**U.S. SECURITIES AND EXCHANGECOMMISSION**

 

**WASHINGTON, D.C.20549**

 

**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)****OF THESECURITIES EXCHANGE ACT OF 1934**

 

**For The QuarterlyPeriod Ended****September30, 2003**

 

**Commission filenumber: 0-30391**

 

**MEDIS TECHNOLOGIES LTD.**

(Exact Name of Registrant as Specified in its Charter)

 

| **Delaware**                                                    |   | **13-3669062**                           |
|-----------------------------------------------------------------|--------|------------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification Number) |
|                                                            |   |                                     |
| **805 Third Avenue  New York, New York 10022**                  |
| (Address of Principal Executive Offices and Zip Code)           |
|                                                            |
| **(212) 935-8484**                                              |
| (Registrant’s Telephone Number, Including Area Code)       |

 

**Indicate by checkmark whether the registrant:(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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****ý** |   | **No****o** |
|-------------------|--------|-------------|

 

**Indicate by checkmark whether the registrantis an accelerated filer as defined in Rule 12b-2 of the Exchange Act.**

| **Yes****ý** |   | **No****o** |
|-------------------|--------|-------------|

 

The number of shares of CommonStock, par value $.01 per share, outstanding as of October 14, 2003 was24,509,067.

 

 

----

 

**MEDIS TECHNOLOGIESLTD.**

 

**INDEX TO FORM 10-Q**

 

**FOR THE QUARTER ENDEDSEPTEMBER 30, 2003**

 
| **PART I.  FINANCIAL INFORMATION** |                                                                                                                  |
|------------------------------------|-----------------------------------------------------------------------------------------------------------------------|
|                               |                                                                                                                  |
| Item 1.                            | Financial Statements                                                                                                  |   |
|                               |                                                                                                                  |   |
|                               | Condensed Consolidated Balance Sheets  December 31, 2002 and September 30, 2003 (Unaudited)                           |   |
|                               |                                                                                                                  |   |
|                               | Condensed Consolidated Statements of  Operations (Unaudited)  Three and nine months ended September 30, 2002 and 2003 |   |
|                               |                                                                                                                  |   |
|                               | Condensed Consolidated Statements of Cash  Flows (Unaudited)  Nine months ended September 30, 2002 and 2003           |   |
|                               |                                                                                                                  |   |
|                               | Notes to Condensed Consolidated Financial  Statements (Unaudited)                                                     |   |
|                               |                                                                                                                  |   |
| Item 2.                            | Management’s Discussion and Analysis of  Financial Condition and Results of Operations                           |   |
|                               |                                                                                                                  |   |
| Item 3.                            | Quantitative and Qualitative Disclosures  About Market Risk                                                           |   |
|                               |                                                                                                                  |   |
| Item 4.                            | Controls and Procedures                                                                                               |   |
|                               |                                                                                                                  |   |
| **PART II.**                       | **OTHER INFORMATION**                                                                                                 |   |
|                               |                                                                                                                  |
| Item 6.                            | Exhibits and Reports on Form 8-K                                                                                      |   |

 

----

 

**PART I** - FINANCIALINFORMATION

 

**Item 1**.            Financial Statements

 

**MedisTechnologies Ltd. and SubsidiariesCondensed Consolidated BalanceSheets**

 
|                                                                                                                                                                     |   | **December  31, 2002** |       | **September  30, 2003** |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------|------------|-------------------------|------------|
|                                                                                                                                                                     |   |                   |       | **(unaudited)**         |       |
| **ASSETS**                                                                                                                                                               |   |                   | ** ** |                    | ** ** |
| Current assets                                                                                                                                                           |   |                   | ** ** |                    | ** ** |
| Cash and cash equivalents                                                                                                                                                |   | $                      | 6,036,000  |                    | $          | 8,600,000 |   |
| Accounts receivable - trade                                                                                                                                              |   | —                 |       | 14,000                  |       |
| Accounts receivable - other                                                                                                                                              |   | 50,000                 |       | 105,000                 |       |
| Prepaid expenses and other current assets                                                                                                                                |   | 52,000                 |       | 212,000                 |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Total current assets                                                                                                                                                     |   | 6,138,000              |       | 8,931,000               |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Property and equipment, net                                                                                                                                              |   | 1,199,000              |       | 1,245,000               |       |
| Goodwill, net                                                                                                                                                            |   | 58,205,000             |       | 58,205,000              |       |
| Intangible assets, net                                                                                                                                                   |   | 832,000                |       | 932,000                 |       |
| Other assets                                                                                                                                                             |   | 520,000                |       | —                  |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Total assets                                                                                                                                                             |   | $                      | 66,894,000 |                    | $          | 69,313,000 |   |
|                                                                                                                                                                     |   |                   |       |                    |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                            |   |                   |       |                    |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Current liabilities                                                                                                                                                      |   |                   |       |                    |       |
| Accounts payable                                                                                                                                                         |   | $                      | 128,000    |                    | $          | 222,000 |   |
| Accrued expenses and other current  liabilities                                                                                                                          |   | 973,000                |       | 979,000                 |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Total current liabilities                                                                                                                                                |   | 1,101,000              |       | 1,201,000               |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Accrued severance pay                                                                                                                                                    |   | 388,000                |       | 465,000                 |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Total liabilities                                                                                                                                                        |   | 1,489,000              |       | 1,666,000               |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Stockholders’ equity                                                                                                                                                |   |                   |       |                    |       |
| Preferred stock, $.01 par value; 10,000  shares authorized; none issued                                                                                                  |   | —                 |       | —                  |       |
| Common stock, $.01 par value; 35,000,000  shares authorized; 21,102,301 and 23,646,465 issued and outstanding at  December 31, 2002 and September 30, 2003, respectively |   | 211,000                |       | 236,000                 |       |
| Additional paid-in capital                                                                                                                                               |   | 161,584,000            |       | 169,098,000             |       |
| Proceeds on account of shares, net                                                                                                                                       |   | —                 |       | 3,458,000               |       |
| Long-term note secured by the Company’s  shares                                                                                                                     |   | —                 |       | (155,000                | )          |
| Accumulated deficit                                                                                                                                                      |   | (96,390,000            | )          | (104,990,000            | )          |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Total stockholders’ equity                                                                                                                                          |   | 65,405,000             |       | 67,647,000              |       |
|                                                                                                                                                                     |   |                   |       |                    |       |
| Total liabilities and stockholders’ equity                                                                                                                          |   | $                      | 66,894,000 |                    | $          | 69,313,000 |   |

 

The accompanying notes are anintegral part of these statements.

 

1

----

 

**Medis TechnologiesLtd. and Subsidiaries**

**CondensedConsolidated Statements of Operations**

**(Unaudited)**

 
|                                                                                            |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended  September 30,** |   |
|-------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|---------------------------------------|--------|
|                                                                                            |   | **2002**                               |       | **2003**                              |   | **2002** |   | **2003** |   |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Sales                                                                                           |   | $                                      | 38,000     |                                  | $      | 38,000 |   | $ | 154,000 |   | $ | 113,000 |   |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Cost of sales                                                                                   |   | 32,000                                 |       | 16,000                                |   | 110,000 |   | 43,000 |   |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Gross profit                                                                                    |   | 6,000                                  |       | 22,000                                |   | 44,000 |   | 70,000 |   |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Operating expenses                                                                              |   |                                   |       |                                  |   |   |   |   |   |
| Research and development costs, net                                                             |   | 1,038,000                              |       | 1,179,000                             |   | 2,978,000 |   | 3,632,000 |   |
| Selling, general and administrative  expenses                                                   |   | 723,000                                |       | 1,055,000                             |   | 2,735,000 |   | 2,929,000 |   |
| Amortization of intangible assets                                                               |   | 665,000                                |       | 52,000                                |   | 1,995,000 |   | 945,000 |   |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Total operating expenses                                                                        |   | 2,426,000                              |       | 2,286,000                             |   | 7,708,000 |   | 7,506,000 |   |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Loss from operations                                                                            |   | (2,420,000                             | )          | (2,264,000                            | )      | (7,664,000 | ) | (7,436,000 | ) |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Other income (expenses)                                                                         |   |                                   |       |                                  |   |   |   |   |   |
| Interest income                                                                                 |   | 43,000                                 |       | 37,000                                |   | 112,000 |   | 98,000 |   |
| Interest and other expense                                                                      |   | (15,000                                | )          | (4,000                                | )      | (53,000 | ) | (36,000 | ) |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
|                                                                                            |   | 28,000                                 |       | 33,000                                |   | 59,000 |   | 62,000 |   |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| NET LOSS                                                                                        |   | (2,392,000                             | )          | (2,231,000                            | )      | (7,605,000 | ) | (7,374,000 | ) |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Value of warrants issued                                                                        |   | (2,241,000                             | )          | (1,226,000                            | )      | (2,241,000 | ) | (1,226,000 | ) |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Net loss attributable to common  shareholders                                                   |   | $                                      | (4,633,000 | )                                     | $      | (3,457,000 | ) | $ | (9,846,000 | ) | $ | (8,600,000 | ) |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Basic and diluted net loss per share (Note  B)                                                  |   | $                                      | (.21       | )                                     | $      | (.15 | ) | $ | (.45 | ) | $ | (.37 | ) |
|                                                                                            |   |                                   |       |                                  |   |   |   |   |   |
| Weighted-average shares used in computing  basic and diluted net loss per share   (Note B) |   | 22,107,863                             |       | 23,591,557                            |   | 21,819,002 |   | 23,201,704 |   |

 

The accompanying notes are anintegral part of these statements.

 

2

----

 

**Medis TechnologiesLtd. and Subsidiaries**

**CondensedConsolidated Statements of Cash Flows**

**(Unaudited)**

 
|                                                                                                     |   | **Nine Months  Ended September 30,** |       |
|----------------------------------------------------------------------------------------------------------|--------|--------------------------------------|------------|
|                                                                                                     |   | **2002**                             |       | **2003** |   |
|                                                                                                     |   |                                 |       |   |   |
| Cash flows from operating activities                                                                     |   |                                 |       |   |   |
| Net loss                                                                                                 |   | $                                    | (7,605,000 | ) | $ | (7,374,000 | ) |
| Adjustments to reconcile net loss to net  cash used in operating activities                              |   |                                 |       |   |   |
| Depreciation and amortization of property  and equipment                                                 |   | 174,000                              |       | 233,000 |   |
| Amortization of intangible assets                                                                        |   | 1,995,000                            |       | 945,000 |   |
| Non-cash compensation expense                                                                            |   | 213,000                              |       | 378,000 |   |
| Loss from sale of property and equipment                                                                 |   | 11,000                               |       | — |   |
| Changes in operating assets and liabilities                                                              |   |                                 |       |   |   |
| Accounts receivable - trade                                                                              |   | (29,000                              | )          | (14,000 | ) |
| Accounts receivable - other                                                                              |   | (56,000                              | )          | (55,000 | ) |
| Prepaid expenses and other current assets                                                                |   | 75,000                               |       | (160,000 | ) |
| Accounts payable                                                                                         |   | 16,000                               |       | 94,000 |   |
| Accrued expenses and other current  liabilities                                                          |   | 193,000                              |       | 6,000 |   |
| Accrued severance pay                                                                                    |   | 107,000                              |       | 77,000 |   |
|                                                                                                     |   |                                 |       |   |   |
| Net cash used in operating activities                                                                    |   | (4,906,000                           | )          | (5,870,000 | ) |
|                                                                                                     |   |                                 |       |   |   |
| Cash flows from investing activities                                                                     |   |                                 |       |   |   |
| Capital expenditures                                                                                     |   | (226,000                             | )          | (279,000 | ) |
| Long-term note                                                                                           |   | —                               |       | (155,000 | ) |
| Proceeds from sale of property and  equipment                                                            |   | 25,000                               |       | — |   |
|                                                                                                     |   |                                 |       |   |   |
| Net cash used in investing activities                                                                    |   | (201,000                             | )          | (434,000 | ) |
|                                                                                                     |   |                                 |       |   |   |
| Cash flows from financing activities                                                                     |   |                                 |       |   |   |
| Proceeds from issuance of common stock, net                                                              |   | 7,042,000                            |       | 5,410,000 |   |
| Proceeds received on account of shares, net                                                              |   | —                               |       | 3,458,000 |   |
|                                                                                                     |   |                                 |       |   |   |
| Net cash provided by financing activities                                                                |   | 7,042,000                            |       | 8,868,000 |   |
|                                                                                                     |   |                                 |       |   |   |
| Net increase in cash and cash equivalents                                                                |   | 1,935,000                            |       | 2,564,000 |   |
|                                                                                                     |   |                                 |       |   |   |
| Cash and cash equivalents at beginning of  period                                                        |   | 5,999,000                            |       | 6,036,000 |   |
| Cash and cash equivalents at end of period                                                               |   | $                                    | 7,934,000  |   | $ | 8,600,000 |   |
|                                                                                                     |   |                                 |       |   |   |
| Supplemental disclosures of cash flow  information:                                                      |   |                                 |       |   |   |
| Cash paid during the period for Interest                                                                 |   | $                                    | 13,000     |   | $ | 25,000 |   |
| Non-cash investing and financing  activities:                                                            |   |                                 |       |   |   |
| Acquisition of shares of majority-owned  subsidiary – purchase price allocated to intangible assets |   | —                               |       | $ | 1,045,000 |   |
| Financed as follows:                                                                                     |   |                                 |       |   |   |
| Issuance of common stock                                                                                 |   | —                               |       | $ | 525,000 |   |
| Cost of option purchased in prior period                                                                 |   | —                               |       | $ | 520,000 |   |

 

The accompanying notes are anintegral part of these statements.

 

3

----

 

**Medis TechnologiesLtd. and Subsidiaries**

**Notes to CondensedConsolidated Financial Statements**

**(Unaudited)**

 

**Note A - Nature Of Operations And Basis Of Presentation**

 

Medis Technologies Ltd. (the “Company”), aDelaware corporation, is a holding company, which through its wholly-ownedsubsidiaries, Medis El Ltd. (“Medis El”) and More Energy Ltd. (“MoreEnergy”), engages in research and development of technology products tolicense, sell, or enter into joint ventures with large corporations. TheCompany’s primary business focus is on the development and commercialization ofdirect liquid fuel cells and attendant refueling cartridges for use as primaryand auxiliary power sources for portable electronic devices which currently userechargeable or disposable batteries as their power source. These devicesinclude cell phones, personal digital assistants (PDAs), laptop computers andcertain military devices. The Company’s other technologies, which are invarious stages of development, include inherently conductive polymers (formerlyknown as highly conductive polymers), the CellScan, the toroidal engine,stirling cycle system, and the Rankin cycle linear compressor.

 

The accompanying condensed consolidated financialstatements should be read in conjunction with the following notes and with theconsolidated financial statements for the year ended December 31, 2002 andrelated notes included in the Company’s Annual Report on Form 10-K. Thecondensed consolidated financial statements as of September 30, 2003 and forthe three and nine months ended September 30, 2002 and 2003 are unaudited andhave been prepared in accordance with accounting principles generally acceptedin the United States applicable to interim financial information and the rulesand regulations promulgated by the Securities and Exchange Commission.Accordingly, such condensed consolidated financial statements do not includeall of the information and footnote disclosures required in annual financialstatements. In the opinion of the Company’s management, the September 30, 2002and 2003 unaudited condensed consolidated interim financial statements includeall adjustments, consisting of normal recurring adjustments, necessary for afair presentation of such condensed consolidated financial statements. Theresults of operations for the three and nine months ended September 30, 2003are not necessarily indicative of the results to be expected for the entireyear.

 

The condensed consolidated balance sheet as ofDecember 31, 2002 has been derived from the audited financial statements atthat date but does not include all of the information and notes required byaccounting principles generally accepted in the United States for completefinancial statements.

 

**Note B - Certain Transactions**

 

*1.**         RightsOffering* - On March 11, 2003, the Company completed a rights offering inwhich it offered to its existing stockholders subscription rights to purchasean aggregate of 2,325,600 shares of its common stock at a purchase price of$2.15 per share. The Company received gross proceeds of $5,000,040 from therights offering, which proceeds, after deducting related expenses ofapproximately $122,000, are being used for working capital, including for thecontinued development of its direct liquid fuel cell technology, as well as forselling, general and administrative expenses.

 

In accordance with SFAS No. 128, the Companyhas adjusted its net loss per share for the three and nine months endedSeptember 30, 2002 to give retroactive effect to shares issued in its March 11,2003 rights offering. Accordingly, as a result of such retroactive adjustment,for the three months ended September 30, 2002, the net loss per share

 

4

----

 

decreased from $(.22) to $(.21), or $(.01)per share and for the nine months ended September 30, 2002, the net loss pershare decreased from $(.47) to $(.45), or $(.02) per share.

 

*2.**         Exerciseof Option to Acquire Remaining Interest in Subsidiary* - On March 14, 2003,the Company acquired the remaining 7%, or 70 shares, of More Energy that it didnot already own. Such acquisition was pursuant to an agreement dated March 14,2003 with the General Manager of More Energy and owner of the remaining 7%interest of More Energy (the “Seller”), which amended the terms of theCompany’s existing option agreement to acquire such interest. Pursuant to theamendment, the vesting schedule of the option was accelerated such that theCompany could immediately exercise its option in full to acquire the remaining7% interest. Such acquisition was undertaken in order to make More Energy awholly owned subsidiary of the Company.

 

The acquisition was accounted for under the purchase method ofaccounting. The total purchase price of $1,045,000 was comprised of $520,000paid in full in June 2001 for the purchase of the original option to acquiresuch interest in More Energy and the issuance as of March 14, 2003 of 120,000shares of the Company’s common stock. The common stock was valued at $4.374 pershare, representing the average closing price of the Company’s common stock forthree days before and after March 14, 2003 - the date of the acquisitionagreement, or an aggregate of approximately $525,000.

 

Based on a purchase price allocation analysis performed by the Company,the entire purchase price of $1,045,000 was allocated to intangible assets ofMore Energy. No goodwill was generated in the transaction. Such intangibleassets acquired are being amortized over five year useful lives. During thethree and nine months ended September 30, 2003, the Company recordedamortization expense of approximately $52,000 and $113,000, respectively,related to such intangible assets acquired.

 

As of the date of the acquisition, More Energy’s total stockholder’sequity reflected a deficit. Since the Company, from More Energy’s inception,has consolidated in its financial statements 100% of the losses of More Energy,such deficit is already included in the Company’s accumulated deficit as ofdate of the acquisition and was not reflected in the purchase price allocation.

 

In April 2003, the Company loaned approximately $155,000 to the Seller,to enable the Seller to pay certain tax obligations arising from the sale ofhis interest to the Company. The Seller has executed a non-recourse, interestbearing, secured promissory note (the “Note”) in favor of the Companyevidencing such loan and any additional loans which may be made by the Companyto the Seller up to an aggregate principal amount of $258,000. The interestrate under the Note is equal to the applicable federal rate for mid-term loansin effect on the borrowing date which, for purposes of the amount borrowed todate, equals a rate of 2.94% per annum. Principal of, and accrued interest on,the Note must be paid in full by the December 31, 2006 maturity date of theNote. The Seller has also entered into a pledge agreement with the Company underwhich he has pledged as collateral for the payment in full of his obligationsunder the Note 120,000 shares of the Company’s common stock owned by him. TheCompany has accounted for the Note as a reduction in stockholders’ equity.

 

5

----

 

*3.**         Offer to Exchange and Exercise –*On September 3, 2003, the Company commenced an offer to exchange and exerciseto holders of its approximately 848,000 outstanding warrants issued pursuant toits 2002 shareholder loyalty program (the “Offer”). In order to participate inthe Offer, holders of loyalty program warrants who exchange such warrants fornew warrants exercisable at $4.43 per share must also exercise the new warrantsat the time of the exchange.  The Offer,which expired at midnight November 13, 2003, resulted in the exercise ofapproximately 836,000 new warrants for aggregate gross proceeds to the Companyof approximately $3,700,000.  Each newwarrant was exercisable into one share of common stock and a one-year warrantto purchase an additional share of common stock of the Company for $9.60 forevery two new warrants exercised.

 

During the three and nine months ended September 30, 2003, the Companyrecorded gross proceeds on account of shares to be issued pursuant to the Offerof approximately $3,578,000 and related costs of approximately $120,000.  The Company has estimated the fair value ofthe approximately 418,000 one-year warrants to be issued pursuant to the Offer,using the Black-Scholes option pricing model - assuming a 2.5% risk freeinterest rate, 0% dividend yield, expected life of one year and 76% volatility,to be approximately $1,226,000 and has accounted for such amount as a preferreddividend for the three and nine months ended September 30, 2003.

 

*4.**         Grantof Warrants* - On April 1, 2003, the Company granted to a consultantwarrants to purchase an aggregate of 50,000 shares of the Company’s commonstock, in connection with a consulting agreement of the same date. Suchwarrants provide for an exercise price of $5.35 per share, the market price onthe date of the grant, and expire three years from the date of the grant.Warrants to purchase 25,000 shares vest one year from the date of the grant andwarrants to purchase the remaining 25,000 shares vest two years from the dateof the grant; provided that if the Company does not extend the term of theconsulting agreement for a second twelve month period, all of the warrantsshall vest one year from the date of the grant. Using the Black-Scholes optionpricing model assuming a 2.5% risk free interest rate, 0% dividend yield,expected life of 2.5 years and 95% volatility, the Company has estimated thefair value of such warrants at September 30, 2003 to be approximately $363,000,and has recorded expense of approximately $99,000 and $181,000 for the threeand nine months ended September 30, 2003, respectively.

 

*5.**         Exerciseof Warrants* – From January 1, 2003 through the commencement of the offer toexchange and exercise on September 3, 2003 (see Note 3 above), stockholdersexercised loyalty program warrants to acquire an aggregate of 12,542 shares ofthe Company’s common stock, at an exercise price of $4.43 per share, foraggregate proceeds of approximately $56,000.

 

Additionally, during the nine months endedSeptember 30, 2003, warrant holders exercised other outstanding warrants toacquire 25,509 shares of the Company’s common stock, for aggregate proceeds ofapproximately $128,000.

 

6

----

 

*6.**         Exerciseof Stock Options*– During the nine months ended September 30 2003, theCompany issued 60,513 shares of its common stock pursuant to the exercise ofstock options granted under the Company’s 1999 Stock Option Plan, as amended,for an aggregate exercise price of approximately $348,000.

 

*7.**         Stock-basedCompensation* - In December 2002, the Financial Accounting Standards Board(“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation –Transition and Disclosure.” SFAS No. 148 amends SFAS No. 123, “Accounting forStock-Based Compensation,” to provide alternative methods of transition for avoluntary change to the fair value based methods of accounting for stock-basedemployee compensation. In addition, SFAS No. 148 amends the disclosurerequirements of SFAS No. 123 to require more prominent disclosures in bothannual and interim financial statements about the method of accounting forstock-based employee compensation and the effect of the method used on reportedresults.

 

As provided for in SFAS No. 148, the Companyhas elected to continue to follow Accounting Principles Board OpinionNo. 25, “Accounting for Stock Issued to Employees,” and relatedinterpretations in accounting for its employee stock options, under whichcompensation expense, if any, is generally based on the difference between theexercise price of an option or the amount paid for the award and the marketprice or fair value of the underlying common stock at the date of the grant. Tothe extent that compensation expense is recognized with respect to stock optionsissued to employees or directors, such expense is amortized over the vestingperiod of such options. Stock-based compensation arrangements involvingnon-employees or non-directors are accounted for under SFAS No. 123, underwhich such arrangements are accounted for based on the fair value of the optionor award.

 

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

 

7

----

 
|                                                                                              |   | **Three  Months Ended  September 30,** |       | **Nine  Months Ended  September 30,** |   |
|---------------------------------------------------------------------------------------------------|--------|----------------------------------------|------------|---------------------------------------|--------|
|                                                                                              |   | **2002**                               |       | **2003**                              |   | **2002** |   | **2003** |   |
| Net loss attributable to common  shareholders, as reported                                        |   | $                                      | (4,633,000 | )                                     | $      | (3,457,000 | ) | $ | (9,846,000 | ) | $ | (8,600,000 | ) |
|                                                                                              |   |                                   |       |                                  |   |   |   |   |   |   |   |   |   |
| Add: Total stock-based employee  compensation expense included in the reported loss               |   | —                                 |       | 32,000                                |   | 122,000 |   | 32,000 |   |
|                                                                                              |   |                                   |       |                                  |   |   |   |   |   |
| Deduct: Total stock-based employee compensation  expense determined under fair value based method |   | (1,226,000                             | )          | (155,000                              | )      | (3,629,000 | ) | (799,000 | ) |
|                                                                                              |   |                                   |       |                                  |   |   |   |   |   |
| Pro forma net loss attributable to common  shareholders                                           |   | $                                      | (5,859,000 | )                                     | $      | (3,580,000 | ) | $ | (13,353,000 | ) | $ | (9,367,000 | ) |
|                                                                                              |   |                                   |       |                                  |   |   |   |   |   |   |   |   |   |
| Basic and diluted net loss per share as  reported  (Note B)                                  |   | $                                      | (.21       | )                                     | $      | (.15 | ) | $ | (.45 | ) | $ | (.37 | ) |
|                                                                                              |   |                                   |       |                                  |   |   |   |   |   |   |   |   |   |
| Pro forma net loss per share                                                                      |   | $                                      | (.27       | )                                     | $      | (.15 | ) | $ | (.61 | ) | $ | (.40 | ) |

 

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

 
|                    |   | **Three  Months Ended  September 30,** |   | **Nine  Months Ended  September 30,** |   |
|-------------------------|--------|----------------------------------------|--------|---------------------------------------|--------|
|                    |   | **2002**                               |   | **2003**                              |   | **2002** |   | **2003** |   |
| Dividend yield          |   | 0                                      | %      | 0                                     | %      | 0 | % | 0 | % |
| Risk-free interest rate |   | 2.50                                   | %      | 2.50                                  | %      | 2.50 | % | 2.50 | % |
| Expected life in years  |   | 1-2                                    |   | 1-2                                   |   | 1-2 |   | 1-2 |   |
| Volatility              |   | 94                                     | %      | 95                                    | %      | 94 | % | 95 | % |

 

*8.**         Polymer Agreement –* In January 2002, the Company entered into anagreement with a U.S. company to develop a new application for the use of itsinherently conductive polymers in a proton exchange membrane fuel cellcomponent which could advance the development of such fuel cells forautomobile, home and stationary power uses. The agreement provided for theCompany to receive payments aggregating $300,000 over time. The Companyrecognized revenues of approximately $38,000 and $113,000 during the three andnine months ended September 30, 2003, respectively, with respect to suchagreement. In October 2003, such

 

8

----

 

agreement was terminated by the other party to theagreement prior to its scheduled termination date, for reasons unrelated to theCompany’s technology or performance. Since the inception of the agreement in January 2002, the Company hasreceived approximately $236,000 and expects to receive an additional amount ofapproximately $29,000 on billings prior to the termination.

 

*9.**         FuelCell Technology Cooperation Agreements* – In April 2001, the Companyentered into a mutually exclusive agreement with General Dynamics GovernmentSystems Corporation, a unit of General Dynamics Corporation (“GD”), to developand market fuel cells and fuel cell-powered portable electronic devices for theUnited States Department of Defense (the “DOD”). As part of such agreement,among other things, GD agreed to market the Company’s fuel cell products to theDOD. In May 2002, the Company received a $75,000 purchase order from GD todevelop an initial prototype of such a fuel cell charger. In March 2003, theCompany developed, on schedule, the prototype designated under the May 2002purchase order and recorded the $75,000 as a credit to research and developmentexpense.

 

On May 5, 2003, the Company announced that it had signed a secondagreement with GD, to design and develop on a best efforts basis apre-production prototype of its fuel cell Power Pack for the ruggedizedpersonal digital assistant system that General Dynamics is developing for themilitary (the “Agreement”). The total price for the Company’s services providedfor in the Agreement is $500,000, with an initial payment of $100,000 and thebalance in accordance with the payment and performance milestones establishedin the Agreement through January 2005. The Company expects that it will benefitfrom the development effort beyond the scope of the Agreement and anticipatesthat its development costs will exceed the $500,000 price. The Company isaccounting for the Agreement as a research and development cost sharingarrangement and has recorded approximately $88,000 and $135,000 as credits toresearch and development expense for the three and nine months ended September30, 2003, respectively. The Company received payments aggregating $150,000during the nine months ended September 30, 2003, pursuant to the agreement.

 

**NoteC - Liquidity**

 

Sinceinception, the Company has incurred operating losses and has used cash in itsoperations. Accordingly, the Company has relied on financing activities,principally the sale of its stock, to fund its research and development activitiesand operations. The Company believes this dependence will continue unless it isable to successfully develop and market its technologies. However, there can beno assurance that the Company will be able to continue to obtain financing orsuccessfully develop and market its technologies.

 

OnSeptember 30, 2003, the Company entered into a third amendment to the agreementgoverning its existing $5,000,000 revolving credit line. Pursuant to theamendment, the termination date of the revolving credit line was extended fromJuly 1, 2004 to July 1, 2005. No other terms of the agreement were amended bythe amendment. Any outstanding balances would be collateralized by all depositswith the bank and an assignment of certain leases owned by a partnership inwhich the Company’s chief executive officer and its president arepartners.  Additionally, the Company’schief executive officer and its president have personally guaranteed anyamounts due under such credit line. As of September 30, 2003, the Company hadnot borrowed any funds under this credit line.

 

9

----

 

**Item 2****.****           Management’sDiscussion And Analysis Of Financial Condition And Results Of Operations**

 

**Forward Looking Statements**

 

Someof the information in this quarterly report contains forward-looking statementsthat involve substantial risks and uncertainties. You can identify thesestatements 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:

 

•                  discussour future expectations;

•                  containprojections of our future results of operations or of our financial condition;or

•                  stateother “forward-looking” information.

 

We believe itis important to communicate our expectations to our investors. However, theremay be events in the future that we are not able to accurately predict or overwhich we have no control. The risk factors listed in our Annual Report on Form10-K for the fiscal year ended December 31, 2002, as well as any cautionarylanguage in this quarterly report, provide examples of risks, uncertainties andevents that may cause our actual results to differ materially from theexpectations we describe in our forward-looking statements. You should be awarethat the occurrence of the events described in these risk factors and elsewherein this quarterly report could have a material adverse effect on our business,operating results and financial condition.

 

**Introduction**

 

Thispresentation includes the operations of our wholly owned subsidiaries, unlesswe tell you otherwise.

 

**ResultsOf Operations**

 

From ourinception in April 1992 through September 30, 2003 we have generated anaccumulated deficit of approximately $104,990,000, including approximately$43,335,000 from amortization expense. We expect to incur additional operatinglosses during the remainder of 2003 and possibly thereafter, principally as aresult of our continuing anticipated research and development costs, selling,general and administrative expenses and the uncertainty of bringing our fuelcell technology or any of our other technologies to commercial success.

 

Our annualresearch and development costs have increased from approximately $2,749,000 in1999 to approximately $4,161,000 in 2002. We anticipate that such costs willcontinue to increase in 2003 as we continue to devote substantial resources tothe development of our fuel cell technologies; however, we anticipate that ourfailure to successfully commercially develop our fuel cell technologies or anyof our other technologies will force us to curtail our spending levels untilsuch time, if ever, as we generate revenues or otherwise receive funds fromthird party sources. If we begin to market and sell any of our technologies, wewill increase such expenses to the extent necessary, which we expect to fundout of revenues.

 

***Nine Months EndedSeptember 30, 2003 Compared To Nine Months Ended September 30, 2002 And ThreeMonths Ended September 30, 2003 Compared To Three Months Ended September 30,2002***

 

We sustainednet losses of $7,374,000 and $2,231,000 during the nine and three months endedSeptember 30, 2003, compared to $7,605,000 and $2,392,000 during the nine andthree months ended September 30, 2002. The decrease in the net losses duringthe nine and three months ended September 30,

 

10

----

 

2003 compared to the sameperiods of 2002 can primarily be attributed to decreases in amortization ofintangible assets, somewhat offset by an increases in research and developmentcosts and selling general and administrative expenses.

 

We recognizedrevenues of approximately $113,000 and $38,000 and gross profit ofapproximately $70,000 and $22,000 during the nine and three months endedSeptember 30, 2003, compared to revenues of approximately $154,000 and $38,000and gross profit of approximately $44,000 and $6,000 during the nine and threemonths ended September 30, 2002. The revenue in 2003 is attributable to aJanuary 2002 agreement to develop for a third party an application for the useof our inherently conductive polymers in its fuel cell products. In October 2003, such agreement wasterminated by the other party to the agreement prior to its scheduled terminationdate, for reasons unrelated to the Company’s technology or performance... Since the inception of suchagreement in January 2002, the Company has received approximately $236,000 andexpects to receive an additional amount of approximately $29,000 on billingsprior to the termination.  TheCompany does not expect to receive the $35,000 balance that would have been dueunder such agreement had it run through its entire term. An aggregate of$100,000 and $38,000 of such revenues recognized during the nine and threemonth periods ended September 30, 2002, respectively, are attributable to thatsame January 2002 agreement. The other $54,000 of revenues recognized duringthe nine months ended September 30, 2002 are attributable to work performedunder a completed January 2002 purchase order in which we designed a directliquid fuel cell for use in a new energy pack for infantry soldiers. All ofsuch revenues are non-recurring.

 

Research anddevelopment costs amounted to $3,632,000 and $1,179,000 during the nine andthree months ended September 30, 2003, compared to $2,978,000 and 1,038,000during the nine and three months ended September 30, 2002. The increases inresearch and development costs incurred during the nine and three months endedSeptember 30, 2003, compared to the same periods in 2002, can be attributed toincreases of approximately $941,000 and $275,000 in costs related to our fuelcell technologies, somewhat offset by decreases of approximately $139,000 and$34,000 in costs related to our CellScan and decreases of approximately$169,000 and $102,000 in costs related to our toroidal technologies, stirlingcycle system and linear compressor. The research and development activities forthe periods presented include:

 

•                  Fuel CellTechnologies. We incurred costs relating to our fuel cell technologies ofapproximately $2,551,000 and $870,000 during the nine and three months endedSeptember 30, 2003 (net of credits of $210,000 and $88,000 recognized duringthe nine and three months ended September 30, 2003, respectively, pursuant tothird party technology cooperation agreements), compared to costs ofapproximately $1,610,000 and $595,000 during the nine and three months endedSeptember 30, 2002. These net increases in our research and development expensesrelating to our fuel cell technologies of approximately $941,000 and $275,000during the nine and three months ended September 30, 2003 reflect management’sdecision to continue to devote substantial and increasing amounts of resourcesto the development of our fuel cell technologies.

 

•                  CellScan. Weincurred costs relating to the refinement of the next generation CellScansystem and on various CellScan research activities of approximately $777,000and $248,000 during the nine and three months ended September 30, 2003,compared to costs of approximately $916,000 and $282,000 during the nine andthree months ended September 30, 2002. The decreases during the nine and threemonths ended September 30, 2003 can be primarily attributed to decreases in (a)costs incurred related to the retention of third party researchers in thedevelopment and testing of new CellScan applications and completion of the

 

11

----

 

desktopCellScan, (b) labor costs, including costs associated with the issuance ofstock options, and (c) material costs, partially offset by an increase in othercosts.

 

•                  ToroidalTechnologies, Stirling Cycle System and Linear Compressor. We incurredaggregate costs relating to our toroidal engine and compressor, stirling cyclesystem and linear compressor of approximately $274,000 and $40,000 during thenine and three months ended September 30, 2003, compared to costs ofapproximately $438,000 and $158,000 during the nine and three months endedSeptember 30, 2002. The decreases during the nine and three months endedSeptember 30, 2003 can be primarily attributed to decreases in (a) costsincurred from the use of consultants and subcontractors, (b) labor costs, and(c) other costs, partially offset by increases in material costs.

 

Selling,general and administrative (“SG&A”) expenses during the nine and threemonths ended September 30, 2003 amounted to approximately $2,929,000 and$1,055,000 compared to approximately $2,735,000 and $723,000 during the nineand three months ended September 30, 2002. The increase of $194,000 for thenine months ended September 30, 2003 compared to the same period in 2002 isprimarily attributable to an increase in non-cash charges relating to stockoptions and warrants of approximately $238,000, and an increase in insurancecosts of approximately $92,000, somewhat offset by a decrease in executiveconsulting expenses of approximately $145,000. The increase of $332,000 for thethree months ended September 30, 2003 compared to the same period in 2002 isprimarily attributable to an increase in non-cash charges relating to stockoptions and warrants of approximately $238,000, an increase in labor costs ofapproximately $83,000, and an increase in insurance costs of approximately$52,000, somewhat offset by decreases in selling and marketing expenses ofapproximately $33,000 and a decrease in state and local taxes of approximately$32,000.

 

Amortizationof intangible assets amounted to $945,000 and $52,000 during the nine and threemonths ended September 30, 2003, compared to $1,995,000 and $665,000 during thenine and three months ended September 30, 2002. The decrease is attributable tocertain intangible assets being fully amortized prior to September 30, 2003,partially offset by amortization of intangible assets acquired in our March2003 acquisition of the remaining 7% of More Energy that we did not alreadyown.

 

**LiquidityAnd Capital Resources**

 

We havehistorically financed our operations primarily through the proceeds of investorequity financing, long-term bank loans and grants to Medis El from the ChiefScientist of the Ministry of Industry and Commerce of Israel with respect tothe CellScan, initial sales of our products and fees from the granting ofexclusive distribution rights.

 

On March 11,2003, we completed a rights offering in which we offered to our existingstockholders subscription rights to purchase an aggregate of 2,325,600 sharesof our common stock at a purchase price of $2.15 per share. We received grossproceeds of approximately $5,000,000 from the rights offering, which proceeds,after deducting related expenses of approximately $122,000, are being used forworking capital, including for the continued development of our fuel celltechnologies, as well as for selling, general and administrative expenses.

 

On September30, 2003, we entered into a third amendment to the agreement governing ourexisting $5,000,000 revolving credit line. Pursuant to the amendment, the termination date of the revolving creditline was extended from July 1, 2004 to July 1, 2005. No other terms of theagreement were amended by the amendment. Any outstanding balances would becollateralized by all deposits with the bank and an assignment of certainleases owned by a partnership in which our chief executive officer

 

12

----

 

and our president arepartners.  Additionally, our chiefexecutive officer and our president have personally guaranteed any amounts dueunder such credit line. We have not borrowed any funds under this credit lineto date.

 

On November13, 2003, we completed an offer to exchange and exercise to holders of ourapproximately 848,000 outstanding warrants issued pursuant to our 2002shareholder loyalty program (the “Offer”). The terms of the Offer required thatholders of loyalty program warrants who chose to exchange such warrants for newwarrants exercisable at $4.43 per share also exercise the new warrants at thetime of the exchange.  The Offerresulted in the exercise of approximately 836,000 new warrants for aggregategross proceeds to the Company of approximately $3,700,000 (of whichapproximately $3,578,000 and related costs of appoximately $120,000 wererecorded during the three and nine months ended September 30, 2003).  Each new warrant was exercisable into oneshare of common stock and a one-year warrant to purchase an additional share ofcommon stock of the Company for $9.60 for every two new warrants exercised.Such proceeds, after deducting related costs of approximately $120,000, arebeing used for working capital, including for the continued development of ourfuel cell technologies, as well as for selling, general and administrativeexpenses.

 

For the ninemonths ended September 30, 2003, net cash used in operating activities was$5,870,000, compared to $4,906,000 for the nine months ended September 30,2002. The increase was primarily attributable to increases in levels ofspending on research and development activities, during the nine months endedSeptember 30, 2003 compared to the same period in 2002, for the reasonsdiscussed in Results of Operations above, as well as an increase in prepaidselling, general and administrative expenses during the nine months endedSeptember 30, 2003, and changes in the balances of operating asset andliabilities during 2002 and 2003.

 

For the ninemonths ended September 30, 2003, net cash used in investing activities was$434,000, which was comprised of a loan of approximately $155,000 to theGeneral Manager of More Energy to enable him to satisfy certain tax obligationsarising in connection with our March 2003 purchase from him of the remaining 7%of More Energy that we did not already own, and capital expendituresaggregating approximately $279,000. This is compared to $201,000 for the ninemonths ended September 30, 2002, which represented capital expenditures of$226,000, offset by the proceeds from the disposition of property and equipmentof $25,000.

 

For the ninemonths ended September 30, 2003, cash aggregating $8,868,000 was provided byfinancing activities, compared to $7,042,000 for the nine months endedSeptember 30, 2002. During the nine months ended September 30, 2003, cash wasprovided by the following financing activities: (i) on March 11, 2003, wecompleted a rights offering, which generated gross proceeds of approximately$5,000,000, as discussed above, less costs of such offering of approximately$122,000, (ii) we recorded approximately $3,578,000 and related costs ofapproximately $120,000 pursuant to our offer to exchange and exercise whichcommenced September 3, 2003 and expired November 13, 2003, as discussed above,(iii) prior to the commencement on September 3, 2003 of our offer to exchangeand exercise, warrant holders under our loyalty program exercised warrants to purchasean aggregate of 12,542 shares of our common stock, for proceeds ofapproximately $56,000, (iv) warrant holders exercised other outstandingwarrants to purchase an aggregate of 25,509 shares of our common stock, forproceeds of approximately $128,000 and (v) holders of options under our stockoption plan exercised options to acquire an aggregate of 60,513 shares or ourcommon stock, for proceeds of approximately $348,000. The cash provided byfinancing activities during the nine months ended September 30, 2002 wasprovided by the completion of our March 18, 2002 rights offering, whichgenerated gross proceeds of $7,000,000 less costs of such offering incurredduring the nine months ended September 30, 2002 of $267,000, and proceeds ofapproximately $309,000 from the exercise of options to purchase our commonstock.

 

13

----

 

As ofSeptember 30, 2003, we had approximately $8,600,000 in cash and cashequivalents, as well as an unused $5,000,000 revolving credit line whichterminates in accordance with its terms on July 1, 2005. Our working capitaland capital requirements at any given time depend upon numerous factors,including, but not limited to:

 

•                  the progress ofresearch and development programs;

•                  the status ofour technologies; and

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

 

Anothercontributing factor is the status of collaborative arrangements with businessesand institutes for research and development and companies participating in thedevelopment of our technologies. We have entered into five collaborativearrangements with third parties relating to our fuel cell technologies, inwhich since January 2002 we have realized revenues of $305,000 on costs ofsales of $173,000, as well credits to our research and development costs of$210,000. There can be no assurance that we will realize additional revenuefrom such collaborative arrangements or that we will enter into additionalcollaborative arrangements in the future. Recently, we have financed ouroperations principally through the sale of our securities. There can be noassurance that we will raise additional funds through any financing approachimplemented by us.

 

As of September30, 2003, we believe that our cash resources and monies available to us fromour credit facility, will be sufficient to support our operating anddevelopmental activities for at least the next 19 months at our currentspending rates. However, we expect that if and when we finalize manufacturingand distribution relationships in 2004, we will require additional funds foroperations prior to that time. We have not yet determined the amount of fundsthat may be needed at such a point or the sources of those funds, but havecommenced discussions with sources of capital that could meet our needs.Regardless of whether we will require funds in 19 months or prior to that time,if we are unable to market and sell our technologies, we will require capitalinfusions of cash to continue our operations, whether through debt financing,issuance of shares or from companies or other organizations participating inthe development of our technologies. To the extent we are unable to raise oracquire additional other funds, we will curtail research and development of oneor more technologies until such time as we acquire additional funds.

 

**Item3.** Quantitative And Qualitative Disclosures About Market Risk

 

**Disclosure About Market Risk**

 

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

 

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

 

For many yearsprior to 1986, the Israeli economy was characterized by high rates of inflationand devaluation of the Israeli currency against the United States dollar andother currencies. Since the institution of the Israeli Economic Program in1985, inflation, while continuing, has been significantly

 

14

----

 

reduced and the rate ofdevaluation has been substantially diminished. However, Israel effecteddevaluations of the NIS against the dollar as follows:

 
| 1998 |   | 17.6  | %      |
|------|--------|-------|--------|
| 1999 |   | (0.17 | )      |
| 2000 |   | (2.7  | )      |
| 2001 |   | 9.2   |   |
| 2002 |   | 7.3   |   |

 

In 1999 and2000, the rate of inflation in Israel exceeded the rate of devaluation of theNIS against the dollar, but in 1998, 2001 and 2002 the rate of devaluation ofthe NIS against the dollar exceeded the rate of inflation in Israel. In 2002,the rate of inflation in Israel was 6.5% and the rate of devaluation of the NISwas 7.3% against the dollar. Additionally, in 2003, through September 30, therate of inflation in Israel was a negative (1.5)% and the rate of appreciationof the NIS was 6.3% against the dollar.

 

***Impact Of PoliticalAnd Economic Conditions***

 

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

 

**Item 4.****          ****Controls and Procedures**

 

Our managementcarried out an evaluation, with the participation of our Chief ExecutiveOfficer and Chief Financial Officer, of the effectiveness of our disclosurecontrols and procedures as of September 30, 2003. Based upon that evaluation,our Chief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective to ensure that informationrequired to be disclosed by us in reports that we file or submit under theSecurities Exchange Act of 1934 is recorded, processed, summarized andreported, within the time periods specified in the rules and forms of theSecurities and Exchange Commission.

 

There have notbeen any change in our internal control over financial reporting in connectionwith the evaluation required by Rule 13a-15(d) under the Exchange Act thatoccurred during the quarter ended September 30, 2003 that has materiallyaffected, or is reasonably likely to materially affect, our internal controlover financial reporting.

 

15

----

 

**PARTII - OTHER INFORMATION**

 

**Item 6.****           Exhibitsand Reports on Form 8-K**

 

(a)                                  Exhibits.

 
| **Exhibit Number** |   | **Exhibit  Description**                |
|--------------------|--------|-----------------------------------------|
|               |   |                                    |
| 31                 |   | Rule 13a-14(a)/15d-14(a) Certifications |
|               |   |                                    |
| 32                 |   | Section 1350 Certifications             |

 

(b)                                 Reports on Form 8-K.  We filed or furnished the following reportson Form 8-K during the third quarter of the year ending December 31, 2003.

 
| **Date of Report** |   | **Date Report Filed with SEC** |   | **Items Reported**                                     |
|--------------------|--------|--------------------------------|--------|--------------------------------------------------------|
|               |   |                           |   |                                                   |
| August 7, 2003     |   | August 7, 2003                 |   | Item 12. Results of Operations and Financial Condition |
|               |   |                           |   |                                                   |
| July 30, 2003      |   | July 30, 2003                  |   | Item 9. Regulation FD Disclosure                       |

 

16

----

 

**SIGNATURES**

 

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

 

 
|                     | MEDIS TECHNOLOGIES LTD. |
|--------------------------|-------------------------|
|                     |                    |
|                     | By:                     | /s/  ROBERT K. LIFTON |   |
|                     |                    | Robert K.  Lifton |
|                     |                    | Chairman and  Chief  Executive Officer |
|                     |                    |
|                     |                    |
|                     | By:                     | /s/  ISRAEL FISHER |   |
|                     |                    | Israel  Fisher |
|                     |                    | Vice  President-Finance |
|                     |                    | (Principal  Financial and  Accounting Officer) |
|                     |                    |
| Date:  November 14, 2003 |                    |
|                          |                         |  |  |  |

 

17

----