A MONTHLY REPORT COVERING NEWS AND INVESTMENT OPPORTUNITIES JOSEPH MORGENSTERN, PUBLISHER September 1998 Vol. XIV Issue No.8 You are invited to visit us at our website: http://www.ishitech.co.il Meet ’s Industry 12000% Growth in 13 Years

Due to lack of venture or any other capital on its There are 85 venture capital firms active in home turf Israeli companies in the 70s turned to Israel. Technology venture capital funds have Wall Street to fuel their expansion. At that time raised between 1991-1997 more than $1.5 bil- the short-list of Wall Street companies who lion. raised funds for their activities on Wall Street The Israel venture capital industry was born in included BioTechnology General, Elbit Comput- 1985. At the time it was a remarkable birth yet ers, Electronics Corporation of Israel (ECI), inconspicuous. In retrospect, as some babies Elron Electronics Industries, Elscint, Fibronics, tend to be, it was amazingly small, highly pre- InterPharm, Laser Industries, Optrotech, Scitex cocious but long on hope and full of promise. and IIS Intelligent Information Systems. On Sep- The infant was christened- Athena Venture Part- tember 30, 1984 the total stock market valuation ners. Athena’s managing partner was a past of these companies stood at $780 million. In Commander of Israel’s Air Force Dan 1997 the Israel Ventures Association handbook Tolkowsky. Another partner Fred Adler, was one listed that 22 Israeli public offerings in the US of America’s premier venture capitalists who raised $743 million. had assisted several Israeli companies in raising The first generation of venture capital funds capital on NASDAQ. Glen Tobias, a General began to operate in the late 1980s and this move- Partner at Bear Stearns helped to structure the ment accelerated in 1990s. Local and internation- fund which raised $25 million. Glen Tobias al “money men” were noticing that Israel had wrote to the Israel High-Tech and Investment become second only to the United States with its Report at the time, “Athena Venture Partners l number of start-up companies. The conclusion was reached that there existed a pool of entrepre- In this Issue neurial capabilities and a continuous flow of new Meet Israel’s Venture Capital Industry ideas within Israel. In view of the modest begin- SUPERPOWER nings of the Israeli venture capital industry it is Memco & Platinum Another Blockbuster Deal Lucent to Buy Lannet for $117 mil. mind boggling that as of December 1997 Israeli Point of Sale IPO at Low Pricing technology and private equity funds had raised Israelis on Wall Street: Zoran, BTGC, MedisEl, PEC, Cimatron, ECI Telecom, Teva, $2.1 billion of which $1.2 billion had been Elron Electronis, Indigo, Pharmos, Geotek, NICE, Technomatix, invested and $900 million remained to be invest- Vocaltec Possible Merger: Tadiran+ECI Telecom ed. The explosive boom in startups has attracted the SCIENCE CORNER nucleus of an expanding venture capital industry.

Copyright 1998: Israel High-Tech & Investment Report Subscription, Bulk copy and reprint information available on request Editorial Offices: P.O.Box 33633, Tel Aviv 61336, Israel Tel: 972-3-5235279 Fax: 972-3-5227799 E-mail: [email protected] ISR A EL HIG H-TECH & IN V EST MENT REPO RT September 1998

represents an attractive investment opportunity mercialization, and venture capital - the busi- to participate in quality high-technology com- ness development catalyst. panies at the venture capital stage, with an An expression of that support is the Govern- emphasis on such companies based in Israel”. ment of Israel research and development The “high-tech sector” we wrote in our Issue (R&D) budget of $400 mln. The R&D expen- 1, January 1985, “crowned by enthusiasm, diture represents 2.2% of Israel’s Gross engendered by the successes already achieved, Domestic Product, according to data pub- has created an encouraging environment for its lished by the Central Bureau of Statistics. The further rapid growth and expansion. It pro- funding subsidizes the average startup with vides an atmosphere which can nurture the about $150,000a year. dreams of young scientists, investors and On a percentage basis the business sector, pri- entrepreneurs, with the dreams being turned marily high-tech industries accounted for 46% into the realities of tomorrow”. of the total. 37% was allocated for R&D in the At the same time there began a continuing and country’s universities, 10% for government harmonious interaction between the Israeli and 7% for non-profit organizations. Government and hi-tech entrepreneurship. It The recent resounding and high profile acqui- undoubtedly accelerated the successful devel- sitions of Israeli high-technology companies opment of all stages of the “smart” industries, by America OnLine and Platinum and will including academic, R&D, transition to com- undoubtedly add to the impetus to launch a The Bottom Line

* 2,500 Hi-tech Start-ups currently active in Israel * Over 80 Venture Capital Funds managing about $3 bln. dedicated exclusively to hi-tech investments - representing more per capita than any other country or continent on the globe * Massive presence in Israel of American Investment Banks specializing in hi-tech *More companies on NASDAQ, the chief exit for venture capital funds, than any other country outside of North America Israel Venture Association

You are invited to visit us at our website: 2 http://www.ishitech.co.il September 1998 ISR A EL HIG H-TECH & IN V EST MENT REPO RT second generation of venture capital funds the major trends evident in Israeli venture with capital of $100 million, or more. capital. “There is tendency to address ‘earlier The business press now regularly quotes heads stage’ enterprises that require more manage- of venture capital management companies. ment attention. More venture capital funds are Many of these, if not household names, have creating internal structures which can provide become prominent due to their ability to spot management assistance along with capital. “a good deal’. Giza, Veritas, Evergreen, Another trend is the growth in size of individ- Dovrat/Schrem, Clal Venture, Challenger, ual funds who can provide funding at later Comverse, Apax-Leumi, Jerusalem Venture, stages when greater sums are generally Kardan, Marathon, Medica Ventures, Neurone, required,” Mr. Manor points out. Medmax, Mofet, Ofer, Shirat, Rennaissance Just as Israeli companies look to attracting and Walden have shown that they have the foreign strategic partners so foreign financial ability to attract foreign capital and and invest groups seek suitable Israeli partners with SUPERPOWER Israel is rightfully acknowledged as a superpower in the field of Internet software. Compa- nies such as Unique, with its super technology to compress a movie so that it can be seen on a computer screen; CheckPoint with a world leading market share of Internet protection from unauthorized intrusion and most recently Mirabilis with its friendly ability for Inter- net users to communicate with each other when online are among visible examples. The Internet culture among young Israelis is widespread and mushrooming. It begins at birth and gets its greatest impetus during the period of army service. Comfy produced a keyboard which allows toddlers to connect and activate games on the Internet. In due course Israelis undergo a compulsory three year period of army service. Shortly after entering the army they find out that Israeli Defense Forces select the most talented among them and train them electronics and software at the most advanced technical levels. By the time they complete service they are “well cooked” and ready to apply their expertise to civilian pursuits. Com- puter software programming, the application of algorithms to compress text, data and data encryption skills and telecommunications know-how are useful skills to bring to a job and invaluable for entrepreneurs who decide to strike out on their own. The lightning like appearance of Israel as a superpower on the international Internet soft- ware scene should not be misconstrued as a passing phenomenom it in the expanding sea of the universe of whom to co-invest in high-tech investments. Israeli high-tech. What gave credence to these Israel’s Clal Group recently announced that activities were the outlandishly bountiful together with the French Banque Nationale de rewards garnered from venture capital backed Paris and Rind Butler Group of the US it has companies such as ESC Medical, Gilat Satel- established the “Omega” Capital Venture lite, Mirabilis and most recently Memco. Fund, amounting to $100 million. The fund The Israel High-Tech & Investment Report will invest in Israeli high tech companies, with asked Eliezer Manor, the Executive Director the cooperation of US and French companies. of the Israeli Venture Association to pinpoint Clal is to make connections with Israeli com- 3 You are invited to visit us at our website: http://www.ishitech.co.il ISR A EL HIG H-TEC H & IN V EST MENT REPO R T September 1998 panies, and experts from technological and the company had sales of $.25.3 million. Rev- financial fields. Hillel Milo, who founded the enues for the six months ended June 30, 1998, Clal Capital Venture Fund in 1995, has been were $.65.6 million, a 42 percent increase over appointed the fund’s CEO. the first half of 1997, when the Gilat had sales The Zisapel brothers founders of the RAD of$.46.3 million. Operating income was $10.3 Group of companies, a group of companies million, compared with $6.3 million for the specializing in electronics and computer com- first six months of 1997, while net income was munication with a turnover in excess of $500 $9.3million ($.0.81 per share), compared with million, are forming the RAD Ventures Fund $ 6.9 million ($.0.61 per share) for the same which aims to raise $100 million from local period last year. Operating income increased and foreign investors for investment in Israeli by 64 percent between the first half of 1997 computer, telecommunication, intranet and and the first half of 1998, while net income internet companies. increased by 36 percent. The earnings fore- The local venture capital industry will be on casts on Wall Street are being raised to $2.12 full display in per share from mid-September $2.05 for when the MEMCO & PLATINUM: 1998. The 12- Israel Venture month price Association ANOTHER BLOCKBUSTER target for Gilat hosts an Inter- is above $50. national Con- DEAL Gilat has been ference on a favorite of MEMCO Software, a leading provider of information security soft- high-tech ven- ware, signed a definitive agreement to merge with Platinum Technolo- the Israel ture capital. gy, a major provider of IT infrastructure management software. The High-Tech & Israeli Compa- combined offerings of both companies is expected to provide an Investment nies on Wall advanced solutions for protecting enterprise networks, databases, and Report for Street systems across multiple platforms. The transaction’s value is in excess more than a Gilat Smart of $500 million and as a result MEMCO will become a wholly-owned decade. Investors’ subsidiary of Platinum. Platinum will exchange 0.836 shares of Gilat also Favorite PLATINUM common stock or $26 per each share of MEMCO Soft- reported that Reports ware. Platinum CFO Michael Cullinane said he expects the software PageNet, one Record Sales company's agreed acquisition of MEMCO Software to boost 1999 of the largest earnings by $0.01 to $0.05 a share. “Going forward we see more of a for 2Q 1998 paging opera- boost to earnings," he added. "I think security is a very significant Gilat Satellite tors in the US, area in which we will play a dominant role." Cullinane said Platinum Networks Ltd. expects to be able to cut Memco's expenses by 20%, which will likely has chosen an (NASDAQ: include layoffs. He declined to project how many jobs may be cut, but enhanced ver- GILTF) said most acquisition-related redundancies are in the finance and sion of Skystar announced rev- administration areas. Memco's fundamentals remain strong, Memco Advantage enues of shares are unlikely to trade based on their fundamentals, but rather to (TM) to facili- $.34.6million trade in line with Platinum until the acquisition closes in early 1999. tate the com- for the second munication of quarter ended June 30, 1998, a 37 percent Narrowband Personal Communication Ser- increase over the same period in 1997, when vices (NPCS), commonly called “two-way You are invited to visit us at our website: 4 http://www.ishitech.co.il September 1998 ISR A EL HIG H-TEC H & IN V EST MENT REPO R T paging’’. In 1994, the US Federal Communi- income of $7.4 mil., or $0.20 per share the cation Commission issued licenses to service same period in 1997, an increase of 158% in providers such as PageNet for a segment of net income and 150% in net income per share. spectrum dedicated to two-way paging. NPC- In the second quarter, the main sources of rev- Skystar is intended to serve as a satellite- enues and profits for Check Point’s were based infrastructure linking the geographically enterprise security and virtual private net- dispersed base stations in the new NPCS net- working, or VPNs. works. Narrowband services include acknowl- During the second quarter, the company’s total edged message delivery, the ability to prepro- installed base crossed the 51,000 mark, with gram responses, message initiation from the more than 8,500 networks worldwide now paging unit, use of the paging device as a using its award-winning VPN solution. wireless modem and transmission of news headlines or stock quotes directly to the pager. In the week following the earnings announce- ment selling dropped the price of the shares PageNet is a wireless information provider from $32 to $25. The decline was attributed to serving more than 10.4 million subscribers in option expirations and expectations that the the United States, Canada, and Spain through company’s Q3 results will be considerably an extensive network of sales and service lower than analyst expectations. offices, resellers and affiliates. PageNet offers LanOptics and RadLan in Joint Development text and numeric messaging with local, LanOptics Ltd. (NASDAQ: LNOPF), mar- regional and nationwide coverage options. keter of Fast Ethernet and Gigabit Ethernet PageNet also provides broadcast and personal- Switches and Internet applications, and RAD- ized information services, including exclusive LAN Computer Communications Ltd., a man- CNN news, sports and financial updates. ufacturer of distributed multi-layer switching In an unrelated development Gilat has been products, announced the signing of a joint chosen by Kazak Telecom to supply satellite development agreement for a new generation telephony equipment for Kazakstan’s Nation- of multi-layer Ethernet routing switches. The wide Satellite Network Project. Gilat will switch will be marketed by each company deliver several hundred FaraWay(TM) under its own label. VSATS, to serve as the foundation for Kazak- stan’s satellite telephony infrastructure. The NATO Group Orders BVR ACMI deal is worth an estimated $6.2 million to BVR Tech Ltd.. said it had won a contract to Gilat, with most of the delivery expected supply its EHUD fourth generation air combat within a year. manoeuvering instrumentation system (ACMI) CheckPoint Profits Exceed Expectations to a NATO training hub in Belgium. BVR’s Check Point Software Technologies Ltd. (Nas- German strategic partner, Bodenseewerk Ger- daq:CHKPF) announced record financial aetatechnik GMBH (BGT), won the contract results for the Q2, 1998. Net revenues for the for the system, which will be supplied to the quarter were $34.3 mil. compared with $18.0 Tactical Leadership Program (TLP) facility. mil. for the same period in 1997, an increase of 90%. BVR did not disclose the value of the deal, Net income for the quarter was $19.2 mil., or but said that, including the contract, the com- $0.50 per share (diluted), compared with net pany’s defense backlog amounts to $62.5 mil- 5 You are invited to visit us at our website: http://www.ishitech.co.il ISR A EL HIG H-TEC H & IN V EST MENT REPO R T September 1998 lion. Lucent to Buy Lannet for $117mil. Point of Sale Limited Concludes IPO After Accept- Lucent Technologies, North America’s largest ing Low $7 Pricing producer of phone equipment, announced that Point of Sale Limited (NASDAQ:POSIF) on it will acquire Tel Aviv-based Lannet for $117 July 10 concluded its initial public offering on mil. in cash from UK-based Madge Networks the U.S. Nasdaq National Market of 2,750,000 N.V. ordinary shares, including 2,200,000 shares Lannet, which produces local area networks offered by the company and 550,000 shares and data communications products, was offered by selling shareholders. acquired by Madge Networks in November The company’s stock was issued at $7.00 per 1995 for $300 mil. share with high-tech specialist Hambrecht & Bill O’Shea, president of Lucent’s Data Net- Quist LLC as lead manager. The deal was working Systems group, said his company is priced at $7, well below its $9-$11 projected interested in the Israeli firm because of its price range, and the number of shares on the international customer base and strong sales deal were lowered to 2.75 million from 3.63 channels, particularly in Europe, where Lucent million. Prior to the American issue Point of is trying to expand its activities. He added that Sale shares had traded on the Tel-Aviv Stock Lannet’s products are complementary to Exchange (TASE) $8.75. The Israeli shares Lucent’s data networking product line. In fell by more than 18% the next day and by as addition, Lannet’s workers, technology and much as 40% at one point in the 30 day period location could be important assets for Lucent, after the IPO. he said. The handling of the issue with the subsequent fall of prices on the Tel-Aviv Stock Exchange .Following the deal, Lannet will become part came under widespread criticism on the part of Lucent’s Enterprise Infrastructure Products of Israeli shareholders and the local financial Group (EIPG). The company’s CEO, Shmuel press. The consensus was that the POSIF man- Levy, will join Lucent as president of the agement could have handled the IPO in a EIPG Israel Technology Center. Lucent said more mature manner and that the offering, in that Lannet’s center of operations will remain view of the dismal market conditions, could in Israel. “We are pleased to have a center of have been delayed. excellence in Israel, which is a high-tech hot The company realized $14,322,000 and paid spot, to complement our data networking $1,347,000 in underwriting discounts. “The assets in New Jersey, Silicon Valley and the pricing of the issue was a disaster but we ful- Boston-Washington corridor,” O’Shea said. filled our goal for raising the funds and are confident of applying these funds construc- The center will be Lucent’s first development tively and to increase our profits from activi- center in Israel. Earlier this year, Lucent made ties in the US,” said Brian Cooper, PoS’ CFO a $6 million investment, amounting to a 20% to the Israel High-Tech & Investment Report. stake, in WaveAccess, a high-speed wireless Prior to the IPO, the shares were trading at a Internet-access technology company, also P/E ratio of 23 x estimated 1998 earnings of based in Israel. Lucent.s revenues for the nine $0.38 a share. At a recent P/E ratio of 14 months ended June 30, 1998 were $22.1 bln.. times $0.38 estimated earnings a share for

You are invited to visit us at our website: 6 http://www.ishitech.co.il September 1998 ISR A EL HIG H-TEC H & IN V EST MENT REPO R T

1998 PoS could become attractive if the com- Air Service Expanded pany can maintain a sales and profit gain of Israel's Knafaim-Arkia Holdings Ltd. said it 30-40%, as is expected of high-growth compa- purchased $180 mln.. in new aircraft and was nies. investing in a Nigerian joint venture as part of Intel to Include Zoran’s DVD Software plans to expand its passenger and cargo opera- Zoran said that Intel is including Zoran’s digi- tions. Knafaim said it purchased two BOEING tal video disk (DVD) software in graphics CO 757-300 planes for $125 mln.. that would cards Intel sells to computer makers. Ship- be used for charter flights to Europe and three ments began this summer. Zoran’s SoftDVD ATR 72-seat planes for $55 mln.. from allows PC users playback of-better-than laser Aerospatiale for domestic and regional flights. disc quality DVD movies on their PCs. In a third deal Knafaim invested $2.5 mln. for a 30% stake in a joint venture Nigerian BTGC Earnings and Sales Higher domestic airline. BioTech General, a profitable US based Teva News biotechnology company, with most of its R&D carried out in Israel. reported 2Q EPS of $0.09 Teva Pharmaceutical Industries whose shares vsats. $0.08 per share in the prior year, on rev- have reacted and move downwards in enues of $18.6 mln. vsats. $15.7 mln.. in response to poorer than expected Copaxone 1997. The company has received approval sales said it had raised $110 million in a pri- from the FDA for the marketing of BioLon in vate offering of senior notes to institutional the United States and this brings to 25 the investors in the United States. The securities, number of countries where BioLon has been with maturities ranging from 2005 to 2018, approved. BioTech said the U.S. market for bear an average interest rate of 6.9 percent sodium hyaluronate products used in these The company also reported that it received ophthalmic surgical procedures is about $100 approval from the FDA to manufacture and mln. a year. market Diclofenac Potassium, a generic rheumatism treatment. The drug will be the MEDIS El first generic version of Novartis Pharma’s reported 2Q EPS loss of ($0.07) vsats. a loss Cataflam to hit the market. Teva said annual of ($0.08) per share in the prior year sales of Cataflam are $100 million and added PEC Israel Economic Corporation that it had 13 drugs in the pipeline for U.S. reported 2Q EPS of $0.36 vsats. $0.67 on rev- FDA approval. It said that they would be an enues of $13.8 mln. vsats. $19.6 mln. last important factor in improving company earn- year. ings. Cimatron Geotek Seeks Protection Under Chapter 11 reported 2Q EPS of $0.06 vsats. $0.13 on rev- Geotek Communications Inc., a one time high- enues of $5.6 mln.vsats. $4.5 mln. last year. flyer whose communications business was based on military technology said that it filed ECI Telecom voluntary petitions seeking protection under reported 2Q EPS of $0.52 vsats. $0.39 on rev- Chapter 11 of the Bankruptcy Code. The com- enues of $197.0 mln. vsats. $162.2 mln. last pany also said it obtained $10.0 million in year. Analysts' mean estimates were $0.49, debtor-in-possession financing, which coupled according to First Call. with the bankruptcy filing, should allow Geot- 7 You are invited to visit us at our website: http://www.ishitech.co.il ISR A EL HIG H-TEC H & IN V EST MENT REPO R T September 1998 ek to conduct business while it attempts either because inflation is running at a level of 3 per- to reorganize with creditors or find a strategic cent to 4 percent. He called on the government buyer for its business. Subject to court to utilize this opportunity to lower its target to approval, Geotek said it will use all operating 2 percent to 4 percent. revenues, in addition to the $10.0 million in However, he said, the government also must financing from S-C Rig Investments III, L.P., work to gradually lower real interest rates. an affiliate of the Soros Group, in order to Ben-Shahar said the “crawling peg” exchange continue operations. rate mechanism, under which the shekel is International Economic Conference permitted to fluctuate freely within a defined band, also has become anachronistic, and At the International Economic Conference, should be abolished. The time has come for held recently in Israel, Robert Hurst, a vice- the shekel to be allowed to float freely, he chairman of the American investment bank said. There is a good chance of a real depreci- Goldman, Sachs. said Israel heads the list of ation of the shekel in the coming months, he countries where his firm sees real opportuni- added. ties for consulting, research and capital-rais- ing. SCIENCE CORNER Robert Hormets, another Goldman, Sachs executive, said Israel has one of the most Sudden Climate Warming Took Place in Africa 2,000 Years Ago Weizmann Institute Study Reveals internationally well-connected economies in A sudden warming of climate lasting several the world, as well as having many other posi- centuries took place in equatorial Africa some tive traits that give it great growth potential. 2,000 years ago, according to a new study For instance, Israel gets very high marks from reported by a Weizmann Institute-led team in international rating agencies in areas such as the August 14 issue of Science. The scientists technology and infrastructure. performed an isotopic analysis of the sedi- Israel is second only to the United States in ments from Hausberg Tarn, a small lake at an the number of research institutes, he said, and altitude of 4,350 meters on a slope of Mt. second only to Germany in percentage of Kenya, a dormant volcano in East Africa engineers in its population. The International whose top (at 4,600-4,700 meters) is covered Economic Forum ranked Israel fourth in its by permanent glaciers. They found that a rapid ability to absorb new technologies. and significant warming of lake water - by However, Hormets added, the government’s about 4 degrees centigrade - took place role in the economy continues to be too large, between the years 350 BCE and 450 AD, even when compared to less developed coun- reflecting a warming of climate in equatorial tries. East Africa. This study helps determine how Bank of Israel Governor Jacob Frenkel, who the climate fluctuated naturally long before chaired the globalization session, stressed that modern industries began releasing large quan- the only solutions to the main problems facing tities of greenhouse gases into the atmosphere. the economy today -- low growth and high Such research may, in turn, throw light on unemployment -- in the long term. today’s climate. It may allow scientists to dis- Professor Haim Ben-Shahar noted that the tinguish between natural climate variability government’s inflation target for 1998, of 7 and the global warming believed to be affect- percent to 10 percent, already is outdated, ing our planet in recent years due to man- You are invited to visit us at our website: 8 http://www.ishitech.co.il September 1998 ISR A EL HIG H-TEC H & IN V EST MENT REPO R T made factors. “Our findings show that the cli- called biogenic opal, which accumulated in mate can warm up suddenly without any con- the sediment. Isotopes are versions of the nection to human activity,” says research same element that are almost identical in their leader Prof. Aldo Shemesh, head of the Envi- chemical properties but differ in weight and in ronmental Sciences and Energy Research other physical properties. Thus, for example, Department at the Weizmann Institute of Sci- the most common isotope of oxygen is O-16, ence. He conducted the study with Prof. Wib- but there is also a heavier oxygen isotope, O- jorn Karlen of the University of Stockholm in 18. The relative quantities of these two oxy- Sweden and Weizmann Institute graduate stu- gen isotopes in biogenic opal are the result of dent Miri Rietti-Shati. “Documenting climatic climatic conditions prevalent in the area when changes that took place in the past in various the sediment formed; they reflect the lake’s parts of the globe may help scientists make temperature and the isotopic composition of more precise predictions about the potential its water at the time of sediment deposition. effects of modern activity on the climate of Thus, when the water was cooler, the opal the future,” Shemesh says. While periods of contained relatively more O-18 compared with ancient warming have been identified in O-16. By studying the ratio of the isotopes, numerous parts of the world, the new study the scientists were able to identify the period makes a unique contribution to this area of of sudden warming. This research has also research because it was conducted on the established that the measurement of biogenic- equator, a region that plays a crucial role in opal oxygen isotopes in lake sediments is a determining the climate system throughout the unique and valuable way to investigate past planet. Moreover, it ís the first quantitative climate. “Our research has shown that sedi- assessment of a past warming period on the ments from high-altitude lakes provide a equator to be performed at such a high alti- unique isotopic archive of climatic changes,” tude, where evidence of past climate changes Shemesh says. The scientists note in their is particularly difficult to ascertain due to the paper that the warming on Mt. Kenya may close proximity of mountain glaciers. have been part of a more global climatic phe- Mt.Kenya’s hidden “archive” The scientists, nomenon because a warm period occurring accompanied by local porters, reached Haus- during approximately the same period had berg Tarn following a long and arduous hike been recorded in two other parts of the world - lasting several days. Using boats and special in the Swedish part of Lapland and in the drilling equipment they carried with them, northeastern St. Elias Mountains (southern they obtained a nearly 2-meter-long core of Yukon Territory and Alaska). sediment from the bottom of the lake. This Supercom to Issue Passports in Britain sediment, containing fossil algae deposits, was Israeli company Supercom has won a tender later analyzed at the Weizmann Institute. published by Her Majesty’s Stationery Office, Using carbon-14 dating, the scientists first the British government printer, to print pass- determined that the core contained deposits ports for British citizens for the next four which had accumulated over 3,000 years, years. Supercom general manager Eli Rosen between 2,250 BCE and 750 AD. Then, using said that the company won the tender thanks a new method developed by Prof. Shemesh, to the technology it developed which prints the researchers studied the ratio of oxygen iso- documents that cannot be forged. He said the topes in the remains of the algae skeletons, 9 You are invited to visit us at our website: http://www.ishitech.co.il ISR A EL HIG H-TEC H & IN V EST MENT REPO R T September 1998

deal was worth $5 million over four years. fax, pager, ICQ, Interfone and Faxfone mes- Rosen refused to disclose details of the quanti- sages. All these messages can be heard on the ty of passports the company will print, as the telephone, including written messages, or matter is considered a British state secret. alternatively, through the Internet browser. The Nevertheless, the Home Office estimated that, product is designed for Internet service up to the end of 1999, some four million pass- providers. CEI also has invested $3.5 mil. in ports would be issued using the new method. Nanomotion, as part of a $10 mil. capital rais- British Home Secretary Mike O’Brien said the ing. CEI held 14% of the company’s capital, new technology, based on a patent registered and following the investment, its holdings will by Supercom, would make forgery of the pass- increase to 20% of the company. Nanomotion port bearer’s photograph and signature impos- develops innovative tiny precision motors. The sible. Supercom won the project in conjunc- company’s shareholders are the Marathon, tion with of Germany. It is expected Polaris and Mofet funds. to go ahead at the end of 1998. In the course Elron Electronics of the project, Siemens will cooperate with the reported 2Q EPS of $0.15 vsats. $0.32 in British Passport Office in collating applica- prior year period, on revenues of $8.78 mln.. tions and gathering the information required to vsats. $7.70 mln.. Analysts’ mean estimates issue passports. At the same time, the printing were $0.03, according to First Call. The com- itself will be carried out by Supercom in coop- pany’s shares are trading at a 25% discount to eration with Her Majesty’s Stationery Office. their net asset value (NAV) of more than $23 a share. Elron’s basket of young companies is Supercom was set up in 1998 by four private expected to contain several that are expected founders. It has developed several new tech- to go public in the next 12-24 months. nologies, including unforgeable digital print- ing, and a smart card containing a picture and INDIGO personal details that can transfer information has reported a 2Q EPS loss of ($0.07) without physical contact. vsats.($0.23) on revenues of $33.0 mln.. Supercom is currently preparing for a NAS- vsats.$23.8 mln.. last year. Analysts’ mean DAQ issue which is expected later this year. estimates were ($0.10), according to First Call. Clal Electronics Acquires 10% of MediaGate, 6% of Pharmos Nanomotion Pharmos Corp. said it will record about Clal Electronics Industries (CEI) has signed an $900,000 in net product revenue in the second agreement under which it will invest close to quarter. Pharmos did not report any revenues $6 mil. million in MediaGate, in return for for the first quarter of 1998 or 1997.. The 10% of the company’s shares. The purchase majority of second quarter net revenue is from took place as part of a $10 million capital rais- shipments of Lotemax and Alrex, two oph- ing. MediaGate’s major shareholders are Elron thalmic products. Food and Drug Administra- and the company’s founders. MediaGate has tion approval for both products was received developed Internet access services via modem, on March 9 of this year. telephone, fax, pagers and conference calls. MediaGate server provides users a central mail The company reported a first quarter loss of box for all electronic mail, cellular telephone, $2.3 million, or $0.06 per share, in 1998, ver-

You are invited to visit us at our website: 10 http://www.ishitech.co.il September 1998 ISR A EL HIG H-TEC H & IN V EST MENT REPO R T sus a loss of $2.6 million, or $0.08 per share, a centers, securities traders, air traffic control year earlier. Pharmos is a pharmaceutical com- sites, public safety, security, transportation and pany involved in the development and com- utility organizations. The company also devel- mercialization of proprietary products. ops and markets communications intelligence NICE Systems Ltd. (COMINT) systems for government agencies. NICE Systems Ltd. (NASDAQ: NICEY), a NICE Systems is headquartered in Tel Aviv, leading global provider of CTI recording and with a US subsidiary based in New Jersey, a quality measurement solutions, reported sec- Canadian subsidiary based in Vancouver, BC, ond quarter 1998 revenues increased 60 per- and a German subsidiary based in Frankfurt. cent to $24.0million compared with $15.0 mil- VOCALTEC COMMUNICATIONS LTD lion for the second quarter of 1997.Net reported 2Q EPS loss of ($1.10) after charge income rose 106 percent to $5.1 million from vsats. . ($0.24) on revenues of $5.9 mln.. $2.5 million in the same quarter last year, vsats. . $3.4 mln.. last year. Analysts’ mean (excluding one-time charges related to an and estimates were ($0.25), according to First the write-off of certain assets resulting from Call. The company said 2Q 1998 results the move of the company’s headquarters to its include a charge of $9.7 million related to new facilities in Ra’anana, Israel.) Taking into research and development write-offs. consideration the one-time charges of $9.0 TECHNOMATIX TECHNOLOGIES million, net loss for the quarter was $4.0 mil- reported 2Q EPS of $0.26 vsats. . $0.27 in lion.The gross profit for the second quarter prior year period, on revenues of $17.1 mln.. rose 62 percent to $13.8 million from $8.5 vsats. . $13.9 mln... Analysts’ mean estimates million in same quarter last year. Operating were $0.26, according to First Call. Tecno- profit, net of one-time charges, gained 61 per- matix said that results for the 2Q of 1998 were cent to $3.7 million from $2.3 million for the negatively impacted by the strong dollar. In year-ago second quarter. constant currencies, revenue growth would “The strategic decision to focus on call centers have been 29% and EPS would have been four in 1998, highlighted by the acquisition of cents higher than actually reported for the Dees Communications last year and the acqui- quarter, it said. sition of the assets of IBS this quarter, is pay- ing off handsomely. Our leading position in Possible Merger the North American call center market is con- Koor Industries (NYSE:KOR) is considering sistent with NICE’s dominance in the financial merging its TADIRAN TELECOMMUNICA- institutions and the air traffic control mar- TIONS subsidiary into its ECI TELECOM kets.” Stated a NICE executive. For the sec- LTD unit, sources close to Koor said. Manage- ond quarter of 1998, the company’s North ment is looking at a whole set of potential American revenues accounted for 49 percent opportunities in the telecommunications sector of total sales. Revenues generated in Europe and a merger between ECI and Tadiran is one and in the rest of the world accounted for 31 of the possibilities being discussed.. percent, and 20 percent of total sales, respec- Electric Fuel. and tively. will jointly develop a new all-electric, battery NICE Systems’ products meet the increasing propulsion system for powering electric buses demands of financial institutions, voice call and heavy duty trucks. The first application

11 You are invited to visit us at our website: http://www.ishitech.co.il ISR A EL HIG H-TEC H & IN V EST MENT REPO R T September 1998 for the system will be an all electric, zero cruise missiles armed with high-explosive emission, full size transit bus. The two compa- warhead and traveling slightly faster than the nies have recently been awarded funding from speed of sound on terrorist targets was a mini- the Israeli-U.S. Bi-national Industrial Research mal response to the terrorist acts on American, and Development (BIRD) Foundation for the Kenyan and Tasmanian people. It is unlikely joint development of the electric propulsion that the strikes on the terrorist training camps system. in Afghanistan and the destruction in Sudan, Orckit Communications Tipped of a chemical weapons plant will mark the end Orckit (NASDAQ:ORCTF) was rated new of terrorism against the US but the message is buy by analyst Steven Levy at Lehman Broth- that the US is determined to respond in the ers Inc. Levy said Orckit is well-positioned to only way which terrorists understand. supply bandwidth-expansion equipment to It is hoped that the American response will telephone companies worldwide, for which send a clear message that the old non- retalia- demand is increasing, because of its alliances tory policy of treating terrorists as criminals, with other companies, such as Fujitsu Ltd. The considering their acts of violence as crimes, two companies recently won a $100 million and making every effort to apprehend interna- equipment order from GTE Corp. tional terrorists who attack U.S. citizens or interests so that they are prosecuted according Tadiran Reports to the rule of law, is over. The message is that 2Q EPS of $0.88 vsats. $0.72 per share in the terrorism and terrorists will no longer be be prior year, on revenues of $313 mln. vsats. treated by "rules of law" which are intended $299 mln.. in 1997. Analysts' mean estimates for people who live within the realm of social were $0.76, according to First Call. and international law. Force is the Only Reply to Terrorism Keep in Touch Seven years ago the forces of the free world, For nearly fourteen years we have featured in led by the US waged a war against Iraq, called print, news of business and investment oppor- Desert Storm . The Government of Israel in tunities related to the Israeli technology sector. coordination with the US agreed to a policy of The goal then as today is to provide a conduit non-retaliation to Iraq in spite of the Scud of information from Israel to the rest of the attacks on Israel and mostly on Tel-Aviv. world. Our subscribers, many of them loyal There were 40 missiles which landed mostly readers for more than a decade joined us in the in the Tel-Aviv area. After the war and until past year by means of the Internet. this day many of us know that it was a mis- We invite the conference attendees to visit our take not to retaliate since the Scud missiles website http://www.ishitech.co.il that reigned on this city were a form of terror- Our Israel High-Tech & Investment Report ism. website is being visited by individuals from no Terrorism in the Middle East, in the Israeli fewer than 29 countries. We proudly note that lexicon calls for military retaliation. While the Report is featured on the NASDAQ web- responses by force have not brought Peace to site as well as on the popular Virtual Israel we are confident that they have reduced Jerusalem website. Our global exposure is loss of life and property. Terrorists do not grows as we maintain our credibility by think as normal people do but they do under- maintaining a flow of objective information. stand force. The unleashing of Tomahawk You are invited to visit us at our website: 12 http://www.ishitech.co.il