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U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10–Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended
June 30, 2004

Commission file number: 0-30391

MEDIS TECHNOLOGIES LTD.
(Exact Name of Registrant as Specified in its Charter)

Delaware (State or other jurisdiction of incorporation or organization)		13–3669062 (I.R.S. Employer Identification Number)

805 Third Avenue
New York, New York 10022
(Address of Principal Executive Offices and Zip Code)

(212) 935–8484
(Registrant’s Telephone Number, Including Area Code)

        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) has been subject to such filing requirements for the past 90 days.   Yes [   ]   No [X]

        Indicate by check mark whether Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)   Yes [X]   No [   ]

        The number of shares of Common Stock, par value $.01 per share, outstanding as of August 2, 2004 was 26,253,152.

MEDIS TECHNOLOGIES LTD.

INDEX TO FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2004

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Medis Technologies Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets

The accompanying notes are an integral part of these consolidated financial statements.

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Medis Technologies Ltd. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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Medis Technologies Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)

The accompanying notes are an integral part of these consolidated financial statements.

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Medis Technologies Ltd. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note A – Nature Of Operations And Basis Of Presentation

        Medis Technologies Ltd. (“MTL”), a Delaware corporation, is a holding company, which through its wholly-owned subsidiaries, Medis El Ltd. (“Medis El”) and More Energy Ltd. (“More Energy”) (collectively, the “Company”), engages in research and development of technology products to license, sell, or enter into joint ventures with large corporations. The Company’s primary business focus is on the advanced development, manufacturing, marketing and distribution of direct liquid fuel cell products for portable electronic devices. Included in this category are the most modern cell phones with a full range of functionality, digital cameras, PDAs, MP3 players, other devices with similar power requirements and a broad array of military devices.  The Company’s other technologies, which are in various stages of development, include the CellScan, inherently conductive polymers, the toroidal engine, stirling cycle system, and the Rankin cycle linear compressor.

        The accompanying condensed consolidated financial statements should be read in conjunction with the following notes and with the consolidated financial statements for the year ended December 31, 2003 and related notes included in the Company’s Annual Report on Form 10-K. The condensed consolidated financial statements as of June 30, 2004 and for the three and six months ended June 30, 2003 and 2004 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States applicable to interim financial information and the rules and regulations promulgated by the Securities and Exchange Commission. Accordingly, such condensed consolidated financial statements do not include all of the information and footnote disclosures required in annual financial statements. In the opinion of the Company’s management, the unaudited condensed consolidated interim financial statements include all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of such condensed consolidated financial statements. The results of operations for the three and six months ended June 30, 2004 are not necessarily indicative of the results to be expected for the entire year.

        The condensed consolidated balance sheet as of December 31, 2003 has been derived from the audited financial statements at that date but does not include all of the information and notes required by accounting principles generally accepted in the United States for complete financial statements.

Note B – Certain Transactions

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        The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option pricing model with the following weighted average assumptions:

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Note C – Liquidity

        Since inception, the Company has incurred operating losses and has used cash in its operations. Accordingly, the Company has relied on financing activities, principally the sale of its stock, to fund its research and development activities and operations. The Company believes this dependence will continue unless it is able to successfully develop and market its technologies. However, there can be no assurance that the Company will be able to continue to obtain financing or successfully develop and market its technologies.

        On September 30, 2003, the Company entered into a third amendment to the agreement governing its existing $5,000,000 revolving credit line. Pursuant to the amendment, the termination date of the revolving credit line was extended from July 1, 2004 to July 1, 2005. No other terms of the agreement were changed. The loan agreement bears interest on any outstanding balances based on either the LIBOR or Prime Rate. Any outstanding balances would be collateralized by all deposits with the bank and an assignment of certain leases owned by a partnership in which the Company’s chairman and chief executive officer and its president are partners. Additionally, the Company’s chairman and chief executive officer and its president have personally guaranteed any amounts due under such credit line. As of June 30, 2004, the Company had not borrowed any funds under its credit line.

Note D – Subsequent Event

        On August 4, 2004, subsequent to the balance sheet date, the Company extended through December 31, 2006 the expiration date of its outstanding options that had expiration dates of December 31, 2004. The Company has estimated the value of the extension of the expiration date of such options to be approximately $800,000.

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Item 2.   Management’s Discussion And Analysis Of Financial Condition And Results Of Operations

Forward Looking Statements

         Some of the information in this quarterly report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,” “plans,” and “continue” or similar words. You should read statements that contain these words carefully because they:

•             discuss our future expectations;

•             contain projections of our future results of operations or of our financial condition; or

•             state other “forward-looking” information.

         We believe it is important to communicate our expectations to our investors. However, there may be events in the future that we are not able to accurately predict or over which we have no control. The risk factors listed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2003, as well as any cautionary language in this quarterly report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. You should be aware that the occurrence of the events described in these risk factors and elsewhere in this quarterly report could have a material adverse effect on our business, operating results and financial condition.

Introduction

         Our primary business focus is on the development, manufacturing, marketing and distribution of direct liquid fuel cell products for portable electronic devices, for the consumer (personal and professional) and military markets. We are also working to develop and commercialize other technologies we own or own the rights to, including the CellScan, inherently conductive polymers, stirling cycle system, toroidal technologies and Rankin cycle linear compressor. Based upon our decision to devote more resources to developing our fuel cell technologies and commercializing fuel cell-based products, in recent years we have increased funding of our fuel cell related efforts, which increases we expect will continue until such time as we successfully commercialize our first fuel cell products, of which we can give no assurance, and perhaps thereafter.

         This presentation includes the operations of our wholly owned subsidiaries, unless we tell you otherwise.

Results Of Operations

         From our inception in April 1992 through June 30, 2004 we have generated an accumulated deficit of approximately $114,057,000, including approximately $43,491,000 from amortization expense. We expect to incur additional operating losses during remainder of 2004 and possibly thereafter, principally as a result of our continuing anticipated research and development costs, increases in selling, general and administrative expenses related to the introduction of our products and the uncertainty of bringing our fuel cell technology or any of our other technologies to commercial success. Since our inception, we have relied principally on outside sources of funding to finance our operations, as our revenues have been minimal. We expect this to continue until we are able to successfully

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commercialize our fuel cell or any of our other products or technologies, of which we can give no assurance.

         Our research and development costs have increased from approximately $2,749,000 in 1999 to approximately $5,010,000 in 2003 and are expected to increase further in 2004; 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.

         We sustained net losses of $6,604,000 and $3,363,000 during the six and three months ended June 30, 2004, respectively, compared to $5,143,000 and $2,658,000 during the six and three months ended June 30, 2003, respectively. The increase in the net loss can primarily be attributed to an increase in research and development costs as we increase funding of our fuel cell related efforts and an increase in selling, general and administrative expenses, somewhat offset by a decrease in amortization of intangible assets as certain intangible assets have become fully amortized.

         We did not recognize any revenues during the six and three months ended June 30, 2004, compared to revenues of approximately $75,000 and $38,000, and gross profit of approximately $48,000 and $29,000 during the six and three months ended June 30, 2003, respectively. The revenues recognized during the six and three months ended June 30, 2003 were attributable to a January 2002 agreement to develop for a third party an application for the use of our inherently conductive polymers in its fuel cell products.

         Research and development costs amounted to $4,224,000 and $2,214,000 during the six and three months ended June 30, 2004, respectively, compared to $2,453,000 and $1,261,000 during the six and three months ended June 30, 2003, respectively. The increases in research and development costs incurred during the six and three months ended June 30, 2004, compared to the same periods in 2003, can be primarily attributed to an increase of approximately $1,879,000 and $1,022,000 in costs related to our fuel cell technologies, somewhat offset by a decrease of approximately $142,000 and $73,000 in aggregate costs related to our toroidal technologies, stirling cycle system and linear compressor. Total costs incurred related to our CellScan were little changed during the six and three months ended June 30, 2004, compared to the same periods in 2003. The research and development activities for the periods presented include:

•             Fuel Cell Technologies. We incurred costs relating to our fuel cell technologies of approximately $3,569,000 and $1,899,000 during the six and three months ended June 30, 2004, respectively, compared to costs of approximately $1,690,000 and $877,000 during the six and three months ended June 30, 2003, respectively. The increases in our research and development expenses relating to our fuel cell technologies of approximately $1,879,000 and $1,022,000 reflects our decision to continue to devote substantial and increasing amounts of resources to the further development of our fuel cell technologies and products.

•             CellScan. We incurred costs relating to the refinement and assembly of the desktop CellScan system and on various CellScan research activities of approximately $530,000 and $255,000 during the six and three months ended June 30, 2004, compared to costs of approximately $525,000 and $267,000 during the three and six months ended June 30, 2003. During the six and three months ended June 30, 2004, we devoted a greater proportion of our CellScan resources to the assembly of additional desktop CellScan systems, as compared to the same periods in 2003 when we devoted a greater proportion to the establishment of CellScan research programs at third party medical institutions.

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•             Toroidal Technologies, Stirling Cycle System and Linear Compressor. We incurred aggregate costs relating to our toroidal engine and compressor, stirling cycle system and linear compressor of approximately $90,000 and $41,000 during the six and three months ended June 30, 2004, compared to costs of approximately $232,000 and $114,000 during the six and three months ended June 30, 2003. The decreases reflect management’s decision to allocate less of our resources to the development of these technologies and more of our resources to the development of our fuel cell technologies and products.

         Selling, general and administrative (“SG&A”) expenses during the six and three months ended June 30, 2004 amounted to approximately $2,374,000 and $1,136,000, respectively, compared to approximately $1,874,000 and 1,057,000 during the six and three months ended June 30, 2003, respectively. The increase of $500,000 for the six months ended June 30, 2004 is primarily attributable to an increase in non-cash charges relating to stock options and warrants of approximately $263,000; an increase in selling and marketing expenses of approximately $81,000; an increase in insurance costs of approximately $69,000; an increase in professional fees of approximately $64,000; and a net increase in various other SG&A cost categories of approximately $23,000. The increase in SG&A expenses of $79,000 for the three months ended June 30, 2004 is primarily attributable to an increase in selling and marketing expenses of approximately $30,000; an increase in professional fees of approximately $22,000; an increase in insurance costs of approximately $16,000; and an increase in non-cash charges relating to stock options and warrants of approximately $14,000; somewhat offset by a net decrease in various other SG&A cost categories of approximately $3,000.

         Amortization of intangible assets amounted to $104,000 and $52,000 during the six and three months ended June 30, 2004, compared to $893,000 and $375,000 during the six and three months ended June 30, 2003. The decreases are primarily attributable to intangible assets acquired in our June 2000 exchange offer for shares of Medis El that we did not already own becoming fully amortized during the year ended December 31, 2003, partially offset by amortization of intangible assets acquired in our March 2003 acquisition of the remaining 7% of More Energy that we did not already own.

Liquidity And Capital Resources

         We finance our operations primarily through the proceeds of investor equity financing, which we expect will continue until such time as we successfully commercialize our fuel cell products or products derived from any of our other technologies.

         Our working capital and capital requirements at any given time depend upon numerous factors, including, but not limited to:

•             the progress of research and development programs;

•             the status of our technologies; and

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

         Another source of revenue or other means to effect our cash expenditures are collaborative arrangements with businesses and institutes for research and development and companies participating in the development of our technologies. Since January 2002, we have realized revenues of $323,000 on

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costs of sales of $176,000, as well as credits against our research and development costs of approximately $402,000, with respect to collaborative arrangements with third parties relating to our fuel cell technologies. There can be no assurance that we will realize additional revenue or credits to our research and development expense from such collaborative arrangements still in existence or that we will enter into additional collaborative arrangements in the future. Furthermore, there can be no assurance that we will raise additional funds through any financing approach implemented by us.

         In January 2004, we issued 1,425,000 shares of our common stock in a private placement to institutional investors. We received gross proceeds of approximately $14,588,000, less related costs of approximately $309,000.

         During the six months ended June 30, 2004, option holders exercised outstanding options issued under our 1999 Stock Option Plan, as amended, to acquire 241,450 shares of our common stock, respectively, for aggregate proceeds of approximately $1,378,000.

         During the six months ended June 30, 2004, warrant holders exercised outstanding warrants to acquire 26,230 shares of our common stock, at exercise prices ranging from $4.92 to $9.60 per share, for aggregate proceeds of approximately $155,000.

         Proceeds from all of the above financing and option and warrant exercises have been and will continue to be used for working capital, including for the continued development of our direct liquid fuel cell technologies and related products, as well as for selling, general and administrative expenses.

         For the six months ended June 30, 2004, net cash used in operating activities was $4,948,000 compared to $3,967,000 for the six months ended June 30, 2003. The increase was primarily attributable to management’s decision to continue to increase levels of spending on research and development related to our fuel cell technologies during the six months ended June 30, 2004 compared to the six months ended June 30, 2003.

         For the six months ended June 30, 2004, net cash used in investing activities was $2,917,000, which represented the following: (i) investments in short-term deposits, net of maturities, aggregating $2,499,000, (ii) a loan of approximately $109,000 to Gennadi Finkelshtain, the General Manager of More Energy, under an existing three year promissory note dated April 11, 2003, as amended, made principally to enable him to pay the final installment of certain taxes arising in connection with our March 2003 purchase from him of the remaining 7% of More Energy we did not already own, and (iii) purchases of property and equipment of $309,000. This is compared to net cash used in investing activities of $349,000 for the six months ended June 30, 2003, which was comprised of a loan of approximately $155,000 to Mr. Finkelshtain pursuant to the promissory note described above, and capital expenditures aggregating approximately $194,000.

         For the six months ended June 30, 2004, cash aggregating $15,816,000 was provided by financing activities, compared to $4,947,000 for the six months ended June 30, 2003. During the six months ended June 30, 2004, cash was provided by the financing activities described in detail above. The cash provided by financing activities for the six months ended June 30, 2003 aggregating $4,947,000 was generated from our March 11, 2003 rights offering from which we generated gross proceeds of approximately $5,000,000, less costs of such offering of approximately $121,000. Additionally, during the six months ended June 30, 2003 (i) warrant holders under our loyalty program exercised warrants to purchase an aggregate of 10,972 shares of our common stock, for proceeds of approximately $48,600, and (ii) a former employee exercised options to acquire an aggregate of 4,000 shares or our common stock, for proceeds of approximately $20,000.

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         As of June 30, 2004, we had approximately $17,070,000 in cash and cash equivalents and short-term deposits, as well as an unused $5,000,000 revolving credit line which terminates in accordance with its terms on July 1, 2005. As of June 30, 2004, we believe that our cash and cash equivalent and short-term deposits (but excluding monies currently available to us from our credit facility) will be sufficient to support our operating and developmental activities and capital expenditures for more than a year. Beyond such time, or prior to that if we increase our research and development costs and other costs beyond that currently contemplated, we may require capital infusions of cash to continue our operations, whether through debt financing, issuance of shares or from companies or other organizations participating in the development of our technologies. However, to the extent we are unable to raise or acquire additional other funds, we will curtail research and development of one or more technologies until such time as we have adequate funds available.

Commitments and Contingencies

         The following table sets forth our contractual obligations at June 30, 2004.

_________________

Item 3.   Quantitative And Qualitative Disclosures About Market Risk

Disclosure About Market Risk

   Impact Of Inflation And Devaluation On Results Of Operations, Liabilities And Assets

         In connection with our currency use, we operate in a mixed environment. Payroll is paid in our local currency and the local currency of each of our subsidiaries, such as the New Israeli Shekel (NIS) with respect to our Israeli-based operations, as are most of our other operating expenses. Consideration for virtually all sales is 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 gains or losses. In order to help minimize the losses, we currently invest our liquid funds in both dollar-based 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. 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. However, Israel effected devaluation / (appreciation) of the NIS against the dollar as follows:

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1999				(0.1	7)
2000				(2.7	)
2001				9.2
2002				7.3
2003				(7.6	)

         In 1999 and 2000, the rate of inflation in Israel exceeded the rate of devaluation of the NIS against the dollar, but in 2001 and 2002 the rate of devaluation of the NIS against the dollar exceeded the rate of inflation in Israel. In 2003, Israel experienced both price deflation and an appreciation of the NIS against the dollar. In 2003, the rate of inflation (deflation) in Israel was (1.9)% and the rate of devaluation (appreciation) of the NIS was (7.6)%, against the dollar. Additionally, in 2004, through June 30, the rate of inflation in Israel was 1.4% and the rate of devaluation of the NIS was 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 4.   Controls and Procedures

         Our management carried out an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of June 30, 2004. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission.

         There has not been any change in our internal control over financial reporting in connection with the evaluation required by Rule 13a-15(d) under the Exchange Act that occurred during the quarter ended June 30, 2004 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 4.   Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Stockholders was held on June 30, 2004.

At that meeting, all of our then-current directors were elected. The vote was as follows:

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At that meeting, our shareholders approved the amendment of our 1999 Stock Option Plan to increase the number of shares of our common stock available thereunder from 3,300,000 to 3,800,000. The vote was as follows:

At that meeting, our shareholders approved an amendment to the Corporation’s 1999 Stock Option Plan to (i) provide for certain tax benefits for employees and directors residing in the State of Israel and (ii) grant the Corporation’s Board of Directors authority to permit the assignment or transfer of outstanding options to an expanded category of persons and entities. The vote was as follows:

At that meeting, our shareholders approved an amendment to the Corporation’s Certificate of Incorporation to increase the number of authorized shares of common stock from 35,000,000 to 38,000,000. The vote was as follows:

Item 6.   Exhibits and Reports on Form 8-K

      (a)    Exhibits.

_________________

      (b)    Reports on Form 8-K.

        We filed the following reports on Form 8-K during the second quarter of the year ending December 31, 2004.

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SIGNATURES

        Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 5, 2004

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