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U. S. SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



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FORM 10Q



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

For The Quarterly Period Ended June 30, 2004

Commission file number: 0-30391

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

|                                                                       |  |                                                 
|---------------------------------------------------------------------- |  | ------------------------------------------------
|Delaware(State
 or other jurisdiction ofincorporation or organization) |  | 133669062(I.R.S. EmployerIdentification Number)

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

(212) 9358484(Registrants Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has
 filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
 1934 during the preceding 12 months (or for such shorter period that the registrant was required
 to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
   Yes [   ]   No [X]

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

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





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# MEDIS TECHNOLOGIES LTD.

# INDEX TO FORM 10-Q

# FOR THE QUARTER ENDED
JUNE 30, 2004

|         |                       |  |  |         |  |                                                                                                                                 |   |  |    |             |  | 
|-------- | --------------------- |  |  | ------- |  | ------------------------------------------------------------------------------------------------------------------------------- | - |  | -- | ----------- |  | 
|         |                       |  |  |         |  |                                                                                                                                 |   |  |    | Page Number
|         |                       |  |  |         |  |                                                                                                                                 |   |  |    |            
|PART I.  | FINANCIAL INFORMATION |  |  |         | 
|        
|         |                       |  |  | Item 1. |  | Financial Statements                                                                                                            |   |  |    |            
|        
|         |                       |  |  |         |  | Condensed Consolidated Balance Sheets
                  December 31, 2003 and June 30, 2004 (Unaudited)                         |   |  | 1  |            
|        
|         |                       |  |  |         |  | Condensed Consolidated Statements of Operations (Unaudited)
                  Three and six months ended June 30, 2003 and 2004 |   |  | 2  |            
|        
|         |                       |  |  |         |  | Condensed Consolidated Statements of Cash Flows (Unaudited)
                  Six months ended June 30, 2003 and 2004           |   |  | 3  |            
|        
|         |                       |  |  |         |  | Notes to Condensed Consolidated Financial Statements (Unaudited)                                                                |   |  | 4  |            
|        
|         |                       |  |  | Item 2. |  | Management's Discussion and Analysis of Financial
                  Condition and Results of Operations                         | 8 | 
|        
|         |                       |  |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                                                      |   |  | 12 |            
|        
|         |                       |  |  | Item 4. |  | Controls and Procedures                                                                                                         |   |  | 13 |            
|        
|PART II. | OTHER INFORMATION     |  |  |         | 
|        
|         |                       |  |  | Item 4. |  | Submission of Matters to a Vote of Security Holders                                                                             |   |  | 13 |            
|        
|         |                       |  |  | Item 6. |  | Exhibits and Reports on Form 8-K                                                                                                |   |  | 14 |            
|        

---

# PART I  FINANCIAL INFORMATION

# Item 1. Financial Statements

# Medis Technologies Ltd. and Subsidiaries Condensed Consolidated Balance Sheets

|                                                                | December 31, 2003 |  | June 30, 2004 |             
|--------------------------------------------------------------- | ----------------- |  | ------------- | ------------
|
|
|ASSETS                                                          |                   |  |               |             
|Current assets                                                  |                   | 
|Cash and cash equivalents                                       |                   |  | $             | 6,620,000   
|Short-term deposits                                             |                   |  |               |            
|Accounts receivable--trade, net                                 |                   |  |               | 74,000      
|Accounts receivable--other                                      |                   |  |               | 237,000     
|Prepaid expenses and other current assets                       |                   |  |               | 110,000     
|                                                                |                   |  |               |             
|Total current assets                                            |                   |  |               | 7,041,000   
|Property and equipment, net                                     |                   |  |               | 1,470,000   
|Goodwill, net                                                   |                   |  |               | 58,205,000  
|Intangible assets, net                                          |                   |  |               | 880,000     
|Long-term note                                                  |                   |  |               | 158,000     
|Severance pay fund                                              |                   |  |               | 697,000     
|                                                                |                   |  |               |             
|Total assets                                                    |                   |  | $             | 68,451,000  
|                                                                |                   |  |               |             
|LIABILITIES AND                                                 |                   | 
|STOCKHOLDERS EQUITY                                            |                   | 
|Current liabilities                                             |                   | 
|Accounts payable                                                |                   |  | $             | 323,000     
|Accrued expenses and other current liabilities                  |                   |  |               | 958,000     
|                                                                |                   |  |               |             
|Total current liabilities                                       |                   |  |               | 1,281,000   
|Accrued severance pay                                           |                   |  |               | 1,193,000   
|                                                                |                   |  |               |             
|Total Liabilities                                               |                   |  |               | 2,474,000   
|                                                               
|Commitments and contingent liabilities                          |                   | 
|Stockholders' equity                                            |                   | 
|Preferred stock, $.01 par value; 10,000 shares authorized; none |                   | 
|issued                                                          |                   |  |               |            
|Common stock, $.01 par value; 35,000,000 shares authorized;     |                   | 
|24,538,268 and 26,230,948 shares issued and outstanding, at     |                   | 
|December 31, 2003 and June 30, 2004, respectively               |                   |  |               | 245,000     
|Additional paid-in capital                                      |                   |  |               | 173,185,000 
|Accumulated deficit                                             |                   |  |               | (107,453,000
|                                                                |                   |  |               |             
|Total stockholders equity                                      |                   |  |               | 65,977,000  
|                                                                |                   |  |               |             
|Total liabilities and stockholders equity                      |                   |  | $             | 68,451,000  
|                                                                |                   |  |               |             

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

1

# Medis Technologies Ltd. and SubsidiariesCondensed Consolidated Statements of Operations(Unaudited)

|                                       | Three Months Ended |  | Six Months Ended |           
|-------------------------------------- | ------------------ |  | ---------------- | ----------
|
|
|
|
|
|Sales                                  |                    |  | $                | 38,000    
|Cost of sales                          |                    |  |                  | 9,000     
|                                       |                    |  |                  |           
|                                       |                    |  |                  |           
|Gross profit                           |                    |  |                  | 29,000    
|                                       |                    |  |                  |           
|Operating expenses:                    |                    | 
|Research and development               |                    | 
|costs, net                             |                    |  |                  | 1,261,000 
|                                       |                    |  |                  |           
|Selling, general and                   |                    | 
|administrative expenses                |                    |  |                  | 1,057,000 
|Amortization of intangible assets      |                    |  |                  | 375,000   
|                                       |                    |  |                  |           
|Total operating expenses               |                    |  |                  | 2,693,000 
|                                       |                    |  |                  |           
|Loss from operations                   |                    |  |                  | (2,664,000
|                                       |                    |  |                  |           
|Other income (expenses)                |                    | 
|Interest income                        |                    |  |                  | 28,000    
|Interest expense                       |                    |  |                  | (22,000   
|                                       |                    |  |                  |           
|                                       |                    |  |                  | 6,000     
|                                       |                    |  |                  |           
|NET LOSS                               |                    |  | $                | (2,658,000
|                                       |                    |  |                  |           
|Basic and diluted net loss per share   |                    |  | $                | (.11      
|                                       |                    |  |                  |           
|                                       |                    |  |                  |           
|Weighted-average number of shares used |                    | 
|in computing basic and diluted net     |                    | 
|loss per share                         |                    |  |                  | 23,562,873
|                                       |                    |  |                  |           

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

2

# Medis Technologies Ltd. and SubsidiariesCondensed Consolidated Statements of Cash Flows(Unaudited)

|                                                      | Six Months Ended June 30, | 
|----------------------------------------------------- | ------------------------- | 
|                                                      |                          
|                                                      |                          
|                                                      |                           | 
|Cash flows from operating activities                  |                           | 
|Net loss                                              |                           | 
|Adjustments to reconcile net loss to net cash used in |                           | 
|operating activities                                  |                           | 
|Depreciation and amortization of property and         |                           | 
|equipment                                             |                           | 
|Amortization of intangible assets                     |                           | 
|Non-cash stock based compensation expense             |                           | 
|Changes in operating assets and liabilities           |                           | 
|Accounts receivable--trade                            |                           | 
|Accounts receivable--other                            |                           | 
|Prepaid expenses and other current assets             |                           | 
|Accounts payable                                      |                           | 
|Accrued expenses and other current liabilities        |                           | 
|Accrued severance pay, net                            |                           | 
|                                                      |                           | 
|Net cash used in operating activities                 |                           | 
|                                                      |                           | 
|Cash flows from investing activities                  |                           | 
|Capital expenditures                                  |                           | 
|Investment in short-term deposits                     |                           | 
|Maturity of short-term deposits                       |                           | 
|Long-term note                                        |                           | 
|                                                      |                           | 
|Net cash used in investing activities                 |                           | 
|                                                      |                           | 
|Cash flows from financing activities                  |                           | 
|Proceeds from issuance of common stock, net           |                           | 
|                                                      |                           | 
|Net cash provided by financing activities             |                           | 
|                                                      |                           | 
|Net increase in cash and cash equivalents             |                           | 
|                                                      |                           | 
|Cash and cash equivalents at beginning of period      |                           | 
|                                                      |                           | 
|Cash and cash equivalents at end of period            |                           | 
|                                                      |                           | 
|                                                      |                           | 
|Supplemental disclosures of cash flow information:    |                           | 
|Cash paid during the period for:                      |                           | 
|Interest                                              |                           | 
|Non-cash investing and financing activities:          |                           | 
|Acquisition of shares of majority-owned subsidiary   |                           | 
|Purchase price allocated to intangible assets         |                           | 
|                                                      |                           | 
|Financed as follows:                                  |                           | 
|Issuance of common stock                              |                           | 
|Cost of option purchased in prior period              |                           | 

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

3

# Medis Technologies
Ltd. and SubsidiariesNotes to Condensed Consolidated Financial Statements  (Unaudited)

# Note A  Nature Of
Operations And Basis Of Presentation

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

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

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

# Note B  Certain
Transactions

| | 1. | Private Placements of Common Stock In January 2004, MTL issued
          1,425,000 shares of its common stock in a private placement to institutional
          investors, for gross proceeds of approximately $14,588,000, less related costs
          of approximately $309,000.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2. | Exercise of Stock Options  From January 1 through June 30, 2004,
          MTL issued 241,450 shares of its common stock pursuant to the exercise of stock
          options granted under its 1999 Stock Option Plan, as amended, for aggregate
          proceeds of approximately $1,378,000.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3. | Exercise of Warrants  From January 1 through June 30, 2004, MTL
          issued 26,230 shares of its common stock pursuant to the exercise of warrants,
          at exercise prices ranging from $4.92 to $9.60 per share, for aggregate proceeds
          of approximately $155,000.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 4. | Grant of Warrants  On June 6, 2004, the Company granted warrants to
          purchase an aggregate of 7,946 shares of the Companys common stock to
          those shareholders who
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4

| | exercised warrants received in the Companys 2002
          shareholder loyalty program prior to the November 13, 2004 completion of the
          Companys offer to exchange and exercise. Such warrants have the same terms
          as those issued in connection with the offer to exchange and exercise and,
          accordingly, vested upon issuance, provide for an exercise price of $9.60 per
          share and expire on November 14, 2004. Using the Black-Scholes option pricing
          model assuming a 1.5% risk free interest rate, 0% dividend yield, expected life
          of 0.5 years and 54% volatility, the Company has estimated the fair value of
          such warrants to be approximately $43,000.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 5. | Stock-based Compensation  SFAS No. 148, Accounting for
          Stock-Based Compensation  Transition and Disclosure (SFAS No.
          148) amends SFAS No. 123, Accounting for Stock-Based
          Compensation (SFAS No. 123) to provide alternative methods of
          transition for a voluntary change to the fair value based methods of accounting
          for stock-based employee compensation. In addition, SFAS No. 148 amends the
          disclosure requirements of SFAS No. 123 to require more prominent disclosures in
          both annual and interim financial statements about the method of accounting for
          stock-based employee compensation and the effect of the method used on reported
          results.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
provided for in SFAS No. 148, the Company has elected to continue to follow Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, and FASB Interpretation No. 44, Accounting for Certain Transactions
Involving Stock Compensation, in accounting for its employee stock options, under
which compensation expense, if any, is generally based on the difference between the
exercise price of an option or the amount paid for the award and the market price or fair
value of the underlying common stock at the date of the grant. To the extent that
compensation expense is recognized with respect to stock options issued to employees or
directors, such expense is amortized over the vesting period of such options. Stock-based
compensation arrangements involving non-employees or non-directors are accounted for under
SFAS No. 123 and Emerging Issues Task Force No. 96-18, Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services, under which such arrangements are accounted for based on
the fair value of the option or award.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5

| | Had
compensation cost for the Companys stock option plans been determined based on the
fair value at the grant dates for all awards, the Companys net loss and basic and
diluted net loss per share would have been the pro forma amounts indicated below:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                            | Unaudited | 
|--------------------------- | --------- | 
|
|
|
|
|
|Net loss, as reported       |           | 
|                           
|Add: Total stock-based      |           | 
|employee compensation       |           | 
|expense included in the     |           | 
|reported loss               |           | 
|Deduct: Total stock-based   |           | 
|employee compensation       |           | 
|expense determined under    |           | 
|fair value based method     |           | 
|                            |           | 
|Pro forma net loss          |           | 
|                            |           | 
|Basic and diluted net loss  |           | 
|per share as reported       |           | 
|Pro forma basic and diluted |           | 
|net loss per share          |           | 

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

|                        | Three Months Ended |  | Six Months Ended |     
|----------------------- | ------------------ |  | ---------------- | ----
|
|
|
|
|
|Dividend yield          |                    |  |                  | 0   
|Risk-free interest rate |                    |  |                  | 2.50
|Expected life in years  |                    |  |                  | 1.4 
|Volatility              |                    |  |                  | 95  



|6. | Fuel Cell Technology Cooperation Agreement  In May 2003, the
          Company entered into an agreement with General Dynamics Corporation
          (GD), to design and develop on a best efforts basis a pre-production
          prototype of its fuel cell Power Pack for the ruggedized personal digital
          assistant system that GD is developing for the U.S. military (the
          Agreement). The total price for the Companys services provided
          for in the Agreement is $500,000, with an initial payment of $100,000 and the
          balance in accordance with the payment and performance milestones established in
          the Agreement through January 2005. The Company expects that it will benefit
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6

| | from the development effort beyond the scope of the Agreement and development
          costs will exceed the $500,000 price. The Company is accounting for the
          Agreement as a fixed priced, best efforts research and development arrangement.
          The Company received payments aggregating $350,000 from the inception of the
          Agreement through June 30, 2004. During the six and three months ended June 30,
          2004, the Company recorded approximately $96,000 and $71,000, respectively, as a
          credit to research and development expense and from the inception of the
          agreement through June 30, 2004 the Company recorded approximately $320,000 as
          credits to research and development expense related to the Agreement.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Distribution Agreement  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. Pursuant to the
          distribution agreement, among other things, the Company has granted Kensington
          the limited, exclusive right to market and distribute its Power Pack and other
          products using its fuel cell technology under the Kensington and Medis brand
          names.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|8. | Product and Manufacturing Development Agreement On May 3, 2004,
          the Company entered into a Product and Manufacturing Development Agreement with
          Flextronics International Ltd. for commencing an industrialization program
          leading to high volume production of the Companys Power Pack products.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|9. | Development Agreement On May 25, 2004, the Company entered into a
          Development Agreement with Eastman Kodak Companys Global Manufacturing
          Services operation for advancing the development of refueling cartridges and
          chemicals to be used in the Companys fuel cell products.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Note C  Liquidity

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

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

# Note D  Subsequent
Event

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

7

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

# Forward Looking
Statements

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

discuss our
future expectations;



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



state other
forward-looking information.

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

# Introduction

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

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

# Results Of Operations

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

8

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

Our
research and development costs have increased from approximately $2,749,000 in 1999 to
approximately $5,010,000 in 2003 and are expected to increase further in 2004; however, we
anticipate that our failure to successfully commercially develop our fuel cell technology
or any of our other technologies will force us to curtail our spending levels until such
time, if ever, as we generate revenues or otherwise receive funds from third party
sources.

| | Six
Months Ended June 30, 2004 Compared To Six Months Ended June 30, 2003 And Three Months
Ended June 30, 2004 Compared To Three Months Ended June 30, 2003
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

9

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

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

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

# Liquidity And Capital
Resources

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

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

the progress of research and
development programs;

the status of our technologies;
and

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

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

10

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

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

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

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

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

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

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

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

11

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

# Commitments and
Contingencies

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

|                                | Payment Due By Period | 
|------------------------------- | --------------------- | 
|
|
|
|
|Operating Lease Obligations     |                       | 
|Purchase Obligations            |                       | 
|Other Long-Term Liabilities (1) |                       | 
|
|Total                           |                       | 
|

_________________

|(1) | Other Long-Term Liabilities represents our accrued severance pay as of June 30,
          2004. 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 2004 through 2007
          and the remainder in 2008 and thereafter.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Contractual obligation amounts for 2004 are for the period from July 1, 2004
          through December 31, 2004.
|--- | -----------------------------------------------------------------------------------------------------------------

# Item 3.   Quantitative And
Qualitative Disclosures About Market Risk

# Disclosure About Market
Risk

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

In
connection with our currency use, we operate in a mixed environment. Payroll is paid in
our local currency and the local currency of each of our subsidiaries, such as the New
Israeli Shekel (NIS) with respect to our Israeli-based operations, as are most of our
other operating expenses. Consideration for virtually all sales is either in dollars or
dollar-linked currency. As a result, not all monetary assets and all monetary liabilities
are linked to the same base in the same amount at all points in time, which may cause
currency fluctuation related gains or losses. In order to help minimize the losses, we
currently invest our liquid funds in both dollar-based and NIS-based assets.

For
many years prior to 1986, the Israeli economy was characterized by high rates of inflation
and devaluation of the Israeli currency against the United States dollar and other
currencies. Since the institution of the Israeli Economic Program in 1985, inflation,
while continuing, has been significantly reduced and the rate of devaluation has been
substantially diminished. However, Israel effected devaluation / (appreciation) of the NIS
against the dollar as follows:

12



|     | 
|---- | 
|1999 | 
|2000 | 
|2001 | 
|2002 | 
|2003 | 

In
1999 and 2000, the rate of inflation in Israel exceeded the rate of devaluation of the NIS
against the dollar, but in 2001 and 2002 the rate of devaluation of the NIS against the
dollar exceeded the rate of inflation in Israel. In 2003, Israel experienced both price
deflation and an appreciation of the NIS against the dollar. In 2003, the rate of
inflation (deflation) in Israel was (1.9)% and the rate of devaluation (appreciation) of
the NIS was (7.6)%, against the dollar. Additionally, in 2004, through June 30, the rate
of inflation in Israel was 1.4% and the rate of devaluation of the NIS was 2.7%
against the dollar.

# Impact Of Political And
Economic Conditions

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

# Item 4.   Controls and
Procedures

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

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

# PART II  OTHER
INFORMATION

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

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

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

|                    | For |  | Against |           
|------------------- | --- |  | ------- | ----------
|Robert K. Lifton    |     |  |         | 23,140,293
|Howard Weingrow     |     |  |         | 23,140,293
|Jacob S. Weiss      |     |  |         | 23,140,293
|Amos Eiran          |     |  |         | 23,139,090
|Zeev Nahmoni        |     |  |         | 23,209,079
|Jacob E. Goldman    |     |  |         | 23,209,079
|Philip Weisser      |     |  |         | 23,210,282
|Mitchell H. Freeman |     |  |         | 23,209,079

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

|For: |  |  |  | 18,095,646 |  | Against: |  |  |  | 208,948 |  | Abstain: |  |  |  | 24,404 |  | Unvoted: |  |  |  | 4,899,459 | 
|---- |  |  |  | ---------- |  | -------- |  |  |  | ------- |  | -------- |  |  |  | ------ |  | -------- |  |  |  | --------- | 

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

|For: |  |  |  | 18,196,878 |  | Against: |  |  |  | 106,296 |  | Abstain: |  |  |  | 25,284 |  | Unvoted: |  |  |  | 4,899,459 | 
|---- |  |  |  | ---------- |  | -------- |  |  |  | ------- |  | -------- |  |  |  | ------ |  | -------- |  |  |  | --------- | 

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

|     |  |  |  |            | 
|---- |  |  |  | ---------- | 
|For: |  |  |  | 23,062,508 | 

# Item 6.   Exhibits and
Reports on Form 8-K

(a)    Exhibits.

|Exhibit Number | Exhibit Description
|-------------- | -------------------
|              
|31.1           |                    
|              
|31.2           |                    
|              
|32             |                    

_________________

(b)    Reports
on Form 8-K.

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

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|             | Date Report | 
|------------ | ----------- | 
|
|             |             | 
|May 25, 2004 |             | 
|             |             | 
|             |             | 
|May 10, 2004 |             | 
|             |             | 
|May 6, 2004  |             | 
|             |             | 
|             |             | 

15

# SIGNATURES

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

| | MEDIS TECHNOLOGIES LTD.
| | -----------------------
| |                        
| | By:                    
| |                        
| |                        
| |                        
| |                        
| |                        
| | By:                    
| |                        
| |                        
| |                        
| |                        
| |                        
| | By:                    
| |                        
| |                        
| |                        



Date: August 5, 2004





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