,000)              -    (22,492,000)

Issuance of common stock                 1,598,811         16,000      7,742,000             -               -      7,758,000
Issuance of common stock in exchange
    for minority interest in a
    subsidiary                           5,243,561         52,000     88,946,000             -               -     88,998,000
Stock options granted to employees
    and directors                                -              -      2,629,000             -      (2,629,000)             -
Amortization of deferred compensation            -              -              -             -       1,236,000      1,236,000
Stock options and warrants granted
    to consultants                               -              -      1,892,000             -               -      1,892,000
Value of warrants issued to
    exercising stockholders                      -              -      2,971,000    (2,971,000)              -              -
Increase attributable to equity
    transactions of a subsidiary                 -              -        189,000             -               -        189,000
                                      ------------   ------------   ------------  ------------    ------------   ------------
BALANCE AT DECEMBER 31, 2000            16,830,991       $168,000   $136,819,000   (49,078,000)    $(1,767,000)   $86,142,000
                                      ============   ============   ============  ============    ============   ============

</TABLE>

THE  ACCOMPANYING  NOTES ARE AN INTEGRAL  PART OF THESE  CONSOLIDATED  FINANCIAL
STATEMENTS.

                                      F-6
<PAGE>
<TABLE>
<CAPTION>
                    Medis Technologies Ltd. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                            Year ended December 31,
                                                              ----------------------------------------------------
                                                                   1998               1999               2000
                                                              ------------         ----------        ----------
<S>                                                           <C>                <C>                 <C>
Cash flows from operating activities
   Net loss                                                   $(4,418,000)        $(5,965,000)       $(22,492,000)
   Adjustments to reconcile net loss to net cash
     used in operating activities
       Depreciation                                               132,000             388,000             363,000
       Amortization of intangible assets                        2,445,000           2,574,000          13,668,000
       Changes in accrued severance payable                        33,000              48,000             115,000
       Losses of minority interest                             (1,105,000)         (1,697,000)           (873,000)
       Non-cash compensation expense                               61,000             187,000           3,229,000
       Non-cash settlement costs                                        -             437,000                   -
       Loss (gain) from sale of property and equipment             10,000               5,000              (2,000)
       Charge of inventory to research and
         development expense                                            -             255,000                   -
       Write-off of acquired in-process research and
         development                                             -                    117,000             884,000
       Changes in operating assets and liabilities
         Accounts receivable - other                               21,000               8,000            (170,000)
         Inventory                                                113,000             (47,000)                  -
         Prepaid expenses and other current assets                (43,000)            (12,000)           (144,000)
         Accounts payable                                         (42,000)            (11,000)             37,000
         Accrued expenses and other current liabilities           134,000             351,000             (33,000)
                                                             ------------        ------------        ------------

           Net cash used in operating activities               (2,659,000)         (3,362,000)         (5,418,000)
                                                             ------------        ------------        ------------

Cash flows from investing activities
   Capital expenditures                                          (134,000)           (330,000)           (487,000)
   Sale of securities and short-term deposits                           -             500,000                   -
   Proceeds from disposition of property and equipment             17,000              11,000              64,000
   Purchases of short-term deposits                              (500,000)                  -                   -
   Acquisition by a subsidiary of additional shares of a
    majority-owned subsidiary                                           -            (115,000)           (320,000)
   Acquisition of shares of its majority-owned subsidiary               -            (138,000)           (398,000)
                                                             ------------        ------------        ------------
            Net cash used in investing activities                (617,000)            (72,000)         (1,141,000)
                                                             ------------        ------------        ------------
Cash flows from financing activities
   Repayment of long-term debt                                   (342,000)           (195,000)            (97,000)
   Proceeds from long-term debt                                    45,000                   -                   -
   Proceeds from issuance of common stock and exercise of
    stock options of a majority-owned subsidiary                1,350,000                   -             336,000
   Proceeds from issuance of common stock                       4,600,000           2,324,000           7,758,000
   Proceeds from (repayments of) short-term credit                  6,000              (8,000)                  -
   Direct costs of exchange of shares                             -                   -                  (395,000)
                                                             ------------        ------------        ------------

           Net cash provided by financing activities            5,659,000           2,121,000           7,602,000
                                                             ------------        ------------        ------------
           Net INCREASE (DECREASE) in
               cash and cash EQUIVALENTS                        2,383,000          (1,313,000)          1,043,000

Cash and cash equivalents at beginning of year                    772,000           3,155,000           1,842,000
                                                             ------------        ------------        ------------
Cash and cash equivalents at end of year                      $ 3,155,000         $ 1,842,000         $ 2,885,000
                                                             ============        ============        ============
</TABLE>
                                      F-7

<PAGE>
<TABLE>
<CAPTION>

                    Medis Technologies Ltd. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


                                                                                     YEAR ENDED DECEMBER 31,
                                                                         -----------------------------------
                                                                           1998               1999              2000
                                                                        ------------      ------------     -----------
<S>                                                                    <C>                 <C>             <C>
Supplemental disclosures of cash flow information:
    Cash paid during the year for
       Interest                                                        $     305,000       $   12,000      $     13,000
       Income taxes                                                    $       4,000       $    7,000      $      2,000
    Non-cash investing and financing activities:
       Acquisition of minority interest through exchange of
         shares (see Note C), comprised of the following:              $           -       $        -      $ 89,393,000

           Goodwill                                                                                        $ 81,867,000
           Acquired technology assets                                                                      $  6,071,000
           In-process research and development                                                             $    561,000
           Value of net tangible assets acquired                                                           $    894,000

       Decrease in long-term debt through the issuance
         of common stock                                               $     650,000       $        -      $          -

       Value of warrants issued to exercising stockholders
           (See Note H-1)                                              $           -       $        -      $  2,971,000

       Decrease in inventory through increase in
         fixed assets                                                  $     429,000       $  197,000      $          -


</TABLE>

THE  ACCOMPANYING  NOTES ARE AN INTEGRAL  PART OF THESE  CONSOLIDATED  FINANCIAL
STATEMENTS.




                                      F-8

<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1999 and 2000



NOTE A - NATURE OF BUSINESS AND GENERAL MATTERS

     Medis  Technologies  Ltd.  ("MTL"),  a Delaware  corporation,  is a holding
     company, which through its wholly-owned  subsidiary,  Medis El Ltd. ("Medis
     El"),  engages in  research  and  development  of  technology  products  to
     license,  sell, or enter into joint ventures with large  corporations.  The
     Company's primary focus is the development and  commercialization of direct
     liquid methanol (DLM) fuel cells and the refueling cartridges for such fuel
     cells, for use in portable  electronic  devices using as their power source
     rechargeable  or  disposable  batteries  including  cell  phones,  personal
     digital assistants  (PDAs),  laptop computers and certain military devices.
     The  Company's  other   technologies,   which  are  in  various  stages  of
     development, include highly electrically conductive polymers, the CellScan,
     the toroidal  compressor  and internal  combustion  engine,  stirling cycle
     linear system and reciprocating electrical machine.

     Since  inception,  the Company has incurred  operating  losses and has used
     cash in its  operations.  Accordingly,  the  Company has relied on external
     financing,  principally through the sale of its stock, to fund its research
     and  development  activities.  The Company  believes this  dependence  will
     continue  unless  it  is  able  to  successfully  develop  and  market  its
     technologies.  On December 29, 2000, the Company  entered into a $5,000,000
     revolving credit line loan agreement with a bank. The loan agreement, which
     bears  interest on the  outstanding  balances  based on either the LIBOR or
     Prime Rate and  terminates on December 28, 2002, is  collateralized  by all
     cash  and  other  assets  on  deposits  with  the  bank at any time and the
     mortgage and  assignment of certain  leases owned by a partnership in which
     the Company's  chairman and chief  executive  officer and its president and
     treasurer are partners.  The Company  believes its cash resources  together
     with  financing  available by the line of credit will be sufficient to meet
     the Company's needs at least through December 31, 2001.


NOTE B - SIGNIFICANT ACCOUNTING POLICIES

     1.  PRINCIPLES OF CONSOLIDATION

         The consolidated  financial  statements include the accounts of MTL and
         its wholly-owned and  majority-owned  subsidiaries  from their dates of
         acquisition (collectively, the "Company"). All significant intercompany
         transactions  and  balances  have been  eliminated.  Minority  interest
         represents the minority shareholders' proportionate share in the equity
         or income of Medis El prior to the completion of the Company's exchange
         offer of June5, 2000 (see Note C).

                                      F-9
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


NOTE B (CONTINUED)


     2.  CASH AND CASH EQUIVALENTS

         Cash and cash  equivalents  consist of cash,  certificates  of deposit,
         money  market  funds and highly  liquid  investments  with an  original
         maturity of three  months or less.  As of  December  31, 1999 and 2000,
         cash and cash equivalents included $211,000, and $67,951, respectively,
         of balances denominated in Israeli currency ("NIS").

     3.  RESEARCH AND DEVELOPMENT COSTS

         Research and  development  costs are charged to operations as incurred.
         Grants  received  by Medis  El from the  State  of  Israel  related  to
         CellScan  and  Neuritor   research  and   development  and  contractual
         participation were offset against research and development costs.

     4.  REVENUE RECOGNITION

         Revenue  from  sales is  recognized  upon  delivery  of product to the
         customer.

     5.  WARRANTY COSTS

         The Company  grants a one-year  warranty on products sold and provides
         for estimated warranty costs.

     6.  USE OF ESTIMATES

         In preparing the  Company's  financial  statements  in conformity  with
         generally  accepted  accounting  principles,  management is required to
         make  estimates  and  assumptions  that affect the reported  amounts of
         assets  and  liabilities,  the  disclosure  of  contingent  assets  and
         liabilities at the date of the financial  statements,  and the reported
         amounts of revenues and expenses  during the reporting  period.  Actual
         results could differ from those estimates.

     7.  FAIR VALUE OF FINANCIAL INSTRUMENTS

         Based on borrowing  rates  currently  available to the Company for bank
         loans  with  similar  terms  and  maturities,  the  fair  value  of the
         Company's long-term debt at December 31, 1999 approximates the carrying
         value.   Furthermore,   the  carrying  value  of  all  other  financial
         instruments   potentially   subject  to  valuation  risk   (principally
         consisting of cash and cash equivalents) also approximates fair value.

                                      F-10

<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE B (CONTINUED)

   8.    TRANSLATION OF FOREIGN CURRENCIES

         The financial  statements of the Company and its subsidiaries have been
         prepared in U.S.  dollars,  as the dollar is the  Company's  functional
         currency.

         Non-dollar  transactions  and balances were remeasured into dollars in
         accordance  with  Statement of Financial  Accounting  Standards No. 52
         ("SFAS No. 52"), "Foreign Currency Translation."

   9.    PROPERTY AND EQUIPMENT

         Property and  equipment  are stated at cost (net of  investment  grants
         from  the  state  of   Israel).   Depreciation   is   provided  on  the
         straight-line  basis over the  estimated  useful  lives of such assets.
         Leasehold  improvements  are amortized over the lives of the respective
         leases or useful lives of the improvements, whichever is shorter.

         The annual depreciation rates are as follows:

                                                      ANNUAL RATES
                                                      ------------

             Machinery and equipment                    10% - 33%
             Computers                                  20% - 33%
             Furniture and office equipment              7% - 15%
             Vehicles                                         15%


    10.   STOCK-BASED COMPENSATION

          The Company has adopted  Statement of Financial  Accounting  Standards
          No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS No. 123").
          As  permitted  under SFAS No.  123,  the Company has elected to follow
          Accounting Principles Board Opinion No. 25 ("APB No. 25"), "Accounting
          for  Stock  Issued  to  Employees",  and  related  interpretations  in
          accounting for its employee  stock  options.  The Company has provided
          the  necessary  pro forma  disclosure  as if the fair value method had
          been applied  (see Note H). Under APB No. 25, when the exercise  price
          of employee  stock  options  equals or exceeds the market price of the
          underlying  stock on the date of grant,  no  compensation  expense  is
          recorded.  However,  with  respect  to  options  granted to other than
          employees or directors,  the Company records expense equal to the fair
          value of the  option,  as required by SFAS No. 123. To the extent that
          compensation  expense is  recognized  with  respect  to stock  options
          issued to employees or directors,  such expense is amortized  over the
          vesting period of such options.

                                      F-11
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


NOTE B (CONTINUED)

    11.   INTANGIBLE ASSETS, LONG-LIVED ASSETS AND IMPAIRMENT OF LONG-LIVED
          ASSETS

          Intangible  assets,  consisting  of  acquired  technology  assets  and
          goodwill,  are being amortized on a straight-line basis over three and
          five year periods, respectively. The Company's policy is to review all
          long-lived  assets  for  impairment  whenever  events  or  changes  in
          circumstances indicate that the carrying amount of an asset may not be
          recoverable.  If events or changes in circumstances  indicate that the
          carrying  amount of such  assets may not be  recoverable,  the Company
          will estimate the future cash flows expected to result from the use of
          the asset and its  eventual  disposition.  Future  cash  flows are the
          future  cash  inflows  expected to be  generated  by an asset less the
          future cash outflows expected to be necessary to obtain those inflows.
          If the sum of the expected future cash flows (undiscounted and without
          interest  charges) is less than the carrying amount of the asset,  the
          Company would recognize an impairment loss.

     12.  NET LOSS PER SHARE

          The Company  computes net loss per share in accordance  with Statement
          of Financial Accounting Standards No. 128 ("SFAS No. 128"),  "Earnings
          Per Share." Under the  provisions of SFAS No. 128,  basic net loss per
          share is  computed  by  dividing  the net loss for the  period  by the
          weighted-  average  number of common  shares  outstanding  during  the
          period.  Diluted net loss per share is  computed  by dividing  the net
          loss for the  period by the  weighted-average  number  of  common  and
          common equivalent shares  outstanding during the period.  However,  as
          the  Company  generated  net losses in all periods  presented,  common
          equivalent shares, composed of incremental common shares issuable upon
          the  exercise of warrants  and stock  options,  are not  reflected  in
          diluted net loss per share because such shares are antidilutive.

     13.  OTHER COMPREHENSIVE INCOME

          Effective  January 1, 1998,  the  Company  adopted the  provisions  of
          Statement of Financial  Accounting Standards No. 130 ("SFAS No. 130"),
          "Reporting  Comprehensive  Income." SFAS No. 130 establishes standards
          for  reporting  comprehensive  income and its  components in financial
          statements.  Other  comprehensive  income,  as defined,  includes  all
          changes in equity during a period from non-owner sources. To date, the
          Company has not had any material  transactions that are required to be
          reported as other comprehensive income.

                                      F-12
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


NOTE B (CONTINUED)

     14.  SEGMENT INFORMATION

          Effective  January 1, 1998, the Company adopted Statement of Financial
          Accounting  Standards  No. 131 ("SFAS No.  131"),  "Disclosures  About
          Segments of an Enterprise and Related  Information," which establishes
          standards for the way companies  report  information  about  operating
          segments in annual financial statements. It also establishes standards
          for related disclosures about products and services,  geographic areas
          and major customers.  The Company has determined that it does not have
          any separately  reportable business segments,  but does operate in two
          geographic areas, the United States and Israel.

     15.  INCOME TAXES

          Deferred income taxes are provided for differences  between  financial
          statement and income tax basis of assets and liabilities using enacted
          tax rates in effect in the years in which the differences are expected
          to reverse. The Company provides a valuation allowance on net deferred
          tax assets  when it is more  likely than not that such assets will not
          be realized.

     16.  RECENT PRONOUNCEMENTS

          In September 1998, the FASB issued  Statement of Financial  Accounting
          Standards  No.  133  ("SFAS  No.  133"),  "Accounting  for  Derivative
          Instruments  and  Hedging   Activities,"  which  defines  derivatives,
          requires that all  derivatives be carried at fair value,  and provides
          for hedge accounting when certain conditions are met. The company will
          adopt the  provisions  of SFAS No.  133,  as amended  by SFAS 138,  on
          January 1, 2001.  The adoption of this statement will have no material
          impact on the Company's financial position or results of operations.

NOTE C - EXCHANGE OFFER AND ACQUISITION OF MINORITY INTERESTS

     On April 24,  2000,  MTL  commenced an offer for the  approximately  36% of
     Medis El it did not already  beneficially  own, offering 1.37 of its shares
     of common stock for each ordinary share tendered (the "Exchange Offer"). At
     the  expiration  of the  offer on June 5,  2000,  shareholders  of Medis El
     tendered an aggregate of 3,643,241 ordinary shares, giving MTL ownership of
     approximately 98% of Medis El's outstanding  ordinary shares. The remaining
     182,669  shares  passed  to  MTL by  operation  of  Israeli  law  upon  the
     expiration of the exchange  offer.  The Company  accounted for the exchange
     using the purchase method. The Company calculated the purchase price of the
     3,825,910  shares and 184,000  options of Medis El not owned by it based on
     the market  price of Medis El  ordinary  shares.  Such  purchase  price was

                                      F-13
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE C (CONTINUED)

     $89,393,000.  Based on an independent  appraisal  performed on December 20,
     1999,  the Company  allocated the excess of purchase  price over net assets
     acquired to goodwill ($81,867,000), acquired technology assets ($6,071,000)
     and in-process research and development,  which was charged to research and
     development expense on the acquisition date ($561,000). The Company intends
     to amortize  the acquired  technology  assets over their  remaining  useful
     lives of three  years and the  goodwill  over five  years.  During the year
     ended  December  31,  2000,  the  Company  recorded   amortization  expense
     aggregating  approximately  $11,013,000  related to this  transaction.  The
     following  unaudited  pro-forma  information  gives  effect to the Exchange
     Offer  as if it had  occurred  at the  beginning  of  each  of the  periods
     presented:


                                           YEAR ENDED DECEMBER 31,
                                           -----------------------
                                       1998            1999            2000
                                       ----            ----            ----
Net loss                          $(24,481,000)   $(26,620,000)   $(30,749,000)
Net loss attributable to common
   shareholders                   $(24,481,000)   $(26,620,000)   $(33,720,000)
Net loss per common share               $(1.77)         $(1.77)         $(2.07)

     On February  23, 2000,  MTL acquired  from Medis El 107,759 of its ordinary
     shares for an  aggregate  of  $2,500,000.  The  Company  accounted  for the
     acquisition using the purchase method.  Based on an independent  appraisal,
     the  Company  allocated  the excess of the  purchase  price over net assets
     acquired to goodwill  ($810,000) and acquired  technology assets ($99,000).
     The Company intends to amortize the acquired  technology  assets over their
     remaining useful lives of three years and the goodwill over five years.

     During the year ended December 31, 2000, the Company purchased an aggregate
     of 60,000 shares of Medis El from the designee of an  Argentinean  company,
     pursuant to the terms of a  settlement  agreement  entered into in November
     1999  ("November  Settlement").  On June 8, 2000, the Company  commenced an
     action entitled Medis Technologies Ltd. v. Cellscan Argentina, S.A., in the
     Supreme Court of the State of New York,  County of New York,  upon CellScan
     Argentina's  refusal to transfer  18,000 of such  shares.  The June 8, 2000
     action  alleged  that the  failure  to  transfer  the  18,000  shares was a
     material  breach of the November  Settlement.  In August 2000,  the parties
     entered into a  stipulation  and order of settlement  (the  "Stipulation"),
     dismissing  with  prejudice the action.  Pursuant to the  Stipulation,  the
     Company  purchased the remaining 18,000 shares pursuant to the terms of the
     November Settlement and granted certain "piggy-back" registration rights to
     Cellscan  Argentina  with respect to 30,000 shares of the Company's  common
     stock  underlying  warrants  issued to Cellscan  Argentina  pursuant to the
     November  Settlement.  The Company paid  aggregate  cash  consideration  of
     approximately  $398,000 in exchange for the 60,000 ordinary shares of Medis
     El.  The  excess  of  purchase  price  over net  assets  acquired  on these
     acquisitions was approximately $383,000, which  was allocated to CellScan

                                      F-14
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


     NOTE C (CONTINUED)

     technology  assets  ($92,000),  in-process R&D for the Fuel Cell,  Stirling
     Cycle and Toroidal Engine Projects ($4,000), and goodwill ($287,000).

     During the year ended December 31, 1999, the Company purchased an aggregate
     of 24,500  shares (or  approximately  0.24%) of Medis El on the open market
     (i.e., from the minority shareholders).  These purchases were treated as an
     acquisition  of minority  interest of the  Company.  The excess of purchase
     price  over net  assets  acquired  was  approximately  $139,000,  which was
     allocated to CellScan  technology assets ($37,000),  in-process R&D for the
     Fuel Cell and Stirling Cycle Projects ($3,000), and goodwill ($99,000).

     At December  31,  1999,  MTL owned 100% of the common  stock of Medis Inc.,
     which in turn owned 5,925,000 shares, or 56.49%, of Medis El. Additionally,
     MTL owned 742,681 shares of Medis El, or an additional  7.08%. The minority
     shareholders  (including  public  shareholders)  owned 36.43% of Medis El's
     common stock.

     Through  December  15,  1997,  MTL owned  60% of Medis  Inc.  while  Israel
     Aircraft  Industries  Ltd.  ("IAI")  owned  40% of  Medis  Inc.  Through  a
     shareholders'  agreement in effect during that time,  control of Medis Inc.
     was  shared  as the  board of  directors  of Medis  Inc.  and Medis El each
     consisted of six directors, of which three were designated by MTL and three
     were designated by IAI. As neither party had control of Medis Inc., MTL had
     accounted for its investment in Medis Inc. (and  therefore  Medis El) under
     the equity method of accounting.

     As of December 15, 1997, MTL acquired IAI's 40% interest in Medis Inc., for
     aggregate  consideration  of 3,600,457  shares of MTL stock. As this was an
     acquisition  of  a  minority  interest,  the  Company  accounted  for  this
     transaction using purchase accounting.  The purchase price was valued based
     on the  value of Medis  Inc.'s  investment  in Medis El,  using the  quoted
     market  price of Medis El shares as of December  15,  1997.  The  aggregate
     purchase price was valued at $13,125,000.  Acquired  intangible  technology
     assets,    consisting   primarily   of   patents,    know-how   and   other
     technology-related  assets,  aggregated  $2,975,000,  of  which  $2,814,000
     related to the CellScan technology.  Goodwill, which represented the excess
     of the  purchase  price  over  the  value  of  the  acquired  tangible  and
     intangible  technology assets,  aggregated  $9,252,000.  Intangible assets,
     including  goodwill,  are being  amortized  over a  five-year  period.  The
     operations of Medis Inc. and Medis El are included in results of operations
     of the Company from the date of acquisition.

                                      F-15
<PAGE>
                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

     NOTE C (CONTINUED)

     From January to June 2000,  Medis El purchased an  additional  11.5% of the
     outstanding  shares of More Energy Ltd.,  giving Medis El a 93% interest in
     such  company,  for an  aggregate  purchase  price  of  $320,000.  Medis El
     accounted  for these  acquisitions  of minority  interests  using  purchase
     accounting.  The  excess of  purchase  price over the book value of the net
     assets  acquired  aggregated  $320,000.  This  excess  purchase  price  was
     allocated  to  in-process  research and  development  and,  therefore,  was
     charged  to  research  and  development  costs  as  of  the  dates  of  the
     acquisitions.  Additionally,  In November  2000,  the Company  purchased an
     option for the remaining 7% of the  outstanding  shares of More Energy held
     by its general  manager and director,  at an exercise price of 1,714 shares
     of the Company's common stock for each More Energy share,  aggregating to a
     total of 120,000 shares of the Company's  common stock.  The purchase price
     of the option is  $500,000,  which the  Company is required to pay no later
     than  April  15,  2001  or the  option  terminates.  The  Company  paid  an
     additional  $10,000 upon execution of the option agreement as consideration
     for the right to pay the purchase  price until April 15, 2001.  The Company
     paid an additional  $10,000 to extend the purchase price obligations of the
     option  until July 31,  2001.  Subject to the  termination  provision,  the
     option  expires in November 2004 and provides for a maximum  exercise as to
     25% of the shares in each of the four 12 month  periods  following the date
     of the  agreement - with any  unexercised  amount being carried over to the
     following twelve month period.

NOTE D - INVENTORIES

     On June 30, 1999,  the Company  charged its  inventory of cell carriers and
     antigens  and  Neuritors,  a  technology  that  the  Company  is no  longer
     developing  or selling,  aggregating  $255,000 to research and  development
     expense.

NOTE E - PROPERTY AND EQUIPMENT, NET

     Property and equipment consists of the following:

                                                         DECEMBER 31,
                                            ----------------------------------
                                                1999                    2000
                                            ----------              ----------
      Machinery and equipment               $1,106,000              $1,329,000
      Computers                                187,000                 224,000
      Furniture and office equipment            94,000                 109,000
      Vehicles                                 154,000                 145,000
      Land                                           -                 110,000
      Leasehold improvements                   300,000                 186,000
                                            ----------              ----------
                                             1,841,000               2,103,000

      Less accumulated depreciation            858,000               1,058,000
                                            ----------            ------------
      Property and equipment, net           $  983,000              $1,045,000
                                            ==========            ============

                                      F-16
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE E - PROPERTY AND EQUIPMENT, NET (CONTINUED)

     Machinery  and  equipment at December  31, 1999 and 2000  includes 9 and 10
     CellScan machines,  in the amounts of $711,000 and $796,000,  respectively.
     Such machines are classified as property and equipment, as the Company uses
     its  CellScans  as  a  marketing  and  research  and  development  tool  to
     demonstrate and promote the CellScan technology and to develop new research
     applications.


NOTE F - INTANGIBLE ASSETS, NET

     Intangible assets consist of the following:

                                                     DECEMBER 31,
                                         -----------------------------------
                                               1999                  2000
                                         ------------           ------------

       CellScan technology assets        $  2,851,000           $  9,113,000
       Goodwill                             9,351,000             92,314,000
                                          -----------           ------------
                                           12,202,000            101,427,000
       Accumulated amortization             4,960,000             18,628,000
                                           ----------            -----------
                                         $  7,242,000           $ 82,799,000
                                          ===========           ============

     During  1999,  the Company  charged the  remaining  unamortized  balance of
     acquired  technology  assets  relating to the  Neuritor  (or an  additional
     $128,000) to amortization of intangible assets.  Such amount represents the
     write-off of an impaired technology assets.


NOTE G - LONG-TERM DEBT

     Long-term debt consists of the following:

                                                     DECEMBER 31,
                                           ----------------------------
                                              1999             2000
                                           --------          --------
       Bank debt - Israel                  $ 97,000          $     -
       Less current portion                 (86,000)               -
                                           --------          --------

                                           $ 11,000          $     -
                                           ========          ========

                                      F-17
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE G (CONTINUED)

     Bank Debt - Israel  represents Medis El's borrowings of bank loans that are
     linked to the  dollar,  which bore  interest at the LIBOR plus 2.4% to 2.6%
     per annum and were  guaranteed  by the State of Israel.  Such loans,  which
     were  paid-off  in full  during  the year ended  December  31,  2000,  were
     collateralized by a floating lien on all of the assets of Medis El.


NOTE H - STOCKHOLDERS' EQUITY

     1.  MEDIS TECHNOLOGIES LTD. COMMON STOCK

         Each stockholder is entitled to one vote for each share of common stock
         owned by that  stockholder  on all matters  properly  submitted  to the
         stockholders  for their vote.  Stockholders  owning or controlling more
         than 50% of the shares can elect all of the  directors.  Subject to the
         dividend  rights of  holders of  preferred  stock,  if any,  holders of
         common stock are entitled to receive dividends when, as and if declared
         by the  board of  directors  out of funds  legally  available  for this
         purpose.  In the event of  liquidation,  dissolution or winding up, the
         holders of common stock are entitled to receive on a pro rata basis any
         assets   remaining   available  for   distribution   after  payment  of
         liabilities   and  after   provision  has  been  made  for  payment  of
         liquidation  preferences to all holders of preferred stock.  Holders of
         common stock have no conversion or redemption  provisions or preemptive
         or other subscription rights.

         In March  1998,  the  Company  offered its  existing  stockholders  the
         opportunity to acquire  216,667 units at a price of $12 per unit,  each
         unit  consisting of three shares of MTL common stock and one warrant to
         purchase  one share of MTL common  stock at an exercise  price of $5.00
         per share.  In September  1998,  181,426  units were issued to existing
         stockholders for approximately $2,177,000.

         In November 1998, the Company offered an additional  176,908 units with
         the same  terms  and  conditions  as the  units  mentioned  above.  The
         proceeds of this offering were  approximately  $2,123,000.  In December
         1998,  the Company sold an additional  25,000 units with the same terms
         and  conditions  as  mentioned  above.  The  aggregate   proceeds  were
         $300,000.

         During  the year  ended  December  31,  1999,  the  Company  issued an
         aggregate of 193,668 units (of which 25,000 were to IAI) with the same
         terms as those issued in 1998. Proceeds from such issuances aggregated


                                      F-18
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

         NOTE H (CONTINUED)


         approximately  $2,324,000.  The purpose of the  issuance of such units
         was to  generate  additional  cash to  purchase  shares of Medis El in
         order to fund the research and development  activities of Medis El and
         for the Company's working capital.

         In January and February 2000, the Company completed a private placement
         of units, each unit consisting of 66,000 shares of its common stock and
         25,000  warrants (of which one unit was purchased by IAI). Each warrant
         is exercisable into one share of common stock and has an exercise price
         of $5.75 per share. An aggregate of 637,000 shares and 240,833 warrants
         were issued for aggregate cash proceeds of approximately $2,895,000.

         In June 2000, the Company issued  5,243,561  shares of its common stock
         (including 1,712,500 to IAI) in connection with the Exchange Offer.

         In June 2000, the Company issued 859,544 shares of its common stock and
         429,781  warrants (the "June Warrants")  (including  50,0000 shares and
         25,000  warrants  to IAI) upon  exercise of  existing  warrants  for an
         aggregate exercise price of approximately $4,441,000. The June Warrants
         were issued as an inducement to the Company's  existing warrant holders
         to exercise their respective then outstanding  warrants, at the rate of
         one June Warrant for every two then outstanding warrants exercised. The
         June Warrants are  exercisable at $16.42 per share until June 15, 2002.
         The Company  estimated the value of the June Warrants to be $2,887,000.
         In July 2000,  the Company  issued an  additional  19,500 shares of its
         common stock and 9,750  warrants  pursuant to the same  offering for an
         aggregate  exercise  price  of  approximately   $98,000.   The  Company
         estimated the value of such warrants issued in July 2000 to be $84,000.
         Also in July 2000,  the Company  issued an additional  33,000 shares of
         its common stock upon the exercise of a like number of then outstanding
         warrants, for an aggregate exercise price of approximately $165,000.

         In October 2000,  warrant holders exercised  warrants to purchase 8,667
         shares of the Company's common stock,  for an aggregate  exercise price
         of approximately  $142,000.  Also in October 2000,  certain officers of
         the Company's exercised options to purchase a total of 41,100 shares of
         the  Company's  common  stock,  for  an  aggregate  exercise  price  of
         approximately $16,900. Such options, which were contemplated as part of
         the  Exchange  Offer  (see  Note  C) were  issued  in  October  1999 in
         substitution  for certain options to purchase  ordinary shares of Medis
         El held by such officers (See Note H-3)

                                      F-19
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


NOTE H (CONTINUED)

2.       MEDIS TECHNOLOGIES LTD. WARRANTS

         MTL warrants outstanding are summarized below:

                                                                   Weighted-
                                                               average exercise
                                                 Shares              Price
                                               ------------     -------------
         Balance at January 1, 1998                489,525        $  5.00

         Granted                                   533,334        $  5.00
         Cancelled                                 (11,762)       $  5.00
                                               -----------

         Balance at December 31, 1998            1,011,097

         Granted                                   193,668        $  5.00
                                                ----------

         Balance at December 31, 1999            1,204,765        $  5.00

         Granted                                   946,976        $ 13.90
         Exercised                                (920,711)       $  5.26
                                                ----------
         BALANCE AT DECEMBER 31, 2000            1,231,030        $ 11.65
                                                ----------

         In March 1998, as  consideration  for  providing  guarantees on Company
         debt, the Company granted  warrants to purchase an aggregate of 100,000
         shares of the Company's common stock  exercisable at $5.00 per share to
         two officers.  Additionally,  during 1998,  warrants to purchase 50,000
         shares of the  Company's  common  stock were  issued to a non  employee
         consultant.  The Company recorded  approximately $9,000 of compensation
         expense relating to the above grants,  which  represented  management's
         estimate  of the fair  value of such  warrants.  The fair value of such
         warrants was estimated using a  Black-Scholes  model with the following
         assumptions:  a 5% risk-free interest rate and 0% volatility (since the
         Company was not a public company at the time), 0% dividend yield and an
         expected life of 1-2 years.

         On June 8,  1999,  the  Company  extended  the  expiration  date of its
         outstanding warrants which were scheduled to expire on January 1, 2000,
         June 30,  2000  and  December  31,  2000  through  June  30,  2002.  In
         connection with such  modification,  the Company recorded an additional
         $41,000 of  compensation  expense  during the year ended  December  31,
         1999,  relating to the above  warrants that were issued to employees in
         exchange for guarantees and to the consultant.  The fair value of such


                                      F-20
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


         NOTE H (CONTINUED)

         warrants was estimated using a Black-Scholes  model with the following
         assumptions: a 5% risk-free interest rate; 0% dividend yield, expected
         life of 1-2 years,  0%  volatility  (since the Company is not a public
         company at the time).

         On July 15, 2000, the Company issued a five-year  warrant,  which vests
         immediately, to purchase an aggregate of 100,000 shares of common stock
         at an exercise price of $20.48 per share, as payment under the terms of
         a June 12, 2000  agreement  with CIBC World Markets Corp.  ("CIBC") for
         capital markets and financial and strategic advisory services. Also, on
         October 15, 2000, pursuant to the terms of said agreement,  the Company
         issued a five-year warrant to purchase 50,000 shares of common stock at
         an exercise price of $20.62 per share.  The agreement,  which commenced
         on July  15,  2000  (the  "Commencement  Date")  and  was  subsequently
         amended,  has a term of one year and may be  terminated by either party
         upon 30 days written notice. Additionally, if the Company requests CIBC
         to pursue a  financing  transaction,  an  additional  fee would be paid
         based  on a  schedule  included  in such  agreement.  The  Company  has
         estimated the fair value of such  warrants  issued on July 15, 2000 and
         October 15, 2000 to be $581,000  and  $257,000,  respectively,  and has
         recorded  approximately  $652,000 as expense during year ended December
         31, 2000 related to such warrants.

         On July 12, 2000, the Company issued  warrants to purchase an aggregate
         of 25,000  shares of its common  stock to each of the three  members of
         its corporate  advisory board,  which the Company appointed on the same
         date to assist it with its business strategy and to build relationships
         with third parties to assist in the  development  of its  technologies.
         The warrants may be exercised at $20.00 per share, vest immediately and
         expire after three years.  The Company has  estimated the fair value of
         such  warrants to be $526,000 and has  recorded  this amount as expense
         during the year ended December 31, 2000.

         See Note H-1 for discussion of warrants  issued in connection  with the
         issuance of the Company's common stock.

3.       MEDIS TECHNOLOGIES LTD. STOCK OPTIONS

         On July 13, 1999,  the Company's  Board of Directors  approved the 1999
         Stock Option Plan,  and reserved  1,000,000  shares of common stock for
         issuance as stock options or stock appreciation  rights pursuant to the
         plan.  The  plan  provides  for  the  issuance  of both  incentive  and
         nonqualified stock options. On October 11, 2000, the Company's Board of
         directors  increased the number of shares of its common stock  reserved
         under the 1999 Stock Option Plan to 2,000,000,  subject to  stockholder
         approval.

                                      F-21
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000



NOTE H (CONTINUED)

         On November 2, 1999,  the Company  granted to officers and a consultant
         of the Company  options to purchase  450,000  shares of common stock at
         $2.93 per share, which is the Company's good faith determination of 80%
         of the fair  market  value on the date of grant.  Such  options  have a
         four-year  life,  and  vest  after  two  years.  In  August  2000,  the
         consultant  became an  officer  of the  Company.  During the year ended
         December  31,  2000  the  Company  recorded  expense  of  approximately
         $1,023,000 relating to such options.

         On February  21, 2000,  the Board of  Directors of the Company  granted
         options to  purchase an  aggregate  of 165,000  shares of common  stock
         under its 1999 Stock Option Plan to employees, officers and consultants
         of the Company. The options, which may be exercised at $5.00 per share,
         vest after two years and expire after four years. Deferred compensation
         of approximately  $1,468,000,  which will be charged to expense ratably
         over the  vesting  period,  was  recorded  for such  options  issued to
         employees and officers.  As of December 31, 2000, the Company estimates
         the  fair  value  of  such  options   issued  to   consultants   to  be
         approximately  $527,000.  During  the year  ended  December  31,  2000,
         compensation expense of approximately $612,000 was recorded relating to
         such  options  granted  to  employees  and   compensation   expense  of
         approximately $220,000 was recorded relating to such options granted to
         consultants.  In June 2000,  the Company  cancelled  options  issued to
         consultants to purchase an aggregate of 8,000 shares of common stock.

         In October 2000,  as  contemplated  as part of the Exchange  Offer (See
         Note C), the Board of Directors of the Company  granted  under its 1999
         Stock Option Plan options to purchase  41,100 shares of common stock to
         certain officers of the Company, in substitution for certain options to
         purchase  ordinary  shares  of  Medis  El held by such  officers.  Such
         options,  which are vested and have an exercise price of $.410, were on
         terms consistent with the Exchange Offer.  Accordingly,  new options to
         purchase  1.37 shares of the  Company's  common  stock were granted for
         each  option to  purchase  an  ordinary  share of Medis El held by such
         officer.  Additionally,  in October 2000, the Board of Directors of the
         Company  granted  under its 1999 Stock  Option Plan options to purchase
         68,550  shares  of common  stock to its  chairman  and chief  executive
         officer in  substitution  for  certain  additional  options to purchase
         ordinary  shares   of  Medis El  granted   to such  officer  prior  to
         the Exchange  Offer.  Such  options,  which  are  vested  and  have an
         exercise  price  of approximately  $5.26, were also granted  on  terms
         consistent with the Exchange.

                                      F-22
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


NOTE H (CONTINUED)

         On October 15, 2000,  the Board of  Directors  of the Company  granted,
         under the 1999 Stock Option Plan, options to purchase 400,000 shares of
         common  stock to certain  officers of the Company.  Such stock  options
         vest on June 15,  2001,  and may be  exercised at a price of $16.42 per
         share  until June 15,  2002.  Deferred  compensation  of  approximately
         $366,000,  which will be charged to expense  ratably  over the  vesting
         period,  was recorded for such options.  During the year ended December
         31, 2000,  compensation expense of approximately  $114,000 was recorded
         relating  to such  options.  Also on  October  15,  2000,  the Board of
         Directors  of the Company  granted,  under the 1999 Stock  Option Plan,
         options to purchase  10,000  shares of common  stock to each of the two
         new members of its Board of Directors.  These options vest on September
         1, 2002 and may be exercised at $20.50 until  September 1, 2004.  Since
         the exercise  price of the options was greater than the market price of
         the  Company's  common  stock  on the  date  of the  grant,  under  the
         intrinsic  value  method  of  accounting  for  stock  options,  neither
         deferred compensation nor compensation expense was recorded relating to
         such options.

         On December  22, 2000,  the Board of Directors of the Company  granted,
         under the 1999 Stock Option Plan, options to purchase 500,000 shares of
         common  stock to certain  officers of the Company.  Such stock  options
         vest on December 22, 2002 and may be exercised at a price of $13.50 per
         share until  December 22, 2004.  Since the exercise price of the option
         was equal to the market price of the Company's common stock on the date
         of the grant,  under the intrinsic value method of accounting for stock
         options,  neither deferred  compensation  nor compensation  expense was
         recorded relating to such options.








                                      F-23
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000



NOTE H (CONTINUED)

         The Company's option activity and options outstanding are summarized as
follows:

                                                             Options
                                                 ------------------------------
                                                                     Weighted-
                                                                      average
                                                                     exercise
                                                    Shares             price
                                                    ------            --------
     Options outstanding at January 1, 1999              -                   -
         Granted                                    450,000           $   2.93
                                                    -------           --------

   Options outstanding at December 31, 1999         450,000           $   2.93

        Granted                                     994,600            $ 11.71
        Exercised                                   (41,100)           $  0.41
        Cancelled or forfeited                       (8,000)           $  5.00
                                                    -------

     OPTIONS OUTSTANDING AT DECEMBER 31, 2000     1,395,500            $  9.25
                                                  =========            ========

     EXERCISABLE                                     68,550            $  5.26
                                                  =========            ========


                        OPTIONS OUTSTANDING              OPTIONS EXERCISABLE
----------- -----------------------------------------  -------------------------
                               WEIGHTED-
                NUMBER         AVERAGE     WEIGHTED-     NUMBER        WEIGHTED-
            OUTSTANDING AT    REMAINING     AVERAGE   OUTSTANDING AT    AVERAGE
 EXERCISE     DECEMBER 31,   CONTRACTUAL   EXERCISE   DECEMBER 31,     EXERCISE
   PRICE         2000           LIFE        PRICES        2000          PRICES
----------  --------------   -----------   ---------  -------------   ---------

 $ 2.93       450,000           2.82        $ 2.93            -            -
   5-5.26     225,500           2.18          5.08       68,550         5.26
  13.5        500,000           3.98         13.5             -            -
  16.42       200,000           1.79         16.42            -            -
  20.5         20,000           3.66         20.5             -            -
           ----------                                 ---------
            1,395,500                                    68,550
           ==========                                 =========

     As of December 31, 2000,  555,400 options were available for grant pursuant
to the plan.

                                      F-24
<PAGE>
                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

         NOTE H (CONTINUED)

         Compensation costs charged to operations which the Company recorded for
         options granted to employees and directors at exercise prices below the
         fair  market  value at the date of grant  and for  options  granted  to
         consultants   aggregated  $3,229,000  in  2000  and  $20,000  in  1999.
         Deferred  compensation  for  employee and  director  stock  options was
         determined by calculating the difference between the exercise price and
         the fair market  value of  such  options on  the  date  of  grant.  The
         deferred  compensation is  charged to  operations   ratably   over  the
         vesting  period  of  such  options.  Compensation  expense  for options
         granted  to  consultant  was  estimated using a  Black-Scholes  Option
         Valuation model and the assumptions are disclosed in Note H-6.

         See Note H-6 for  discussion  of pro forma effects of applying SFAS No.
         123 to these employee stock options.

4.       MEDIS EL

         The  following  table  reconciles  the gains  recognized by the Company
         through transactions in Medis El stock:
<TABLE>
<CAPTION>

                                                                   Year ended December 31,
                                                          ----------------------------------------
                                                              1998          1999         2000
                                                          -----------    ----------   -----------
<S>                                                         <C>            <C>         <C>
Gain on Medis El private placement                          $ 796,000      $      -    $       -
Gain on Medis El's issuance of shares to CellScan
    Argentina for settlement of litigation                          -       268,000            -
Gain on exchange of shares of Medis El owned
    by Medis Inc. for the Company's outstanding
    debt                                                      540,000             -            -
Gain on exercises of Medis El stock options                    37,000        76,000      189,000
  Contribution of interest payment to Medis El                176,000             -            -
                                                            ----------     ---------   ---------
         Amount reflected in statement of
             stockholders' equity                           $1,549,000     $ 344,000   $ 189,000
                                                             =========     =========   =========

</TABLE>

     5.  MEDIS EL SHARE OPTION PLAN

         In October  1993,  the Board of  Directors of Medis El adopted a share
         option plan (the "Share Option Plan") pursuant to which 500,000 shares
         were  reserved for issuance upon the exercise of options to be granted
         to key employees and consultants of Medis El. The Share

                                      F-25
<PAGE>
                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000


NOTE H (CONTINUED)

         Option Plan is administered by the Board of Directors, which designates
         the  quantities,  dates  and  prices  of the  options  granted.  Unless
         otherwise  determined by the Board of Directors,  the exercise price of
         options will be the market price of the Ordinary  Shares on the date of
         grant.  As of June 5, 2000 (the date of the  completion of the Exchange
         Offer), Medis El no longer granted options under its share Option Plan.

         Options  granted  under  the Share  Option  Plan  will  expire  after a
         four-year  period,  but  will be  exercisable  only  after  the  second
         anniversary  of the grant  date and then only if the  option  holder is
         still an employee or consultant of Medis El.

         On May 3, 1998,  the Board of Directors of Medis El granted  options to
         purchase  Medis El's  shares  under the Share  Option  Plan  adopted in
         October  1993 (see details of issuance  below).  Pursuant to the grant,
         certain  employees,  a director,  and a consultant of Medis El received
         119,000  options (of which 50,000 were granted to a director) which are
         convertible into shares on a one-to-one  ratio at $7.20,  which was 80%
         of the market price on the date of the grant ($9.00).

         On November 4, 1998, the Board of Directors of Medis El granted options
         to purchase  Medis El's shares  under the Share  Option Plan adopted in
         October  1993 (see details of issuance  below).  Pursuant to the grant,
         the executive vice-president of Medis El received 30,000 options, which
         are convertible  into shares on a one-to-one ratio at $6.00. The market
         price on the date of the grant was $7.188.

         During 1999, the Board of Directors of Medis El extended the expiration
         date of the  options  issued on  February  14,  1994 for an  additional
         one-year period until February 14, 2000. The extension pertains only to
         options  held by persons who were in the employ of Medis El on the date
         the extension was adopted.

         During the year ended December 31, 1999,  Medis El issued an additional
         56,150 shares upon exercise of stock options by employees.

         In January and February 2000, certain employees and a director of Medis
         El,  exercised  options to purchase  an  aggregate  of 66,100  ordinary
         shares of Medis El. Such exercise generated  aggregate cash proceeds to
         Medis El of  approximately  $336,000.  The Company recorded a credit of
         approximately $189,000 to additional paid in capital,  representing the
         increase in Medis El's book value  attributable to the Company from the
         exercise of the options.

                                      F-26

<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE H (CONTINUED)

         The following table  summarizes Medis El's option plan activity for the
         three years ended December 31, 2000:

                                                                    Weighted-
                                                    Number           average
                                                     of             exercise
                                                   options            price
                                                -------------    ---------------

           Balance at January 1, 1998              235,750             $3.12

           Granted                                 196,400              7.07
           Exercised                               (29,650)             0.66
           Cancelled                               (87,950)             7.42
                                                   -------

           Balance at December 31, 1998            314,550              4.61

           Granted                                  43,600              7.42
           Exercised                               (56,150)             0.56
           Cancelled                               (46,900)             7.42
                                                   -------

           BALANCE AT DECEMBER 31, 1999            255,100              5.47
                                                   =======

           Granted                                       -                 -
           Exercised                               (66,100)             5.09
           Cancelled or forfeited                  (45,000)             1.30
                                                   --------

           BALANCE AT DECEMBER 31, 2000            144,000             $6.95
                                                   =======


                          OPTIONS OUTSTANDING            OPTIONS EXERCISABLE
----------  -----------------------------------------  ------------------------
                             WEIGHTED -
               NUMBER        AVERAGE      WEIGHTED -    NUMBER        WEIGHTED -
            OUTSTANDING AT   REMAINING    AVERAGE    OUTSTANDING AT   AVERAGE
 EXERCISE    DECEMBER 31,   CONTRACTUAL   EXERCISE     DECEMBER 31,   EXERCISE
                2000           LIFE        PRICES         2000         PRICES
 --------   --------------  -----------  ----------  --------------  ---------

$    6.0      30,000           1.81       $  6.0        30,000       $   6.0
     7.2     114,000           1.47          7.2       114,000           7.2
            --------                                   -------
             144,000                                   144,000
            ========                                   =======

                                      F-27
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE H (CONTINUED)


         Compensation  costs charged to  operations  which Medis El recorded for
         Medis El stock options  granted below the fair market value at the date
         of grant were  $23,000,  $126,000  and $65,000 in 1998,  1999 and 2000,
         respectively.  Compensation  expense was determined by calculating  the
         difference between the exercise price and the fair market value of such
         options on the date of grant. The expense is charged to operations over
         the vesting period of such options.

          6.  EFFECT  OF SFAS  NO.  123 ON MEDIS  EL  SHARE  OPTIONS  AND ON THE
              COMPANY'S OPTIONS

         Pro forma  information  regarding  net income and earnings per share is
         required by SFAS No. 123, and has been determined as if the Company had
         accounted  for its and Medis  El's stock  options  under the fair value
         method  of that  Statement.  The  fair  value  for  these  options  was
         estimated at the date of grant using a Black-Scholes  Option  Valuation
         model with the following weighted-average assumptions:


                             MEDIS EL   MEDIS EL    MTL      MEDIS EL     MTL
                             OPTIONS    OPTIONS   OPTIONS    OPTIONS    OPTIONS
                              1998       1999      1999        2000      2000
                            --------   --------   -------   --------    -------


 Dividend yield                 0%         0%         0%         0%         0%
 Risk-free interest rate     5.00%      6.00%      5.40%      6.00%      6.00%
 Expected life in years
   after vesting period      1 - 2      1 - 2      2          1 - 2      1 - 2
 Volatility                    10%        40%       0.0%        95%        95%

         The  Black-Scholes  option  valuation  model was  developed  for use in
         estimating the fair value of the traded options,  which have no vesting
         restrictions and are fully transferable.  In addition, option valuation
         models require the input of highly  subjective  assumptions,  including
         the expected  stock price  volatility.  Because the Company's and Medis
         El's stock options have  characteristics  significantly  different from
         those of traded options,  and because  changes in the subjective  input
         assumptions  can  materially  affect  the  fair  value  estimates,   in
         management's  opinion,  existing  models do not  necessarily  provide a
         reliable single measure of the fair value of its stock options.

         For purposes of pro forma  disclosure,  the estimated fair value of the
         options is  amortized  as an  expense  over the  vesting  period of the
         options. The Company's pro forma information is as follows:

                                      F-28
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000
NOTE H (CONTINUED)

<TABLE>
<CAPTION>

                                                   YEAR ENDED DECEMBER 31,
                                    --------------------------------------------------

                                        1998                   1999              2000
                                    -------------          -------------      -----------
<S>                                  <C>                <C>                 <C>

Net loss for the year as reported    $(4,418,000)       $ (5,965,000)       $ (22,492,000)
Pro forma net loss                    (4,592,000)         (6,002,000)         (22,811,000)
Net loss attributable to common
    shareholders                      (4,418,000)         (5,965,000)         (25,463,000)
Pro forma net loss attributable to
    common shareholders               (4,592,000)         (6,002,000)         (25,782,000)
Net loss per share as reported                  (.52  )             (.61)              (1.79)
Pro forma net loss per share                    (.54  )             (.61)              (1.81)
</TABLE>

         The weighted average fair value of MTL options granted during the years
         ended December 31, 1999 and 2000 was $4.91 and $9.67, respectively.

         The weighted  average fair value of Medis El options granted during the
         years  ended  December  31,  1998,  and  1999  was  $1.89  and   $0.96,
         respectively.  Medis El did not grant any options during the year ended
         December 31, 2000.

         The total compensation  expense for employees included in the pro forma
         information  for  1998,  1999  and  2000  is  $174,000,   $138,000  and
         $1,491,000, respectively.


NOTE I - COMMITMENTS AND CONTINGENCIES

     1.  CELLSCAN  LICENSE - Medis El acquired  the rights to the  Cell Scan  in
         August  1992  by  assignment  from  IAI  of a  license  from  Bar  Ilan
         University to IAI. Medis El paid IAI $1,000,000 in consideration of the
         assignment of the license and for certain  tooling and  equipment.  The
         license is a perpetual  worldwide  license to develop,  manufacture and
         sell the CellScan,  and to sublicense the right to manufacture and sell
         the  device.  The  license  includes  all  rights  to the  University's
         CellScan  patents,  know-how and inventions  including any subsequently
         acquired,  and all improvements  thereto.  Medis El is obligated to pay
         the  University a royalty for a twenty-year  period  beginning in 1995.
         For the first ten years, the royalty is at the rate of 6.5% of proceeds
         of  sales  (after  deducting  sales  commissions  and  other  customary
         charges)  and  4.5% on any  fees  received  from  granting  territorial
         rights.  The  royalty  for the  second  ten-year  period is 3.5% on all
         revenues  whether  from  sales or fees.  In  addition  to such  royalty
         payments,  the Company is required to grant  $100,000 to the University
         during  the first  year that the  Company's  after-tax  profits  exceed
         $300,000.  No royalties were required to be paid during the three years
         ended December 31, 2000.

                                      F-29
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE I (CONTINUED)


     2.  NEURITOR  LICENSE - In  consideration of grants by the State of Israel,
         Medis El is  obligated  to pay  royalties  for a  license  from  Imexco
         General Ltd.  ("Imexco"),  for which assignment Medis El paid $500,000.
         An additional sum of $125,000 was paid in December 1995. In 1996, Medis
         El  relinquished   its  exclusive  right  to  market  the  Neuritor  in
         consideration  of relief of its  obligation  to pay minimum  royalties.
         Medis El has to pay Imexco  royalties at rates ranging from 2% to 7% of
         the revenue generated by the sale of the Neuritor.

     3.  OTHER  ROYALTIES - In  consideration  of grants by the State of Israel,
         Medis El is  obligated  to pay  royalties  of 3% of  sales of  products
         developed  with  funds  provided  by the  State  of  Israel  until  the
         dollar-linked  amount equal to the grant payments  received by Medis El
         is repaid in full. All grants received from the State of Israel related
         to the CellScan and Neuritor  technologies.  Total grants received, net
         of royalties paid as of December 31, 2000, aggregate $2,601,000,  which
         includes  those  received  by IAI  relating  to  such  technologies  of
         $805,000.  No royalties were required to be paid during the three years
         ended December 31, 2000.

     4.  LEASE COMMITMENTS - MTL's office space is provided to MTL for an annual
         rental fee of approximately  $72,000,  by a company which is controlled
         by the  chairman  and chief  executive  officer and the  president  and
         treasurer of MTL.

         Medis El is committed under leases at three locations for office space,
         laboratory  and  manufacturing   facilities,   as  well  as  its  pilot
         production  plant.  Its corporate  headquarters  and technology  center
         facility leases,  which have terms until November and December 2001 and
         two one-year  options on a portion of the facility,  provide for annual
         aggregate rental of approximately  $164,000. Its manufacturing facility
         lease has an initial term until  December  31, 2001, a two-year  option
         extending to December 31,  2003,  and provides for an annual  aggregate
         rental of  approximately  $27,000.  Additionally,  its pilot production
         plant lease has an initial term until December 31, 2001, three one-year
         options  extending  to December  31,  2004,  and provides for an annual
         aggregate rental of approximately $12,000.

     5.  AGREEMENT  WITH PERUVIAN  COMPANY - In April and May 2000, the Company
         transferred  payments  aggregating  $110,000  to  a  Peruvian  company
         ("Peru") for the repurchase of a CellScan machine. In June 1999, Medis
         El reached an  agreement  with Peru  which  owned a CellScan  machine,
         whereby, in consideration of Medis El upgrading the CellScan system at
         its cost, Peru relinquished any future claims against Medis El, except
         for an option to require  Medis El to repurchase  the CellScan  system
         for  $100,000.  Such option  expired on January 14, 2000.  In February
         2000,  Medis El  granted  Peru a new  option  to  require  Medis El to
         repurchase  the CellScan  machine for $110,000  which was exercised by
         Peru, via a letter dated February 23, 2000.

                                      F-30
<PAGE>
                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE I - (CONTINUED)


         SETTLEMENT  OF  LITIGATION - Pursuant to a settlement  agreement  dated
         November 22, 1999  dismissing  with  prejudice an action pending in the
         Supreme  Court of the State of New York,  County of New York,  entitled
         CellScan  Argentina,  S.A.  v.  Medis El Ltd.,  et.  al.,  the  Company
         commenced  in January  2000  pursuant  to a put/call  provision  in the
         settlement  agreement,  the  purchase  of 3,000 of Medis El's  ordinary
         shares per week from a designee of the  plaintiff,  initially  at $6.00
         per share,  and  increasing  by $.50 per share every  month  thereafter
         beginning  March 1, 2000.  Pursuant to the  settlement  agreement,  the
         Company  exercised  its right to repurchase  60,000 of such shares,  of
         which   18,000   shares   Cellscan   Argentina   refused  to  transfer.
         Consequently, on June 8, 2000, the Company commenced an action entitled
         Medis  Technologies  Ltd. v. Cellscan  Argentina,  S.A., in the Supreme
         Court of the State of New  York,  County  of New  York,  alleging  that
         Cellscan  Argentina's refusal to transfer to the Company 18,000 of such
         shares pursuant to the put/call  provision was a material breach of the
         settlement agreement.

         In August 2000,  the Company  entered into a  stipulation  and order of
         settlement   with  Cellscan   Argentina   dismissing  the  action  with
         prejudice,  which requires Cellscan  Argentina to comply with the terms
         of the original  settlement  agreement  and sell to the Company  18,000
         shares of Medis El for payment of $109,000. As part of the stipulation,
         the Company  substituted for the ordinary shares of Medis El underlying
         warrants  originally  granted to  CellScan  Argentina  pursuant  to the
         original settlement  agreement,  the common stock of the Company at the
         same  exchange  rate as  shares  of stock in the  exchange  offer.  The
         Company granted certain  "piggy-back"  registration  rights to Cellscan
         Argentina  with  respect to such shares of the  Company's  common stock
         underlying these warrants.

NOTE J - RELATED PARTY TRANSACTIONS

      1. INSURANCE - Medis El is  presently  included as an  additional  insured
         party on IAI's product,  casualty,  and third party liability coverage.
         During  the  year  ended  December  31,  2000,  IAI  charged  Medis  El
         approximately  $5,000 for insurance premiums,  and Medis El charged IAI
         approximately $64,000 relating to property loss insurance claims.



                                      F-31
<PAGE>

                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE K - INCOME TAXES

     The following represents the components of the Company's pre-tax losses for
     each of the three years in the period ended December 31, 2000.

                                      YEAR ENDED DECEMBER 31,
                        -----------------------------------------------
                          1998                1999                2000
                        ---------           --------            -------

      Domestic        $(2,556,000)        $(3,001,000)       $(17,245,000)
      Foreign          (1,862,000)         (2,964,000)         (5,247,000)
                       ----------          ----------          ----------

                      $(4,418,000)        $(5,965,000)       $(22,492,000)
                       ==========          ==========         ===========


     The Company files a consolidated  Federal income tax return, which includes
     MTL,  Medis  Inc.,  and CDS. At December  31,  2000,  the Company has a net
     operating  loss ("NOL")  carryforward  for United States Federal income tax
     purposes of approximately $5,299,000, expiring through 2020.

     Pursuant to United States  Federal  income tax  regulations,  the Company's
     ability to utilize this NOL may be limited due to changes in ownership,  as
     defined in the Internal Revenue Code.

     The Company,  through Medis El, has net operating  losses,  for Israeli tax
     purposes, aggregating approximately $28,847,000, which, pursuant to Israeli
     tax law, do not expire.

     Deferred income tax assets arising mainly from NOL carryforwards  have been
     reduced to zero  through a valuation  allowance.  The  Company  continually
     reviews the adequacy of the valuation allowance and will recognize deferred
     tax assets only if a reassessment indicates that it is more likely than not
     that the benefits will be realized.

     Medis El is an Israeli corporation and is subject to income taxes under the
     relevant  Israeli  tax  law.  Medis El has been  issued  a  certificate  of
     approval as an "Approved  Enterprise,"  which allows Medis El to have lower
     tax rates under  Israeli  tax law.  Such rates  include a corporate  tax on
     income derived from Approved  Enterprise  activities at a rate of 20% and a
     tax rate on  distributed  dividends of 15%.  These benefits may be in force
     through at least 2006.

     No tax  expense  has  been  recorded  in the  financial  statements  of the
     Company,  as the Company has a loss in the current year, in each tax-paying
     jurisdiction.


                                      F-32

<PAGE>
                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE K (CONTINUED)

     Temporary differences that give rise to deferred tax assets are as follows

                                                              DECEMBER 31,
                                                       ------------------------
                                                        1999             2000
                                                     -----------     -----------

 Net operating loss carryforwards - United States    $ 1,964,000   $  2,221,000
 Net operating loss carryforwards - Israel             8,496,000     10,385,000
 Other                                                   (82,000)    (1,447,000)
                                                     -----------    ===========

                                                      10,378,000     11,159,000

 Valuation allowance                                 (10,378,000)   (11,159,000)
                                                     -----------    ===========

          Deferred tax assets, net of valuation
             Allowance                               $         -   $         -
                                                     ===========   ============


     A  reconciliation  of the income tax benefit  computed at the United States
     Federal statutory rate to the amounts provided in the financial  statements
     is as follows:

                                               YEAR ENDED DECEMBER 31,
                                      --------------------------------------
                                        1998           1999           2000
                                      ----------    -----------    -----------

 Income tax benefit computed at
     Federal statutory rate (34%)    $(1,502,000)   $(2,028,000)   $(7,647,000)
 Effect of Foreign Income Taxes          261,000        415,000       (105,000)
 Effect of permanent differences         831,000        875,000      4,842,000
 Valuation allowance                     410,000        738,000      2,910,000
                                     -----------    -----------    -----------

                                    $      -         $       -      $       -
                                    ============     ==========    ===========




                                      F-33
<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE L - INFORMATION ABOUT GEOGRAPHIC AREAS


     The following lists the long-lived  assets held in the Company's country of
     domicile and in all foreign countries:

                                                   DECEMBER 31,
                                       ------------------------------------
                                             1999                 2000
                                            -------             -------

       United States                     $         -       $           -
       Israel
          Property and equipment, net        983,000           1,045,000
          Intangible assets, net           7,242,000          82,799,000
                                           ---------        ------------

                                         $ 8,225,000       $  83,844,000
                                         ===========        ============


















                                      F-34
<PAGE>
                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE M - CONSOLIDATED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>

Quarter ended                             March 31           June 30       September 30        December 31
---------------------------------     -------------      -------------     -------------      ------------
Fiscal 2000

<S>                                    <C>                <C>              <C>                <C>
Loss from operations
      As originally reported           $(2,224,000)       $(5,637,000)     $(8,312,000)       $(7,682,000)
      Effect of correction (*)             164,000            170,000          (45,000)                 -
                                       -----------        -----------      -----------        ------------
      As restated                      $(2,060,000)       $(5,467,000)     $(8,357,000)       $(7,682,000)
                                                                                              ------------


Loss before minority interest
      As originally reported           $(2,187,000)       $(5,606,000)     $(8,234,000)       $(7,627,000)
      Effect of correction (*)             164,000            170,000          (45,000)                 -
                                        -----------        -----------      -----------       ------------
      As restated                      $(2,023,000)       $(5,436,000)     $(8,279,000)       $(7,627,000)
                                       -----------        -----------      -----------        ------------

Net Loss
      As originally reported           $(1,705,000)       $(5,215,000)     $(8,234,000)       $(7,627,000)
      Effect of correction (*)             164,000            170,000          (45,000)                 -
                                       -----------        -----------      -----------        ------------
      As restated                      $(1,541,000)       $(5,045,000)     $(8,279,000)       $(7,627,000)
                                       -----------        -----------      -----------        ------------

Net loss attributable to common
  stockholders
      As originally reported           $(1,705,000)      $(8,102,,000)     $(8,318,000)       $(7,627,000)
      Effect of correction (*)             164,000            170,000          (45,000)                 -
                                       -----------        -----------      -----------        ------------
      As restated                      $(1,541,000)       $(7,932,000)     $(8,363,000)       $(7,627,000)

Basic and diluted net loss per share
      As originally reported                 $(.16)             $(.63)           $(.50)             $(.45)
      Effect of correction (*)                 .01                .01              . -               -
                                               ===                ===              ===               ====
      As restated                            $(.15)             $(.62)           $(.50)             $(.45)
                                             ======             ======           ======             ======

Weighted-average shares used in
   computing basic and diluted net
   loss per share                       10,429,000         12,869,226       16,771,767         16,825,794
                                       ===========        ===========      ============       ===========
</TABLE>

(*) Represents certain transactions  incurred during the year that were adjusted
at year end (mainly issuance costs in connection with the exchange offer that is
reflected as a reduction of equity rather than an expense).

                                      F-35

<PAGE>


                    Medis Technologies Ltd. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

                           December 31, 1999 and 2000

NOTE M - (CONTINUED)
<TABLE>
<CAPTION>

Quarter ended                                            March 31            June 30         September 30       December 31
---------------------------------------------------  ---------------      -------------     -------------     --------------
Fiscal 1999


<S>                                                    <C>                <C>               <C>                <C>
Loss from operations                                   $ (1,323,000)      $ (1,941,000)     $ (1,882,000)      $ (2,644,000)
                                                       ============       ============      ============       ============
Loss before minority interest                           $(1,298,000)       $(1,901,000)      $(1,845,000)       $(2,618,000)
                                                       ============       ============      ============       ============
 Net Loss                                               $(1,030,000)       $(1,483,000)      $(1,498,000)       $(1,954,000)
                                                       ============       ============      ============       ============
Net loss attributable to common stockholders            $(1,030,000)       $(1,483,000)      $(1,498,000)       $(1,954,000)
                                                       ============       ============      ============       ============
Basic and diluted net loss per share                          $(.11)             $(.15)            $(.15)             $(.20)
                                                             ======             ======            ======             ======
Weighted-average shares used in computing basic and
   diluted net loss per share                             9,465,649          9,816,531         9,949,165          9,988,619
                                                          =========          =========         =========          =========
</TABLE>



                             **********************











                                      F-36