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**UNITED      STATES**

**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, 2007**

**Commission      file number: **
**0-30391**

**MEDIS      TECHNOLOGIES LTD.**

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

**805      Third Avenue**

**New      York, New York 10022**

**(212)      935-8484**

**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      o**

**Indicate      by check mark whether the registrant is a large accelerated filer, an      accelerated filer, or a non-accelerated filer. See definition of “accelerated      filer and large accelerated filer” in Rule 12b-2 of the Exchange      Act.**

| **Large                accelerated filer o**  | **Accelerated                filer x**  |  **Non-accelerated                filer o**  |
|----------------------------------------------------|----------------------------------------------|--------------------------------------------------------|

**Indicate      by check mark whether the registrant is a shell company (as defined in Rule      12b-2 of the Exchange Act). **
**        **
**Yes o**
**No      x**

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**MEDIS      TECHNOLOGIES LTD.**

**INDEX      TO FORM 10-Q**

**FOR      THE QUARTER ENDED JUNE 30, 2007**

| **PART                  I.**  | **FINANCIAL                  INFORMATION**                                        | Page                  Number |   |
|-------------------------------|-----------------------------------------------------------------------------------|------------------------------|--------|
|                          |                                                                              |                         |   |
| Item                  1.      | Financial                  Statements                                             |                         |   |
|                          |                                                                              |                         |   |
|                          | Condensed                  Consolidated Balance Sheets                            |                         |   |
|                          | December                  31, 2006 and June 30, 2007 (Unaudited)                  | 1                            |   |
|                          |                                                                              |                         |   |
|                          | Condensed                  Consolidated Statements of Operations (Unaudited)      |                         |   |
|                          | Six                  and three months ended June 30, 2006 and 2007                | 2                            |   |
|                          |                                                                              |                         |   |
|                          | Condensed                  Consolidated Statements of Cash Flows (Unaudited)      |                         |   |
|                          | Six                  months ended June 30, 2006 and 2007                          | 3                            |   |
|                          |                                                                              |                         |   |
|                          | Notes                  to Condensed Consolidated Financial Statements (Unaudited) | 5                            |   |
|                          |                                                                              |                         |   |
| Item                  2.      | Management’s                  Discussion and Analysis of Financial          |                         |   |
|                          | Condition                  and Results of Operations                              | 16                           |   |
|                          |                                                                              |                         |   |
| Item                  3.      | Quantitative                  and Qualitative Disclosures About Market Risk       | 23                           |   |
|                          |                                                                              |                         |   |
| Item                  4.      | Controls                  and Procedures                                          | 24                           |   |
|                          |                                                                              |                         |   |
| **PART                  II.** | **OTHER                  INFORMATION**                                            |                         |   |
|                          |                                                                              |                         |   |
| Item                  1.      | Legal                Proceedings                                             | 25                           |   |
|                          |                                                                              |                         |   |
| Item                  1A.     | Risk                  Factors                                                     | 25                           |   |
|                          |                                                                              |                         |   |
| Item                  6.      | Exhibits                                                                          | 25                           |   |

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**PART        I - FINANCIAL INFORMATION**

| **Item                  1.** | **Financial                  Statements** |
|------------------------------|-------------------------------------------|

**Medis        Technologies Ltd. and Subsidiaries**

**Condensed        Consolidated Balance Sheets**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | **December                    31, 2006** |         |   | **June                    30, 2007** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------|--------------|--------|--------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     |         |   | (unaudited)                          |   |
| **ASSETS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     |         |   |                                 |   |
| Current                  assets                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     |         |   |                                 |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                                        | 51,803,000   |   |                                 | $      | 25,756,000 |   |
| Short-term                  investments                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                     | 30,504,000   |   |                                 |   | 14,367,000 |   |
| Restricted                  cash and deposits                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | * *                                 | *—*    |   |                                 |   | 6,246,000 |   |
| Prepaid                  expenses and other current assets                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 4,696,000    |   |                                 |   | 6,057,000 |   |
| Other                  accounts and notes receivable                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     | 3,561,000    |   |                                 |   | 833,000 |   |
| Total                  current assets                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                     | 90,564,000   |   |                                 |   | 53,259,000 |   |
| Property,                  plant and equipment, net                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                     | 27,318,000   |   |                                 |   | 46,603,000 |   |
| Severance                  pay fund                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                     | 1,265,000    |   |                                 |   | 1,376,000 |   |
| Intangible                  assets, net                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                     | 256,000      |   |                                 |   | 152,000 |   |
| Goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                     | 58,205,000   |   |                                 |   | 58,205,000 |   |
| Total                  assets                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                                        | 177,608,000  |   |                                 | $      | 159,595,000 |   |
| **LIABILITIES                  AND****STOCKHOLDERS’                  EQUITY**                                                                                                                                                                                                                                                                                                                                                                                             |   |                                     |         |   |                                 |   |   |   |
| Current                  liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     |         |   |                                 |   |   |   |
| Accounts                  payable                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                        | 8,367,000    |   |                                 | $      | 6,143,000 |   |
| Accrued                  expenses and other current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                     | 3,550,000    |   |                                 |   | 3,238,000 |   |
| Total                  current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                     | 11,917,000   |   |                                 |   | 9,381,000 |   |
| Leasehold                  incentive obligations, net                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                     | 839,000      |   |                                 |   | 701,000 |   |
| Accrued                  severance pay                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                     | 1,730,000    |   |                                 |   | 1,901,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     |         |   |                                 |   |   |   |
| Total                  Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                     | 14,486,000   |   |                                 |   | 11,983,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     |         |   |                                 |   |   |   |
| Commitments                  and contingent liabilities                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                     |         |   |                                 |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     |         |   |                                 |   |   |   |
| Series                  A Preferred Stock, net, $.01 par value; $10,000 liquidation preference                  per                  share; 10,000 shares authorized; and 5,750 issued and outstanding                  at                  December 31, 2006 and June 30, 2007                                                                                                                                                                                                 |   |                                     | 52,686,000   |   |                                 |   | 52,686,000 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     |         |   |                                 |   |   |   |
| Stockholders’                  equity                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     |         |   |                                 |   |   |   |
| Common                  stock, $.01 par value; 41,500,000 shares authorized at December                  31, 2006                  and June 30, 2007 (unaudited); 34,934,864 and 34,953,364  shares                  issued and outstanding at December 31, 2006 and June 30, 2007 (unaudited),                  respectively (including 1,500,000 shares outstanding at December                  31, 2006                  and June 30, 2007 loaned to be returned) |   |                                     | 349,000      |   |                                 |   | 349,000 |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                     | 286,865,000  |   |                                 |   | 290,473,000 |   |
| Accumulated                  deficit                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                     | (176,778,000 | )      |                                 |   | (195,896,000 | ) |
| Total                  stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                     | 110,436,000  |   |                                 |   | 94,926,000 |   |
| Total                  liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                        | 177,608,000  |   |                                 | $      | 159,595,000 |   |

----

**Medis        Technologies Ltd. and Subsidiaries**

**Condensed        Consolidated Statements of Operations**

**(Unaudited)**

|                                                                                                                                               |   | **Three                  Months Ended** |        |   | **Six                  Months Ended** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|-------------|--------|---------------------------------------|--------|
|                                                                                                                                               |   | **June                    30,**         |        |   | **June                    30,**       |   |
|                                                                                                                                               |   | **2006**                                |        |   | **2007**                              |   |   | **2006** |   |   | **2007** |   |
| Operating                  expenses:                                                                                                               |   |                                    |        |   |                                  |   |   |   |   |   |   |   |
| Research                  and development costs, net                                                                                               |   | $                                       | 4,113,000   |   |                                  | $      | 5,971,000 |   |   | $ | 8,082,000 |   |   | $ | 11,918,000 |   |
| Selling,                  marketing, general and administrative expenses                                                                           |   |                                    | 1,456,000   |   |                                  |   | 3,517,000 |   |   |   | 2,881,000 |   |   |   | 6,753,000 |   |
| Amortization                  of intangible assets                                                                                                 |   |                                    | 52,000      |   |                                  |   | 52,000 |   |   |   | 104,000 |   |   |   | 104,000 |   |
| Total                  operating expenses                                                                                                          |   |                                    | 5,621,000   |   |                                  |   | 9,540,000 |   |   |   | 11,067,000 |   |   |   | 18,775,000 |   |
| Loss                  from operations                                                                                                              |   |                                    | (5,621,000  | )      |                                  |   | (9,540,000 | ) |   |   | (11,067,000 | ) |   |   | (18,775,000 | ) |
| Interest                  income (expenses)                                                                                                        |   |                                    |        |   |                                  |   |   |   |   |   |   |   |   |   |   |   |
| Interest                  income                                                                                                                   |   |                                    | 563,000     |   |                                  |   | 830,000 |   |   |   | 1,063,000 |   |   |   | 1,765,000 |   |
| Interest                  expense                                                                                                                  |   |                                    | (8,664,000  | )      |                                  |   | (30,000 | ) |   |   | (9,614,000 | ) |   |   | (64,000 | ) |
|                                                                                                                                               |   |                                    | (8,101,000  | )      |                                  |   | 800,000 |   |   |   | (8,551,000 | ) |   |   | 1,701,000 |   |
| NET                  LOSS                                                                                                                          |   | $                                       | (13,722,000 | )      |                                  | $      | (8,740,000 | ) |   | $ | (19,618,000 | ) |   | $ | (17,074,000 | ) |
| Dividend                  on preferred stock                                                                                                       |   | * *                                | *—*   |   |                                  |   | (1,043,000 | ) |   | * * | *—* |   |   |   | (2,044,000 | ) |
| Net                  loss attribute to common stockholders                                                                                         |   | $                                       | (13,722,000 | )      |                                  | $      | (9,783,000 | ) |   | $ | (19,618,000 | ) |   | $ | (19,118,000 | ) |
| Basic                  and diluted net loss per share                                                                                              |   | $                                       | (.44        | )      |                                  | $      | (.29 | ) |   | $ | (.66 | ) |   | $ | (.57 | ) |
| Weighted-average                  number of common shares used in computing basic and diluted net                  loss per                  share |   |                                    | 31,030,842  |   |                                  |   | 33,448,397 |   |   |   | 29,637,781 |   |   |   | 33,441,443 |   |

----

**Medis        Technologies Ltd. and Subsidiaries**

**Condensed        Consolidated Statements of Cash Flows**

**(Unaudited)**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | **Six                  Months Ended June 30,** |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|-------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | **2006**                                       |        |   | **2007** |   |
| Cash                  flows from operating activities                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                           |        |   |   |   |
| Net                  loss                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | $                                              | (19,618,000 | ) |   | $ | (17,074,000 | ) |
| Adjustments                  to reconcile net loss to net cash used in operating                  activities                                                                                                                                                                                                                                                                                                                                                                   |   |                                           |        |   |   |   |   |   |
| Depreciation                  and amortization of property and equipment                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                           | 612,000     |   |   |   | 1,675,000 |   |
| Amortization                  of intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                           | 104,000     |   |   |   | 104,000 |   |
| Amortization                  of debt issuance costs                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                           | 184,000     |   |   | * * | *—* |   |
| Amortization                  of beneficial conversion feature on Convertible                  Senior Notes                                                                                                                                                                                                                                                                                                                                                               |   |                                           | 240,000     |   |   | * * | *—* |   |
| Non-cash                  stock based compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                           | 98,000      |   |   |   | 3,350,000 |   |
| Value                  of shares issued as inducement in Convertible Senior Notes                  exchange                                                                                                                                                                                                                                                                                                                                                                    |   |                                           | 8,266,000   |   |   | * * | *—* |   |
| Interest                  receivable on restricted                  cash                                                                  |   | * *                                       | *—*   |   |   |   | (94,000 | ) |
| Changes                  in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                           |        |   |   |   |   |   |
| Other                  accounts and notes receivable                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                           | (207,000    | ) |   |   | 1,600,000 |   |
| Prepaid                  expenses and other current assets                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                           | (1,255,000  | ) |   |   | (2,432,000 | ) |
| Accounts                  payable                                                                                                                   |   |                                           | 89,000      |   |   |   | (290,000 | ) |
| Accrued                  expenses and other current liabilities                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                           | (846,000    | ) |   |   | (286,000 | ) |
| Leasehold                  incentive obligations,                  net                                                                              |   |                                           | (53,000     | ) |   |   | (138,000 | ) |
| Accrued                  severance pay,                  net                                                                                        |   |                                           | (6,000      | ) |   |   | 60,000 |   |
| Net                  cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                           | (12,392,000 | ) |   |   | (13,525,000 | ) |
| Cash                  flows from investing activities                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                           |        |   |   |   |   |   |
| Capital                  expenditures                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                           | (3,601,000  | ) |   |   | (21,823,000 | ) |
| Investment                  in short-term investments                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                           | (5,915,000  | ) |   |   | (51,530,000 | ) |
| Redemptions                  of short-term investments                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                           | 13,500,000  |   |   |   | 67,667,000 |   |
| Restricted                  cash and deposits                                                                                                                                                                                                                                                                                                                                                                                                                                  |   | * *                                       | *—*   |   |   |   | (6,632,000 | ) |
| Redemptions                  of restricted cash                                                                                                                                                                                                                                                                                                                                                                                                                                |   | * *                                       | *—*   |   |   |   | 480,000 |   |
| Net                  cash provided by (used in) investing activities                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                           | 3,984,000   |   |   |   | (11,838,000 | ) |
| Cash                  flows from financing activities                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                           |        |   |   |   |   |   |
| Issuance                  cost on Series A preferred stock                                                                                                                                                                                                                                                                                                                                                                                                                     |   | * *                                       | *—*   |   |   |   | (26,000 | ) |
| Proceeds                  from exercise of stock options                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                           | 7,487,000   |   |   |   | 1,321,000 |   |
| Dividend                  on Series A Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                          |   | * *                                       | *—*   |   |   |   | (2,044,000 | ) |
| Proceeds                  from exercise of stock warrants                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                           | 59,000      |   |   |   | 65,000 |   |
| Net                  cash provided by (used in) financing activities                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                           | 7,546,000   |   |   |   | (684,000 | ) |
| Net                  decrease in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                           | (862,000    | ) |   |   | (26,047,000 | ) |
| Cash                  and cash equivalents at beginning of period                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                           | 35,295,000  |   |   |   | 51,803,000 |   |
| Cash                  and cash equivalents at end of period                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                              | 34,433,000  |   |   | $ | 25,756,000 |   |

----

**Medis        Technologies Ltd. and Subsidiaries**

**Condensed        Consolidated Statements of Cash Flows**

**(Unaudited)**

**(Continued)**

|                                                                                                                             |   | **Six                  Months Ended June 30,** |       |
|----------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------|------------|
|                                                                                                                             |   | **2006**                                       |       |   | **2007** |   |
| Supplemental                  disclosures of cash flow information:                                                              |   |                                           |       |   |   |   |
| Cash                  paid during the period for:                                                                                |   |                                           |       |   |   |   |
| Interest                                                                                                                         |   | $                                              | 1,470,000  |   |   | * * | *—* |   |
| Non-cash                  investing and financing activities:                                                                    |   |                                           |       |   |   |   |   |   |
| Capital                  expenditure included in accounts payable                                                                |   | $                                              | 245,000    |   |   | $ | 2,851,000 |   |
| Reclassification                  of prepaid expenses to property and equipment                                                  |   | * *                                       | *—*  |   |   | $ | 1,071,000 |   |
| Option                  exercise – cash received subsequent to balance sheet date                                          |   | $                                              | 939,000    |   |   | $ | 52,000 |   |
| Exchange                  of  Convertible Senior Notes for common stock:Face                  value of notes exchanged |   | $                                              | 49,000,000 |   |   | * * | *—* |   |
| Deferred                  issuance costs on notes charged to capital                                                             |   | $                                              | 2,747,000  |   |   | * * | *—* |   |

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**Medis        Technologies Ltd. and Subsidiaries**

**Notes        to Condensed Consolidated Financial Statements**

**(Unaudited)**

**NoteA          - Nature Of Operations And Basis Of Presentation**

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**Note          B - Certain Transactions**

| 1.                              | *Series                  A Preferred Stock*- In November and December 2006, the Company issued                  5,750 shares of its 7.25% Series A Cumulative Convertible Perpetual                  Preferred Stock (“Preferred Stock”) for aggregate gross proceeds of                  $57,500,000, less issuance costs aggregating approximately $4,464,000.                  The                  annual cash dividend on each share of Preferred Stock is $725 and                  is                  payable quarterly, in arrears, commencing on February 15, 2007.                  Each share                  of Preferred Stock is convertible at the holder’s option at any time into                  347.2222 shares of MTL’s common stock (which is equivalent to an initial                  conversion price of $28.80 per share). On or after November 20,                  2009, if                  the closing price of the Company’s common stock exceeds 150% of the                  conversion price for 20 trading days during any consecutive 30                  trading day                  period, the Company may cause the conversion of the Preferred Stock                  into                  common stock at the prevailing conversion rate. The terms of the                  Preferred                  Stock preclude the Company from paying dividends or making other                  distributions on its common stock if there are any accumulated                  and unpaid                  dividends on the Preferred Stock. Of the total $57,500,000 of Preferred                  Stock issued, $7,500,000 was issued pursuant to the exercise of                  a 75-day                  option that was granted to the initial purchaser (the “Preferred Option”)                  in connection with the issuance of the first $50,000,000 of Preferred                  Stock. See Note B-2 for discussion of concurrent offering of common                  stock                  in connection with a share lending                  agreement. |
|----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2.             | *Share                  lend -*On November 15, 2006, concurrent with the Company’s offering                  of its Preferred Stock, the Company issued 1.5 million shares of                  its                  common stock in an offering registered under the Securities Act                  of 1933.                  The shares of common stock issued were loaned to an affiliate of                  Citigroup                  Global Markets Limited (‘CGML”) under a 5-year share lending                  agreement.  The only consideration received by the Company was a                  share lending fee of $.01 per share, or an aggregate of $15,000,                  which has                  been included in Common Stock at December 31, 2006. The loaned                  shares were                  used by CGML to promote the sale of the Preferred Stock by facilitating                  hedging transactions that may be undertaken by purchasers of the                  Preferred                  Stock. The shares that the Company has lent to the affiliate of                  CGML are                  reflected as issued and outstanding at December 31, 2006. The Company                  has                  determined that the share lending agreement is not a derivative                  instrument                  that would require accounting separate from the Preferred Stock                  and,                  accordingly, has recognized the net effect on stockholder’s equity of the                  1,500,000 shares issued pursuant to the share lending agreement,                  which                  includes the requirement that the shares be returned no later than                  November 20, 2011, equal to the $15,000 fee received upon lending                  of the                  shares. |
|----------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 3.             | Deferred                  revenues – the Company defers payments that were received in advance of                  the culmination of the earnings process. Proceeds that are expected                  to be                  recognized as revenues within the next twelve months are included                  in                  accrued expenses and other current liabilities. As of June 30,                  2007, the                  Company has deferred revenues aggregating approximately $123,000,                  which                  amount is comprised of $111,000 from the Company’s October 2006 agreement                  with Israel Aerospace Industries Ltd. (see Note B-11, below), and                  $12,000                  from the sale of Power Pack                  products. |
|----------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 4.                              | *Net                  Loss Per Share -*The Company computes net loss per share in                  accordance with SFAS No. 128, “Earnings Per Share” (“SFAS                  No. 128”). 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                  shares                  plus dilutive potential common stock considered outstanding during                  the                  period.  Since the Company generated net losses in all periods                  presented, potentially diluted securities, comprised of incremental                  common                  shares issuable upon the exercise of warrants and stock options,                  convertible notes and convertible preferred stock, are not reflected                  in                  diluted net loss per share because such shares are                  antidilutive. |
|----------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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| 5.             | *Short-term                  investments*– The Company accounts for investments in marketable                  securities in accordance with SFAS No. 115, “Accounting for Certain                  Investments in Debt and Equity Securities.”  Short-term                  investments at December 31, 2006 and June 30, 2007 were comprised                  of the                  following: |
|----------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                     |   | **December                    31, 2006** |       |   | **June                    30, 2007** |   |
|------------------------------------------|--------|------------------------------------------|------------|--------|--------------------------------------|--------|
|                                     |   |                                     |       |   | (unaudited)                          |   |
| Commercial                  paper        |   | $                                        | 16,254,000 |   |                                 | $      | 6,217,000 |   |
| Auction                  rate securities |   |                                     | 14,250,000 |   |                                 |   | 8,150,000 |   |
|                                     |   | $                                        | 30,504,000 |   |                                 | $      | 14,367,000 |   |
|                                     |   |                                     |       |   |                                 |   |   |   |

| 6.             | *Restricted                  cash and deposits -*As of June 30, 2007, the Company’s consolidated                  balance sheet included restricted cash and deposits aggregating                  approximately $6,246,000, which represents amounts held on deposit                  with                  banks as security for letters of credit and guarantees issued by                  such                  banks primarily to Company suppliers. Included in such amount is                  a one                  year time deposit in the amount of $4,560,000, which was issued                  in January                  2007 as security for a stand by letter of credit provided by the                  bank to a                  supplier of equipment, components and services in order to guaranty                  recovery of certain investments by the supplier - principally in                  equipment                  to be used exclusively in the manufacture of components for the                  Company                  24/7 Power Pack.  Under the terms of a purchase agreement, title to                  the equipment covered by the stand by letter of credit will pass                  to the                  Company upon full recovery of the cost of such equipment through                  purchases                  of components or draws against the letter of credit, based on formulas                  set                  forth in the purchase agreement.  Such letter of credit expires in                  March 2012.   |
|----------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 7.             | *Property,                  Plant and Equipment, net* |
|----------------------------------------------------------------------------|-------------------------------------------------------|

| a.                          | Property,                  plant and equipment is stated at cost, net of accumulated depreciation                  and                  amortization. |
|----------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

| b.                          | Payroll                  and other costs that are direct incremental costs necessary to                  bring an                  asset to the condition of its intended use incurred during the                  construction and validation period of the property, plan and equipment                  are                  capitalized to the cost of such                  assets. |
|----------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| c.                          | Interest                  costs are capitalized in accordance with Financial Accounting Standards                  Board Statement of Financial Accounting Standards No. 34, “Capitalization                  of Interest Cost” (“SFAS 34”). |
|----------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| d.                          | Depreciation                  is provided on property, plant and equipment on the straight-line                  basis                  over the estimated useful lives of such assets.  Payments on                  account of new plant facility were not subject to depreciation.                  Annual                  rates of depreciation are as                  follows: |
|----------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                            | **Useful                  Lives In Years**                                                           |   |
|-------------------------------------------------|------------------------------------------------------------------------------------------------------|--------|
| Machinery                  and equipment        | 7                                                                                                    |   |
| Computers                                       | 3                                                                                                    |   |
| Furniture                  and office equipment | 15                                                                                                   |   |
| Vehicles                                        | 7                                                                                                    |   |
| Leasehold                  improvements         | Over                  the shorter of the term of the lease or the life of the                  asset |   |
|                                            |                                                                                                 |   |

|                                                            |   | **December                    31, 2006** |       |   | **June                    30, 2007** |       |
|-----------------------------------------------------------------|--------|------------------------------------------|------------|--------|--------------------------------------|------------|
|                                                            |   |                                     |       |   | **(unaudited)**                      |       |
| Machinery                  and equipment                        |   | $                                        | 25,901,000 |   |                                 | **$**      | **46,230,000** |   |
| Computers                                                       |   |                                     | 1,739,000  |   |                                 | ** ** | **1,466,000** |   |
| Furniture                  and office equipment                 |   |                                     | 432,000    |   |                                 | ** ** | **461,000** |   |
| Vehicles                                                        |   |                                     | 20,000     |   |                                 | * *   | *—* |   |
| Leasehold                  improvements                         |   |                                     | 3,570,000  |   |                                 | ** ** | **3,810,000** |   |
|                                                            |   |                                     | 31,662,000 |   |                                 | ** ** | **51,967,000** |   |
| Less                  accumulated depreciation and amortization |   |                                     | 4,344,000  |   |                                 | ** ** | **5,364,000** |   |
| Property                  and equipment, net                    |   | $                                        | 27,318,000 |   |                                 | **$**      | **46,603,000** |   |

| 8.             | *Stock-based                  Compensation –*On July 18, 2006, the Company granted options to                  purchase an aggregate of 706,500 shares of its common stock to                  employees,                  officers and directors of the Company. Such options are exercisable                  at                  $20.98 (the market price of the Company’s common stock on the grant date),                  vest after one year and expire after four years. The Company estimated                  the                  fair value of those options, using the Black-Scholes option pricing                  model,                  to be approximately $6,647,000, less estimated forfeitures of $103,000.                  During the six and three months ended June 30, 2007, the Company                  recorded                  compensation costs related to the grant of such options of $3,180,000                  and                  $1,546,000, respectively. Such costs include $2,658,000 and $1,310,000,                  which were recorded as selling, marketing, general and administrative                  expenses during the six and three months ended June 30, 2007,                  respectively, and $522,000 and $236,000, which were recorded as                  research                  and development costs during the same periods,                  respectively. |
|----------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | **Exercise                  Price*** |         | **Number                  of options granted** |   | **Vesting                  period years** |   | **Expiration                  period years** |   |
|--------|--------------------------------------|--------------|------------------------------------------------|--------|-------------------------------------------|--------|----------------------------------------------|--------|
|   | $17.39                               |    |                    10,000                 |   | 1.00                                      |   | 4.00                                         |   |
|   |   17.61                    |         |                      6,000      |   | 1.00                                      |   | 4.00                                         |   |
|   |   14.90                    |         | 254,000                                        |   | 1.00                                      |   | 4.00                                         |   |
|   |   13.83                    |         |                      2,500      |   | 0.51                                      |   | 4.00                                         |   |
|   |   13.83                    |         |                        2,500    |   | 1.51                                      |   | 4.00                                         |   |
|   |                                 |         | 275,000                                        |   |                                      |   |                                         |   |

| Dividend                  yield             | 0%            |
|---------------------------------------------|---------------|
| Expected                  term (years)      | 2.28-3.64     |
| Risk-free                  interest rate    | 4.5%-4.88%    |
| Volatility                                  | 59%-61%       |
| Forfeiture                  rate            | 0%-2.60%      |
| Market                  value at grant date | $13.83-$17.61 |

| 9.                              | *Accounting                  for Uncertainty in Income Taxes  -*In July 2006, the                  FASB issued FASB Interpretation 48, “Accounting for Uncertainty in Income                  Taxes” (“FIN 48”). FIN 48 defines the threshold for recognizing                  the benefits of tax return positions in the financial statements                  as                  “more-likely-than-not” to be sustained by the taxing authority. The                  recently issued literature also provides guidance on derecognition,                  measurement and classification of income tax uncertainties, along                  with |
|----------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | any                    related interest and penalties. FIN 48 also includes guidance                    concerning accounting for income tax uncertainties in interim                    periods and                    increases the level of disclosures associated with any income                    tax                    uncertainties. Pursuant to the provisions of FIN 48, the differences                    between the amounts recognized in the statements of financial                    position                    prior to the adoption of FIN 48 and the amounts reported after                    adoption would be accounted for as a cumulative-effect adjustment                    recorded                    to the beginning balance of retained earnings. FIN 48 is effective                    for fiscal years beginning after December 15,                    2006. |
|--|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 10.                            | *Use                  of Estimates -* The preparation of financial statements in accordance                  with U.S. GAAP requires management to make estimates and assumptions                  that                  affect the amounts reported in the financial statements and accompanying                  notes. Actual results could differ from those                  estimates. |
|-----------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 11.           | *Fuel                  Cell Technology Cooperation Agreements*– In October 2006, the Company                  entered into an agreement with Israel Aerospace Industries Ltd.                  (formerly                  know as Israel Aircraft Industries) (“IAI”), a principal stockholder of                  the Company, to develop an 800 watt fuel cell to electrically power                  Unmanned Air Vehicle systems (UAVs). The contract provides for                  two phases                  of activity.  The first phase, which covers a six month period,                  provides for the Company to develop a demonstration system which                  would                  pass functionality tests and which can be demonstrated to be redesignable                  to achieve the weight (6 kilograms) goals of the final system.                  The first                  phase is funded by IAI paying the Company $400,000. Upon the successful                  completion of the first phase, the second phase would require IAI                  to pay                  the Company approximately $1,500,000 to complete the development                  and would                  have an 18 month schedule. During the first phase of the contract                  and                  conditioned on minimum purchase requirements thereafter, IAI will                  be                  granted exclusivity with respect to large fuel cells for unmanned                  vehicles. The contract with IAI will be carried out by the Company                  as the                  prime contractor together with its strategic partner, Oy Hydrocell                  of                  Finland, as the main subcontractor. Since the Company expects the                  payments                  to exceed related costs, the Company accounts for the order using                  contract                  accounting on a completed contract basis.  As of June 30, 2007,                  the Company has billed and received approximately $200,000 under                  the                  agreement and has incurred costs aggregating approximately $89,000,                  such                  amounts have been deferred as of June 30,                  2007. |
|-----------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

** **

----

| 12.           | *Distribution                  Agreements* - On March 9, 2004, the Company entered into a                  distribution agreement with Kensington Technology Group, a leading                  maker                  of computer accessories and a division of ACCO Brands,                  Inc.. |
|-----------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| 13.           | *Cooperation                  Agreements with Mobile Operators -*On June 7, 2005, the Company                  announced that it had entered into a cooperation agreement with                  one of the                  largest mobile operators in the United States, for the purposes                  of market                  testing and introduction to the market of the Company’s fuel cell Power                  Packs as a secondary power source for portable electronic devices                  offered                  by the mobile operator. |
|-----------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 14.           | *Automated                  Line Production Agreement*- In September 2005, the Company entered                  into a Capital Equipment Purchase Agreement with Komax Systems                  LCF SA                  (formerly know as Ismeca Europe Automation SA). The Komax agreement                  calls                  for Komax to build an automated assembly line capable of producing                  up to                  45 units per minute of operation, or 1.5 million units per month                  net                  output, of Company’s fuel cell Power Pack products. The Agreement, as                  amended, provides for the Company to pay Komax an aggregate of                  approximately 19,879,000 Swiss Francs (approximately $16,241,000                  at the                  currency exchange rate in effect on June 30, 2007) for constructing                  the                  line, which is to be operated at the Galway, Ireland facility of                  Celestica. This amount may increase if the Company requests additional                  capabilities in the line. From the inception of the agreement through                  June                  30, 2007, the Company paid to Komax an aggregate of approximately                  $11,511,000 (14,301,000 Swiss Francs).  All such amounts are                  included in property, plant and equipment as of June 30,                  2007. |
|-----------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 15.           | *Shareholder                  class action –*On April 23, 2007, a shareholder class action was                  filed in the U.S. District Court for the Southern District of New                  York                  against the Company and, among others, the Company’s Chief Executive                  Officer. The complaint alleges that the Company issued a false                  and                  misleading press release on April 13, 2007 regarding sales of the                  Company’s “24/7” fuel cell |
|-----------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | power                    packs to a major international company by overstating the importance                    of                    those sales, which resulted in the Company’s common stock being                    artificially inflated. The complaint seeks relief under Rule                    10b-5 against                    all defendants, and under Section 20(a) of the Securities Exchange                    Act of                    1934 against, among others, the Company’s Chief Executive                    Officer.  Although the complaint requests compensatory damages,                    those damages are not specified.  The Company believes that the                    complaint is without merit and intends to vigorously defend the                    action. |
|--|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 16.           | *Finder’s                  fees agreement –*On June 25, the Company entered into a Finder’s Fee                  agreement (the “Agreement”) with The Brannock Group, LLC, (“Brannock ”),                  pursuant to which Brannock will advise and assist the Company with                  respect                  to, identifying, locating, selecting and entering into manufacturing                  and/or distribution arrangements in China. The Agreement provides                  for the                  Company to grant warrants to purchase 320,000 shares of Company’s common                  stock to Brannock, in three tranches, subject to the achievement                  of                  specific milestones stipulated in the agreement and at an exercise                  price                  equal to the last reported closing price per share on the date                  of the                  grant of each such respective tranche. As of June 30, 2007, the                  Company                  did not grant any warrants related to the Agreement.  On August                  2, 2007, subsequent to the balance sheet date, the Company entered                  into                  memo of understanding that calls for the introduction of the Company’s                  fuel cell Power Pack into the Greater China market (the                  “MOU”).  Pursuant to the terms of the Agreement, the first                  tranche of 20,000 warrants would be granted to Brannock upon the                  entering                  into of the MOU. See Note E for further discussion of the                  MOU. |
|-----------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Note          C - Liquidity**

**Note          D – Recently Issued Accounting Pronouncements**

----

**Note          E – Subsequent Events**

----

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

**Forward      Looking Statements**

**Introduction**

**Results      Of Operations**

----

***Six      Months Ended June 30, 2007 Compared To Six Months Ended June 30,      2006***

***And      Three Months Ended June 30, 2007 Compared to Three Months Ended June 30,      2006***

*Fuel      Cell Technologies*

----

*Cell      Kinetics – CellScan (Cell Carrier).*

*Other      R&D Activities*

----

|   | **Liquidity                And Capital Resources** |
|--------|----------------------------------------------------|

| ·   | the                progress of research and development                programs. |
|--------------------|----------------------------------------------------------------------------------|

| ·   | the                status of our technologies. |
|--------------------|------------------------------------------------|

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

| ·   | The                amount of resources required to complete our production facilities                and                product launch. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------|

| ·   | Our                anticipation, based on our current expectation that we will sell                out the                production capacity of our first fully automated production line,                that we                will undertake to build a second fully                automated. |
|--------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

347.2222 shares of our common stock (which      is      equivalent to an initial conversion price of $28.80 per share). On or after      November 20, 2009, if the closing price of our common stock exceeds 150% of      the      conversion price for 20 trading days during any consecutive 30 trading day      period, we may cause the conversion of our Series A Preferred Stock into      common stock at the then prevailing conversion rate. Of the total $57,500,000      of      our Series A Preferred Stock issued, $7,500,000 was issued pursuant to the      exercise of a 75-day option that was granted to the initial purchaser in      connection with the issuance of the first $50,000,000 of our Series A      Preferred Stock.

----

----

|                                           |   |      |       |   | **Payment                  Due By Period** |   |
|------------------------------------------------|--------|-----------|------------|--------|--------------------------------------------|--------|
| **Contractual                  Obligations**   |   | **Total** |       |   | **2007(1)**                                |   |   | **2008** |   |   | **2009** |   |   | **2010** |   |   | **2011                  and****thereafter** |   |
| Operating                Lease Obligations     |   | $         | 830,000    |   |                                       | $      | 259,000 |   |   | $ | 438,000 |   |   | $ | 131,000 |   |   | $ | 2,000 |   |   | *$* | *—* |   |
| Purchase                Obligations            |   |      | 36,491,000 |   |                                       |   | 30,808,000 |   |   |   | 4,889,000 |   |   |   | 678,000 |   |   |   | 116,000 |   |   | * * | *—* |   |
| Other                Long-Term Liabilities (2) |   |      | 1,901,000  |   |                                       |   | 190,000 |   |   |   | 190,000 |   |   |   | 190,000 |   |   |   | 190,000 |   |   |   | 1,141,000 |   |
|                                           |   |      |       |   |                                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                          |   | $         | 39,222,000 |   |                                       | $      | 31,257                  ,000 |   |   | $ | 5,517,000 |   |   | $ | 999,000 |   |   | $ | 308,000 |   |   | $ | 1,141,000 |   |

|   |   |
|--------|--------|

----

| (1) | Contractual                obligation amounts for 2007 are for the period from July 1, 2007                through                December 31, 2007. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Other                Long-Term Liabilities represents our accrued severance for our employees                in Israel, as of June 30, 2007.  Since we do not expect a high                level of employee turnover giving rise to the payment of significant                amounts of severance obligations, we have included approximately                10% of                the total liability in each of the years 2007 through 2011 and the                remainder in 2011 and thereafter. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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**Item      3.    Quantitative And      Qualitative Disclosures About Market Risk**

**Disclosure      About Market Risk**

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

|   | **Rate                  of****Inflation                  or****(Deflation)** |   | **Rate                  of****Devaluation                  or****(Appreciation)                  of****the                  NIS against****the                  Dollar** |
|--------|------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2002   | 6.5                                                                          |   | 7.3                                                                                                                                                                      |
| 2003   | (1.9)                                                                        |   | (7.6)                                                                                                                                                                    |
| 2004   | 1.2                                                                          |   | (1.6)                                                                                                                                                                    |
| 2005   | 2.4                                                                          |   | 6.9                                                                                                                                                                      |
| 2006   | (0.1)                                                                        |   | (8.2)                                                                                                                                                                    |

***Currency      Risk Management***

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**Impact      Of Political And Economic Conditions**

**Item      4.    Controls and      Procedures**

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**PART      II - OTHER INFORMATION**

**Item      1.    Legal      Proceedings**

**Item        1A.    Risk Factors**

**Item      2.    Unregistered Sales of      Equity Securities and Use of Proceeds.**

**Item      6.    **
**Exhibits**

| **Exhibit                Number** |   | **Exhibit                Description**                                                                                                                             |
|-----------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                              |   |                                                                                                                                                               |
| 10.1                              |   | Service                Agreement, dated as of July 27, 2007, between Medis Technologies                Ltd.,                Medis El Ltd. and Cell Kinetics Ltd. * |
| 10.2                              |   | Letter                Agreement, dated as of July 30, 2007, between Medis Technologies                Ltd. and                Cell Kinetics Ltd. *                 |
| 10.3                              |   | Form              of Stock Option Agreement for Officers and Employees                                                                                        |
| 10.4                              |   | Form              of Stock Option Agreement for Non-Employees                                                                                                 |
| 10.5                              |   | Form              of Restricted Stock Agreement for Officers and              Employees                                                                       |
| 10.6                         |   | Form              of Restricted Stock Agreement for Non-Employees                                                                                             |
| 31.1                              |   | Rule                13a-14(a)/15d-14(a) Certification                                                                                                              |
| 31.2                              |   | Rule                13a-14(a)/15d-14(a) Certification                                                                                                              |
| 32                                |   | Section                1350 Certifications                                                                                                                         |

*           Filed      as an exhibit to the Registration Statement on Form F-1 (File No.      333-144993) of Cell Kinetics Ltd. and incorporated herein by      reference.

----

**SIGNATURES**

|   | MEDIS              TECHNOLOGIES LTD. |                                                |
|--------|--------------------------------------|-----------------------------------------------------|
|   |                                 |                                                |   |
|   | By:                                  | /s/ ROBERT              K. LIFTON              |   |
|   |                                 | Robert                K. Lifton                     |   |
|   |                                 | Chairman                and Chief Executive Officer |   |
|   |                                 |                                                |   |

|   |   |                                                                         |
|--------|--------|------------------------------------------------------------------------------|
|   |   |                                                                         |   |
|   | By:    | /s/ ISRAEL                FISHER                                        |   |
|   |   | Israel                    Fisher                                             |   |
|   |   | Senior                    Vice President-Finance and Chief Financial Officer |   |
|   |   | (Principal                  Financial Officer)                          |   |

|   |   |                                                                    |
|--------|--------|-------------------------------------------------------------------------|
|   |   |                                                                    |   |
|   | By:    | /s/ MICHAEL                  S.                  RESNICK           |   |
|   |   | Michael                      S. Resnick                                 |   |
|   |   | Senior                      Vice President and Chief Accounting Officer |   |
|   |   | (Principal                    Accounting Officer)                  |   |

----