Medis Technologies Ltd Q4 2007 Earnings Call Transcript

Mar.17.08 | About: Medis Technologies (MDTL)

Medis Technologies Ltd (OTC:MDTL) Q4 2007 Earnings Call March 17, 2008 11:00 AM ET

Executives

Adam Prior - The Equity Group

Robert Lifton - Chairman and CEO

Jacob Weiss - President

Michael Resnick - SVP and CAO

Michelle Rush - VP of Marketing

Analysts

Tom Leach - Preakness Hills Capital

Brian Drewes - American Capital Partners

Barry Martin - Private Investor

Vincent Grabowski - Greenwich Workshop

Foster Greene - Coburn & Meredith

James Basch - Dialectic Capital

Robert Meanly - Meanly and Son Incorporated

Larry Shunamarche - Oppenheimer

Kent Holden - Ham Fund

Brion Tanous - MCF

Robert Lambert - RLR Capital

Mark Miller - Private Investor

Vic Savoy - Royal Bank of Canada

Bart Blout - Sawtooth Capital

Rudy Luo - Westrock Advisors

Adam Hauf - Vault Partners

John Lesgy - Private Investor

Operator

Good day, everyone and welcome to the Medis Technologies' fourth quarter earnings conference call. At this time, I would like to inform you that this conference is being recorded and that all participants are currently in a listen-only mode.

I would now like to turn the conference over to Mr. Adam Prior with The Equity Group. Please go ahead, Mr. Prior.

Adam Prior

Thank you. Good morning, everyone and thank you for joining us. Before we begin, I would like to remind everyone that this conference call may contain forward-looking statements, which are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.

In some cases, you can identify those forward-looking statements by words such as may, will, should, expect, plan, target, anticipate, believe, estimate, predict, potential, or continue or the negative of those words and other comparable words. These forward-looking statements are subject to risks and uncertainties, product tests, commercialization risks, availability of financing and results of financing efforts that could cause actual results to differ materially from historical results or those anticipated. Further information regarding these and other risks are detailed from time-to-time in the Company’s filings with the SEC.

Medis assumes no obligation to update or alter its forward-looking statements made in this conference call or in any periodic report filed by Medis under the Securities and Exchange Act of 1934 whether as a result of new information, future events, or otherwise, except as otherwise required by applicable federal securities laws.

I'd now like to turn the call over to Mr. Robert Lifton, Chairman and CEO of Medis Technologies. Go ahead, Bob.

Robert Lifton

Thank you, Adam. Good morning, everybody. With me today are Howard Weingrow, our Deputy Chairman and Chief Operating Officer; Jacob Weiss, President; in Israel, our Israel Fisher, Senior Vice President and Chief Financial Officer and Michael Resnick, our Senior Vice President and Chief Accounting Officer; and in California, Michelle Rush, who is Vice President of Marketing.

This past year and past period has seen many accomplishments of which we can be proud. As reflected in my report, we have completed development of our 24/7 Power Pack with its power management system and also completed development of a new hybrid power management system for more powerful devices, which should be in quantity production next month.

We've completed the fully automated line in Galway, Ireland and it is now in operation. We have received Underwriter Laboratory listing for products from that line, CE mark compliance for the European Union and a special permit from the department of transportation to allow up to three Power Packs per person, also, passengers and crew in an airplane cabin. And we are in the process of establishing important parts of a worldwide sales network.

As part of that program, we are still carrying on discussions with the first tier OEM for what is a multi-faceted strategic relationship, which has the potential of importantly enhancing our distribution program and bringing value to our company.

While we continue our ongoing discussions to achieve closure on that strategic relationship, we will be moving to accelerate our other distribution activities. We have provided Power Packs to distributors who are delivering them to their customers. We are engaged in the process of appointing companies to represent us in markets where they have special relationships.

We also found that potential customers really want to see and test the products coming off the automated line that they will be buying. With the placing of that line in operation, we are now sending products out to customers so that we can get their orders.

As I noted in the report, and as we saw from today's news, this is a challenging period. Our equity distribution agreement with UBS Securities LLC results in a gross proceeds of sales of approximately $28.9 million. We plan additional sales under that program about $6.1 million. And we are exploring other financing options including the sale of additional common shares.

Given the current marketing environment if that develop slower then we plan, we will have to curtail some of our activities and operations. However, we are grateful to our employees for their important work to date and are confident that they will meet the challenges of this period successfully.

And with that I'll turn the questions over to you. Is any questions, we're open.

Question-And-Answer Session

Operator

(Operator Instructions). Our first question will come from the line of Tom Leach with Preakness Hills Capital.

Tom Leach - Preakness Hills Capital

Yes. Good morning, Mr. Lifton. First, a couple of accounting questions then more of a strategic question. Can you breakout the accounts payable and the inventory portion? You didn't have the full balance sheet in the release.

Robert Lifton

Michael is that something which you can do now, or will we have to do it that in the 10K, or do we do it all?

Michael Resnick

I think it's something we have to do in the 10K.

Robert Lifton

Okay, so I won't take the time on the call to do it now. We'll do it in the 10K.

Tom Leach - Preakness Hills Capital

Gentlemen, let's not put to find a point on it here. We are in trouble on money, I want to know. You told me to built inventory, but then you didn't tell us how much you built in the inventory. And I want to see if your vendors are getting paid. Can you give us a little more help on the balance sheet?

Robert Lifton

Are we paying our vendors, Michael?

Michael Resnick

Yes, we are.

Jacob Weiss

We are paying our vendors on time. We have no problem doing this.

Tom Leach - Preakness Hills Capital

Well, you can't be an account payable this…

Robert Lifton

Not now. You'll see it in the 10K.

Tom Leach - Preakness Hills Capital

Okay. Next question. Last quarter I asked about if you put in a VP of Sales and at that point you said your marketing person was handling that function.

Robert Lifton

Well, our marketing person is a VP of Marketing.

Tom Leach - Preakness Hills Capital

I understood that.

Robert Lifton

That's Mitchell Rush.

Tom Leach - Preakness Hills Capital

Have you thought about hiring some people who have been through this process before? You guys have developed the Power Pack. Maybe it'll be best to hire a team that knows how to produce them themselves. Have you looked into something like that?

Robert Lifton

We're certainly been looking at whatever we should be doing to enhance our program and we're always open to that possibility. At this point in time, we feel satisfied that the work that we've been doing and the contacts we've been making are opening the door of the kind we want because our program requires that our distributor does the contacts around the world.

We can't afford and never thought that we could afford to build a huge sales organization. Our whole plan from the beginning as most of you remember was to deal with through distributors to effect sales around the world. And part of the program as I just adumbrated to just before, is to set up relationships now with people who have superb contacts in different parts of the world. In fact, we're in process of completing contracts on that. And have them represent us as representatives, resident and distributors. So we are setting up programs all over the world.

Tom Leach - Preakness Hills Capital

No I understand that, but there are other companies that work through three-tier distribution and I was wondering if it would be possible to hire somebody who have dealt with those distributors, know the problems that come up with them, that has been through this process before. I don't see why we need to discover this whole ourselves for the first time.

Robert Lifton

Well I think that we're doing the job that has to be done in the relationships we have, but if it turns out that we're not then we're certainly going to be open to whatever should be done.

Tom Leach - Preakness Hills Capital

And what type of timeframe do you have to decide whether the process -- because right now, we haven't had any sales, Bob.

Robert Lifton

Well, that's not true. We've had sales. And we sold to distributors. We've started selling to our distributors. We've started to provide products to companies for that helps plans and programs for sales upcoming right now. We have plans that we are working on for Earth Day with various companies as a way of introducing the product as a green product in the marketplace with some top name companies. So we have programs ongoing, but if it turns out that we need more then we'll seek right kind of people.

Tom Leach - Preakness Hills Capital

Last question, how many Power Packs have we sold for revenue to date total?

Robert Lifton

Michael, I don't know, do you have an answer to that now, or is that also in the 10K?

Michael Resnick

When you speak about set term for revenue it's a -- the sales that we've had that so far, the revenue has been deferred. So we have commercially sold Power Packs, we haven't realize revenue on them.

Tom Leach - Preakness Hills Capital

How many Power Packs have we built?

Robert Lifton

1,000.

Michael Resnick

1,000, yeah.

Robert Lifton

1,000.

Tom Leach - Preakness Hills Capital

Okay. I'll let the next person ask question.

Operator

Your next question will come from the line of Brian Drewes with American Capital Partner.

Brian Drewes - American Capital Partners

Bob, actually I have two quick questions.

Robert Lifton

Yeah.

Brian Drewes - American Capital Partners

You said that UBS bought approximately 28.9.

Robert Lifton

Placed, yeah.

Brian Drewes - American Capital Partners

Placed rather, 28.9, of which 6.1, and you said that a failure to raise that 6.1 in this climate could curtail certain activities. Can you explain on that a little bit, like how important is that?

Robert Lifton

No, I wasn't at 6.1. It was the total program for additional sales or stock.

Brian Drewes - American Capital Partners

Okay.

Robert Lifton

And we are anticipating that we will be able to do that and that program frankly as tied in with the program with the first year OEM. So we believe that when that takes place that will kick off that program.

Brian Drewes - American Capital Partners

Okay. That was my other question. This alliance that you're looking to put in place with this first tier OEM, when are you looking for that? Any idea when you're looking to get that closed?

Robert Lifton

Yeah. We frankly or personally disappointed that it wasn't closed already, but we're dealing with a very, very, very, very, very large company which has many facets and the program that we're dealing with has a number of facets with different parts of the company. And so it's not easy to just dissect the kind of things that we would do with a small situation.

On the other hand, we think that this is so important to our future that it's worth the enormous effort that we've been putting into it because it has implications both for our sales program, our financing programs, or how we are seen in the world and alike.

Brian Drewes - American Capital Partners

Okay. And you said you are disappointed that it hasn't happened yet, so you're looking, obviously sooner than later, hopefully.

Robert Lifton

We are looking obviously for a shorter period of time as we can make it happen.

Brian Drewes - American Capital Partners

And last query. Are you in any kind of talks with other companies on that level, any other OEMs, any other alliances that work with?

Robert Lifton

We are discussing different relationships with different companies. And for example, if you think about China, we have a relationship with Founder going forward. If you think about Russia, we have a relationship with Tenzor going forward. The plans we have for the direct sales groups, these are people who have significant relationships with major players in South America. And so we're reaching out through all of these other alternatives at the same time that we're working with the major OEM.

Brian Drewes - American Capital Partners

Okay. Great. Thank you very much guys.

Robert Lifton

You're welcome.

Operator

Your next question will come from the line of Barry Martin, private investor.

Barry Martin - Private Investor

Hello?

Robert Lifton

Hello.

Barry Martin - Private Investor

Yes. Good morning.

Robert Lifton

Hi.

Barry Martin - Private Investor

Yes. My question is what is the probability as far as you are concerned in the advantage you have to have a second stock offering?

Robert Lifton

You mean as far as those we're raising more money.

Barry Martin - Private Investor

Right. As far as issuing a secondary stocks.

Robert Lifton

Yeah. I think we do plan to raise additional funds, that's what we said in the report and I just said. In addition to the $28 million and the $6.1 million, we do plan to raise additional funds.

Barry Martin - Private Investor

Right. Okay. Thank you very much.

Robert Lifton

You're welcome.

Operator

Your next question will come from the line of Vincent Grabowski with Greenwich Workshop.

Robert Lifton

Hello.

Operator

Vincent, your line is open. Please go ahead with your question.

Vincent Grabowski - Greenwich Workshop

Oh, I am sorry. Good morning, Robert.

Robert Lifton

Hi.

Vincent Grabowski - Greenwich Workshop

My question was very similar to the private shareholder just asked before. I was wondering the status of the OEM. We understood an agreement was going to be close to being to made. We were excited about the idea of it being need at the CES show in June.

Robert Lifton

Right.

Vincent Grabowski - Greenwich Workshop

We saw there was a delay to that. Stock, obviously took a major hit off of that and we thought that was something that was going to be forth coming rather quickly. Just wondering what happened, and again, how close are you? Is it something, we're going to continually hear for the next quarter and the quarter after that?

Robert Lifton

Well, our own expectations is that it is close but unfortunately in these situations I can't and I won't put myself in the position of saying just what data it will take place. But I can tell you we're counting on and it is part of our program for sales, and it is a multi-faceted strategic program. It's not a simplistic program. And we think it will have very significant value if and when it is accomplished from every point of view.

I must say, on a personal level when I say this to all of you because many of you are my friends on a personal level, as our major shareholder, I have been disappointed in the time it has taken, on a personal level, I have taken as larger hit as anybody in the stock price, and yet, on the personal level, I believe this has such a great importance to our company and such great value that I'm counting on seeing it happen and enjoying the benefits of it.

Vincent Grabowski - Greenwich Workshop

We are too. Well, thank you very much for your time guys. Good luck.

Robert Lifton

Thank you.

Operator

Your next question comes from the line of Foster Greene with Coburn & Meredith.

Robert Lifton

Foster, hi.

Foster Greene - Coburn & Meredith

With all due respect, you are distinguished lawyer and you've had a quite a successful career and you are a very wealthy man. So, the facts that you're taking a pay, it isn't quite the same pay as the rest of us, and the question I have is what is going on with this contract that is so difficult to consummate. I mean we heard about an Island that it was 30 pages long. We've heard about this. I mean you're not exactly --

Robert Lifton

Not -- Foster, there is not a contract issue. It's a business relationship issue.

Foster Greene - Coburn & Meredith

Why can't you go on to the next, I mean it sounds me like they are holding up the entire company and you are putting all your eggs in this one basket.

Robert Lifton

Well, now we started as I just explained, we've just started reaching out in other ways to other through sources to sell the product. However, we feel that this was so important in terms of the implications of the name of the company, of the potential of the brand, of all the interrelationships that it was worth this asset. But we are indeed now pushing out in other ways.

Foster Greene - Coburn & Meredith

Again, with all due respect probably, we've been thinking about the same OEM from months and months and months and months and months and months.

Robert Lifton

Yeah.

Foster Greene - Coburn & Meredith

And they're not going to step up to the plate, it seems to be like they are playing you. I mean they are --

Robert Lifton

So our conclusion is that's not the case. Our conclusion is that there were reasons in each case for things that have changed over, that they've explained to us. And our conclusion is that this will take place. Now, if in any event, however, we are not, and your point is well-made, we're not just counting on this alone. We are reaching out in other ways to reach into the market through other distribution channels at this point.

Foster Greene - Coburn & Meredith

And Bob, could you just elaborate some of those reasons and explanations, so some of us can --

Robert Lifton

Well, I think this is a thing that with all respect for us, this is a company we're dealing, where it is not our place to talk about their internal affairs and I feel uncomfortable doing that.

Operator

Your next question will come from the line of James Basch with Dialectic Capital.

James Basch - Dialectic Capital

It's James Basch from Dialectic Capital. How is it going?

Robert Lifton

Hi. How are you doing, James?

James Basch - Dialectic Capital

Good to talk to you again. So I apologize, guys I missed part of the call. Could you repeat again if it wasn't asked what the cash level is right now? I know, obviously from the press release where it was as of December 31st, but where does it stand right now, cash and short-term investments?

Robert Lifton

Michael, you going to fill it in. Where we on cash and inventory inline?

Michael Resnick

You can take a look from the press release and you can see where the cash was at the end of the year, and you could see the fundraising that we've done, and you can get an idea of our expenses. But, unfortunately, I am not really in a position to say exactly what the cash is right now, but I think you can get the information from the press release and from the funds that we've raised.

James Basch - Dialectic Capital

Okay. And I apologize again if this is been redundant. So is 52 -- it was around $52 million as of December 31st

Robert Lifton

Well, that was [2,000 makes you a total of.]

James Basch - Dialectic Capital

I apologize. So its 16 million, let me just make sure I have a correct. But let me just ask it this way, since December 31st has all the fundraising taken place after December 31st?

Robert Lifton

10.5 million was after December 31st.

James Basch - Dialectic Capital

I am sorry, Robert, say that one more time.

Robert Lifton

10.5 million was after December 31st.

James Basch - Dialectic Capital

10.5 million was after December 31st. Okay. And then, I'll just make some assumption on cash burn and try to get to a current level from that.

Robert Lifton

Right.

James Basch - Dialectic Capital

Okay. Alright. Thanks guys. Good luck.

Robert Lifton

Thank you

Operator

Your next question will come from the line of Robert Meanly with Meanly and Son Incorporated.

Robert Meanly - Meanly and Son Incorporated

Hi Robert.

Robert Lifton

Hi.

Robert Meanly - Meanly and Son Incorporated

Hi. Thanks for taking my call. I just had a question about your existing orders from ASE and Quasar. It seems you should have the capacity to deliver on those orders. Now, can you give us any numbers about how many products are being delivered to those orders?

Robert Lifton

We've started deliveries on those orders to some of them. And in the case of ASE, we've been waiting to make a decision on a brand, which also ties in with the OEM that we're dealing with. So we will make a decision shortly, whether to deliver orders with the Medis brand or the OEM brand or some other brand. Plus we feel that by branding it will be a stronger product in that marketplace.

Robert Meanly - Meanly and Son Incorporated

Okay. So there is no delivery to ASE, yet, then.

Robert Lifton

Not yet. Right.

Robert Meanly - Meanly and Son Incorporated

Okay. Thank you. That's it.

Operator

Your next question will come from the line of Larry [Shunamarche] with Oppenheimer.

Larry Shunamarche - Oppenheimer

I think my question's been answered. Thanks

Operator

Thank you, sir. Next, we will hear from Kent Holden with [Ham Fund].

Kent Holden - Ham Fund

Good morning. I was curious about the auction rate security. I saw in the September 30th Q there was a balance there. Is there still a balance?

Robert Lifton

Yes. It was $2 million.

Michael Resnick

$2 million.

Robert Lifton

$2 million.

Kent Holden - Ham Fund

And are those liquid?

Michael Resnick

There will be more information coming out regarding the auction rate securities, single security. But what I can do is, I can again point you to the press release and there is some information on the condensed balance sheet data, where we show our short-term investments. And I think that can give you a good idea about your auction rate securities.

Kent Holden - Ham Fund

Okay. And then on the fundraising, how much cash are you looking to raise?

Robert Lifton

Well, it depends on what we undertakes to do and that's we haven't made that decision yet. Because if we're going to start building a second line based on our relationship with the OEM, then we'll be looking to raise more cash. If we're not doing that we'll be looking to raise substantially less cash. So we haven't made that decision yet.

Kent Holden - Ham Fund

Okay. Can you ballpark those too?

Robert Lifton

I don't want to at this point.

Kent Holden - Ham Fund

Okay. And as far as the current liabilities go, are they approximately the same as they were at the end of September?

Robert Lifton

It's a change in period. I can't answer the question until we…

Michael Resnick

Also, Kent…

Kent Holden - Ham Fund

Okay.

Robert Lifton

Michael, well, do you have any answer on that?

Michael Resnick

Yeah. I keep going back to the same document. The document that's been issued publicly is the press release. And in that document, it discloses the cash. It discloses the working capital; working capital's current assets minus current liabilities. I think you can get most of the information you want right from there.

Kent Holden - Ham Fund

Okay. My last question the deferred revenue in the September quarter was $12,000, do you anticipate that the December quarter, which you're releasing today would be higher or lower than that?

Michael Resnick

That number has changed a little bit but not materially.

Kent Holden - Ham Fund

So, sales for the quarter were less than $12,000?

Michael Resnick

I just prefer to leave it at that. It hasn't changed materially. But we have a lot more information coming out in the 10K.

Kent Holden - Ham Fund

Or perhaps you should wait and have the call after you filed the 10K?

Michael Resnick

It hasn't changed materially. I mean, I think that's the bottom line on that.

Kent Holden - Ham Fund

Thank you.

Michael Resnick

Welcome.

Operator

Your next question will come from the line of Brion Tanous with MCF.

Brion Tanous - MCF

Good morning, Bob. Thanks for taking my call. Hoping to get a quick update on what's going on with semi-automated line in Israel.

Robert Lifton

Jacob, do you know anything about it?

Jacob Weiss

It's there. I'm not sure I understand the question.

Brion Tanous - MCF

Well, I think it was…

Robert Lifton

We're not looking to it to deliver anything anymore because we have a fully automated line in operation.

Brion Tanous - MCF

Well, are you going to tear it down? What's the purpose of the semi-automated line now to take up the full line?

Jacob Weiss

The automated line.

Brion Tanous - MCF

The automated line.

Jacob Weiss

The automated line is available to us both as a production engineering tool. We can do small volume projects. Deprograms military, right now, it's an R&D program, but it's going well and if that turn into a full program, probably it's from the military, they obviously have much.

Brion Tanous - MCF

Okay. Just one more quick question that is, I'm not sure I am seeing the importance here of this OEM relationship because it was my understanding that you have significant distribution agreements to take substantial volumes of the products prior to you talking about this OEM relationship. Why aren't we seeing tens of thousands even hundreds of thousands units shipping to your prior relationships?

Robert Lifton

Well, first of all, we have shipped thousands of units with some of those relationships in this current period.

Brion Tanous - MCF

And that's what is reflected in the deferred revenue, I guess.

Robert Lifton

In this current period.

Brion Tanous - MCF

In the March period. Okay.

Robert Lifton

March period, yes. And we expect to be shipping thousands more, but we are at process with some of the things. The issue has become or the question has become which was most effective way to sell the product. Is it effective to sell is as a Medis brand or is it effective to sell it with some other brand name that has enormous worldwide acceptance? Our decision was that with we required waiting a little while it was waiting to see to have that done and we could get a deal done with a world class brands that would help introduce the product in India and parts of the world, where the Medis name is certainly not known at all.

But we've decided to hold off for a little while, file it while waiting to see if we can accomplish that. One of the parts of this multi-faceted strategic program has to do with the brand.

Brion Tanous - MCF

Okay. For the shipments that are in the March quarter, should we expect some of those to be deferred revenue again or revenue hitting the income statement for March?

Robert Lifton

I think they would -- Michael, am I right, they would be hitting the income.

Michael Resnick

That's nothing. We would have to discuss with our auditors and I mean what the proper accounting under GAAP. It would be premature to come to the conclusion on that right now.

Robert Lifton

We'll have to wait.

Brion Tanous - MCF

One final question is: can you give us the balance owed to net cap on the capital equipment that's due over the next, say, a couple quarters?

Michael Resnick

CapEx over the next couple of quarters, I feel kind of bad coming to the same answers, but I am not sure that they can disclose that numbers until the 10K comes up because that number is not in the press release. But I can tell you this -- the lion's share of the payments, for the production equipment has been made. I mean that I think I feel safe in telling you.

Brion Tanous - MCF

Okay. Thank you.

Michael Resnick

Welcome.

Operator

Your next question will come from the line of Robert Lambert with RLR Capital.

Robert Lambert - RLR Capital

Hi. Good Morning. Could you discuss, in light of the tier one, will they actually cover Europe, or could we actually do it with another big company and an example might be Vodafone?

Robert Lifton

Well, we're looking to have the maximum flexibility in our relationship that would allow us to sell both directly to companies that we want to sell to, at the same time that the tier one companies will handle products in their domain. So the answer is that we have the flexibility as the relationship is perceived by us. We have the flexibility of selling separately to a major mobile operator.

Robert Lambert - RLR Capital

And my second question is China, will Founders, if things go well will they eventually set up a manufacturing facility in China?

Robert Lifton

The agreement with Founder contemplates starting as a distributor and then it contemplates the possibility that they would set up a manufacturing facility in China. And buy the electrodes from us and pay us a royalty at the same time.

Robert Lambert - RLR Capital

And have you done anything in Africa?

Michael Resnick

One of our distributors has a strong presence in South Africa, which I think is a principle market. So the answer is yes. So far, South Africa.

Robert Lambert - RLR Capital

Alright. Thank you. Good luck.

Michael Resnick

Thank you.

Robert Lifton

Thank you.

Operator

Your next question is a follow-up question from Robert Meanly with Meanly and Sons.

Robert Meanly - Meanly and Son Incorporated

Just one last question, and so much seems to be dependent upon this OEMs relationship. I am wondering if you can give us some sense of your level of confidence in the ability to close that deal.

Robert Lifton

Well, if we did not have a high level of confidence, very frankly, we would not be differing some of the discussions we've been making and acting on the assumptions that it will be closed. So I can say to you that we've had a high level of confidence. It's reflected in our conduct in this process. And if we see it as having such significances that it was worth some of the waiting, I know it's been frustrating for you and all of us, but on a management level we felt that this was worth waiting for because it has so many implications for our Company.

Robert Meanly - Meanly and Son Incorporated

Okay.

Robert Lifton

But we would not have done that if we did not a high confidence that it was going to happen.

Robert Meanly - Meanly and Son Incorporated

Okay. And you still retain that high level of confidence?

Robert Lifton

Yes, we do.

Robert Meanly - Meanly and Son Incorporated

Thank you very much.

Operator

(Operator Instructions) And our next question will come from the line of Mark Miller, a private investor.

Mark Miller - Private Investor.

Yes. Hi, Bob.

Robert Lifton

Mark, hi.

Mark Miller - Private Investor

Obviously, I am disappointed as is the rest of the market. My question is: you mentioned the multi-faceted arrangement with the OEM. Could you explore a little bit more what that might be beyond just distribution? Is there any technological development together?

Robert Lifton

It covers a number of areas including technological development.

Mark Miller - Private Investor

Can you illuminate a little bit, I mean --

Robert Lifton

I know, I think the problem is and I know it's unfair to our shareholders, but it's also a difficult situation for us because we don't want the OEM to feel that we're doing anything that is not consistent with our relationship, consistent with our understanding with them. And more important to us at the moment is not to affect any kind of breach of feeling on their part that we've reached any relationship with them. Unfortunately, we just have to hand tight with that.

Mark Miller - Private Investor

Could I ask who on your organization is leading the negotiations with the OEM or --?

Robert Lifton

Well, Mitchell Rush has been working with them directly on a day-to-day basis and Jacob Weiss has met with them as well.

Mark Miller - Private Investor

Okay. And again like to say, now do you see them being involved in your ex-generation stuff, I mean as far as development --

Robert Lifton

That's a possibility.

Mark Miller - Private Investor

Do you see them having technology that will greatly aid you or is it just --

Robert Lifton

I think we should stop there and just say that that's.

Mark Miller - Private Investor

Okay. I'll let it go.

Robert Lifton

Thank you.

Mark Miller - Private Investor

Thank you.

Operator

Your next question comes from the line of [Vic Savoy] with Royal Bank of Canada.

Vic Savoy - Royal Bank of Canada

Hello, Victor? Bob, hello.

Robert Lifton

Hi, Victor.

Vic Savoy - Royal Bank of Canada

Bob, I want to help you. You had a question about semi-automatic line in Israel?

Robert Lifton

Yes.

Vic Savoy - Royal Bank of Canada

The company should introduce you -- Russian Company. I had a talk -- I had a call from them two days ago. They are discussing to buy that line for Russia.

Robert Lifton

Well, I know that they are interested in setting up a line in Russia.

Vic Savoy - Royal Bank of Canada

Yes, they're interested to buy that -- the whole equipment live from Russia and they are discussing it very seriously. And they opened, I think internet shop already.

Robert Lifton

Right.

Vic Savoy - Royal Bank of Canada

They're going to check how it works and after that want to build line in Russia immediately.

Robert Lifton

Yeah, Jacob, you want to spell that out some more.

Jacob Weiss

Well, we're talking to Russian group who started advertising I believe started advertising on the Internet, as a first step in marketing the product in Russia. And so far as the line in Israel, they're interested in duplicating that line. The question is will they buy our existing line because that would be quicker for them because we obviously are more flexible now, since we have (inaudible) line and we can create any infrastructure that's duplicated by us, if they wanted move quicker. I mean that's all.

Vic Savoy - Royal Bank of Canada

Yes, that's how I understand, yeah, they want to buy this.

Jacob Weiss

That's one of thing on the table that has been raised. Obviously, all of that's in discussions now.

Vic Savoy - Royal Bank of Canada

And I would like everybody understand that's, it's not another company, its one of the major Russian company, which is in charge for military in nuclear development in Russia. In other words they're very serious. It’s a huge organization. They know this is our company, very above they know (inaudible) very well. They know this line very well. They understand technology very well.

Russian spends at least 30 years trying to develop this product and they fail. They want to introduce them to our company but two years ago they made me -- they told me that it is completely ridiculous. I will never work. Now, they want to buy our line. They want buy our agreement. They buy already products, which makes me to believe that they are very smart, very well-organized people. Meanwhile, Bob, thank you.

Robert Lifton

Thanks.

Vic Savoy - Royal Bank of Canada

Definitely I would be more than happy if the stock today was $150, and I would be able to retire. But the way how everything goes, I am very happy because I used to be developer myself, I used to build that stuff and I know it takes time. And the horrible thing is today is to make a mistake when you rush. Don't rush. Make it slow and don't make a mistake along with them. Thank you from me and from all of my shareholders from all Royal Bank of Canada. Thank you very much.

Robert Lifton

Thanks.

Operator

And your next question will come from Tom Leach, Preakness Hills Capital

Tom Leach - Preakness Hills Capital

Gentlemen, I just want to revisit the accounting to make sure I got the numbers. Hello?

Robert Lifton

Yes.

Tom Leach - Preakness Hills Capital

Okay. I want to make sure I got the numbers right, considering as you said, if we have a delay again with the OEM, we have to curtail operation. How many dollars?

Robert Lifton

No, I didn't say that. I said that if we do not raise the money that we're looking for, we may have to curtail operations.

Tom Leach - Preakness Hills Capital

Okay. As of December 31st, which is what the numbers on the sheet of paper reflect, how many dollars of shares did you sell? How many dollars did you raise from the UBS deal?

Robert Lifton

Well, it was a total of $29 million, of approximately $28.9 million.

Tom Leach - Preakness Hills Capital

And that was by December 31st?

Robert Lifton

No, that was the total.

Tom Leach - Preakness Hills Capital

Right. Tell me what is reflected in the numbers on the press release as of December 31st, which is what the numbers reflect, how many dollars did you raise with the UBS arrangement?

Michael Resnick

Bob, I can speak to that, Bob.

Robert Lifton

Go ahead, Michael.

Michael Resnick

Okay. So that was gross proceeds of about $17.7 million through December 31, gross proceeds.

Tom Leach - Preakness Hills Capital

Gross. And how much did you guys net?

Michael Resnick

That was a net of about $16.9 million

Tom Leach - Preakness Hills Capital

$16.9 million. So the $28 million or $29 million you mentioned in the press release, is that as of today?

Michael Resnick

Right.

Tom Leach - Preakness Hills Capital

Okay. Of the $29 million, what was the average share price you sold it at?

Michael Resnick

The average share price for the…

Tom Leach - Preakness Hills Capital

What was the number there?

Robert Lifton

I think that's two -- there were two-point something, then your shares?

Michael Resnick

It's three.

Robert Lifton

Just one second please.

Tom Leach - Preakness Hills Capital

Okay. Why are you doing that, in the last 10Q you had committed purchase arrangements on capital and inventory types of things for custom type and stuff like that? What is the current state of that as of December 31st? How many dollars are you committed to legally to purchase?

Robert Lifton

Yeah. If I can just ask you to be patient for a little longer until the 10K comes out, there will be a commitment table in the 10K just like the one you're referring to in the 10Q.

Tom Leach - Preakness Hills Capital

Well, the stock is off 18%. The patience is a virtue. I understand that but when do we expect the 10K?

Robert Lifton

We expect the 10K a little bit later today. So it's not…

Michael Resnick

Patient for half a day.

Robert Lifton

And to answer your question it was about 12.9 per share on the average approximately.

Tom Leach - Preakness Hills Capital

Okay. And beyond what you've already scheduled on the shelf as the $35 million and you have a little bit more to go on that. How many more dollars are we looking at if we win the OEM as you expect, and if the OEM doesn't come to pass, let's say, by the end of the March quarter?

Robert Lifton

We can't estimate that now. We will have to make those decisions as they went along.

Tom Leach - Preakness Hills Capital

Okay. Thank you.

Operator

Your next question will come from the line of Bart Blout with Sawtooth Capital.

Bart Blout - Sawtooth Capital

Bob, it seems to me that so much of the questions that are going are based upon the past and improperly or properly reflecting some of the problems that you've had, but going forward, I wonder if you could just give a quick example of, if you were to fulfill the contract with the OEM what that would mean in terms of number of lines used and how that would be a life changing event for this company?

Robert Lifton

Well, depending on just the details of that relationship if it takes place, but if it takes place the way I would hope it takes place, it would allow us to expand our activities much more quickly and much more easily on a worldwide basis, because of the recognition of the OEM's name on a worldwide basis, instead of having to explain who Medis is in India and Indonesia and Europe and other parts of the world. We hope we would be able to be in a position of using a name that they would recognize very rapidly.

In that event we think that would immediately speed up the order program from both the people who are selling products on our behalf and the various people that we're dealing with around in those parts of the world. We think those emerging markets of China, India, Indonesia, Africa represent enormous opportunities for sales of our product because they are limited in terms of their power. In most cases they have skipped the land line and are looking for handheld devices to be the basis for their operations.

There was an article about somebody from a village in India, who rode 15 kilometers every morning to charge his cell phone, because they didn't even have electricity in the village. Having a brand name if we could accomplish that having a brand name that they would recognize immediately would be a major opportunity for us in those markets and very quickly speed up the amount of business we would do and very quickly move us forward to building a second line.

Bart Blout - Sawtooth Capital

Can you unequivocally say that they have completely tested the product and the product is proven to be what you have contended it to be?

Robert Lifton

Yes.

Bart Blout - Sawtooth Capital

So they have proven it to themselves and probably gone through?

Robert Lifton

Michelle, do you want to answer that?

Michelle Rush

Hi, Bart.

Bart Blout - Sawtooth Capital

Hi

Michelle Rush

They've gone through a tremendous amount of due diligence not only on the product level, but also very deep into the technology level. And they've received products off of our high volume line. So we believe that that due diligence is complete.

Bart Blout - Sawtooth Capital

And so, it isn't just about cell phones, it's about other more complicated devices right?

Michelle Rush

It's a technology platform that they're looking at, the existing product as well as the future generation.

Bart Blout - Sawtooth Capital

Yeah. Okay. Because so much of this is just nonsense, if the company has tested it and it works, then everybody should sit tight and call it a day and today and wait for this to transact rather than questioning all these things that somebody wants to dig deep, so they can --

Robert Lifton

I agree with you and we have to recognize the reality of life, and that is that some of these questions came from people who have sold the stock short, that frame of reference, and some of the questions came from people who are long-term investors and have that frame of reference, and we have to be able to answer all the questions.

Bart Blout - Sawtooth Capital

So that's why the only important issue is, does the OEM think it is sellable, a)? And b), if they think it's sellable, has it proven to be everything that is you've claimed it to be? And if the answer to that is yes, then the rest is no point in having any more discussion.

Robert Lifton

I agree with you. But I don't control your questions.

Bart Blout - Sawtooth Capital

Okay. Thank you.

Robert Lifton

Thank you.

Operator

Your next question will come from [Randy] Luo with Westrock Advisors.

Robert Lifton

We'll take two more questions after this, operator.

Operator

Thank you.

Rudy Luo - Westrock Advisors

I'm sorry. This is Rudy Luo, Westrock? May I ask, what's the current production rate in Ireland right now?

Robert Lifton

Jacob, do you have the answer?

Jacob Weiss

Well, we're not running the line at a full rate.

Rudy Luo - Westrock Advisors

Yeah, I know. But do you have the numbers?

Jacob Weiss

We have the people in place and the resources in place for a full shift, which could be a few hundred thousands. Obviously, it's not running at a few hundred thousand, because we're kind of planning this together with the distribution rollout that we've been talking about this whole time. So we've made thousands of units in Ireland, and they're now in the hands of the distributors and in the hands of the OEM. But there isn't a constant running rate there right now.

Rudy Luo - Westrock Advisors

What's the capability though?

Jacob Weiss

Capability is immediately 200,000, and with the current people up to 350,000. It's one shift.

Rudy Luo - Westrock Advisors

Bob, your company have been consistently branding the short sellers for your disappointment on the stock price label. You have tried to spin-off off a sale to shareholders, et cetera, a couple of strategies and they all failed. Do you have other strategies dealing with short sale or media attack whatsoever?

Robert Lifton

Yeah. The only strategy that I think will make sense is success. And the only way to succeed now is to sell the product in the marketplace in large quantities and generate income from that, and then have the market place a value on that income. So the company's dedication now is to succeed in this program, as we've said ad nauseam now, we think that we're moving in the right direction. Particularly with the potential of the OEM we think that would be an enormous move forward in that direction. And when and if that takes place, I think that would have a significant impact on the pricing of the stock. But that's only my personal opinion.

Rudy Luo - Westrock Advisors

Thank you very much.

Robert Lifton

Bye.

Operator

Your next question will come from the line of [Adam Hauf] with [Vault Partners].

Adam Hauf - Vault Partners

Good morning. Happy St. Patrick's Day.

Robert Lifton

Thank you.

Adam Hauf - Vault Partners

I have two questions for modeling purposes. First, could you please tell me the current cost of production per unit?

Robert Lifton

We're not breaking that out at this point because we're in different levels of production.

Adam Hauf - Vault Partners

Could you characterize the levels of production?

Robert Lifton

The levels of production as they increase the cost go down substantially. I don't know the answer to that question at this point.

Adam Hauf - Vault Partners

Well. Thank you. I have a second question. Could you please tell me the current sale price to the distributors per unit?

Robert Lifton

The sale price to distributors has been varied depending on the relationship that we have with the distributor. But it's roughly somewhere around $9 to $9.45.

Adam Hauf - Vault Partners

Could you tell me the range?

Robert Lifton

$9 to $10.

Adam Hauf - Vault Partners

$9 to $10. Okay. And you said the different stages of production, how great is the range in the stage of production in terms of our cost basis? Is it that you could cut it in half? Is one stage four times more expensive than the other?

Robert Lifton

No. It's not order of magnitude like that, but the issue of yield on one of the line. There are two issues, the learning curve and the yield which kind of play with each other but they're not identical. But it's nothing like the number you're talking of four to one. It's significantly less than that. And we are certainly under the selling price, but I can't give you a specific number. We expect to get to the numbers where our margins are what we expect to get to at high level, at high volumes. We will have margins for that, of course.

Adam Hauf - Vault Partners

Of course. Thank you very much.

Operator

And your final question will come from the line of [John Lesgy, Private Investor].

John Lesgy - Private Investor

Can you hear me, Bob?

Robert Lifton

Yes. John. Go ahead.

John Lesgy - Private Investor

Bob, have any design changes been made to the Power Pack since the My Trio introduction about eight months ago, ten months ago?

Robert Lifton

Definitely.

John Lesgy - Private Investor

There have?

Robert Lifton

In fact, the product that was sold on My Trio was sold off the Israeli line and it worked with a different power management system. And the Power Pack that we are now selling is coming off a fully automated line. It's a significantly better product and the power management system is significantly better.

John Lesgy - Private Investor

Okay. So there are changes to the Power Pack itself, not just the fact that we have the new power management capability.

Robert Lifton

Both the Power Pack and one watt power management has been changed as well as the new power management.

John Lesgy - Private Investor

Okay. Is everything done then with UL approval or you won't need to go back for approval?

Robert Lifton

We're finished with the UL approval/

John Lesgy - Private Investor

Okay. And when will the two watt power management cable become available?

Robert Lifton

Some time in the next month or so.

John Lesgy - Private Investor

Okay.

Robert Lifton

It's a frozen configuration. It's defined and finished and we've made 100, maybe even 1,000 of them. We have to do it in volume production. So that's the process now. And that's Taiwan China, that's not a technology issue. That's just to tweak the production in high volume, because it's basically based on the same chips, the same electronic platform that we have in one watt with an integrated battery. So the challenges are not technological, it's just a question of quality of production.

John Lesgy - Private Investor

Okay. And one more question. Going back to the announced purchase orders, some of these are almost two years old. Regarding ASE, Northwest, Quasar, have any of these fallen by the way side or are they all still there?

Robert Lifton

All of those relationships are still in place.

John Lesgy - Private Investor

Okay. And I guess Superior in Kensington haven't placed purchase orders, can you give us any insight as to what's happening with them?

Robert Lifton

Well, a superior is working with one of the major -- Michelle, do you want to discuss that?

Michelle Rush

Yes. If you look at our different channels we have the retail, enterprise, direct two operators, and then industrial. And Superior is direct to the operators. They do branding for various operators. We've shipped them units off the high volume line as well as the new two watt cable that they've then given to customers. The same goes for Kensington. We've actually also shipped them product off the high volume line and expect to be moving forward with both those companies.

John Lesgy - Private Investor

Okay. And for either you or Bob, I believe Bob said earlier in the call that you guys have sent thousands of units to some of these distributors. Are those still strictly for testing or are these being shipped already for a resale?

Michelle Rush

No. They're being given then to our distribution partner's customers. In fact, there was a mention earlier about Africa, and that's one of Quasar's. In fact, they're over there now with the units from the high volume line, as well as the new one watt and two watt cables. And their focus is on EMEA, so Europe, Middle East, Africa, as well as enterprise. So our distributors have then been giving the product to their customers.

John Lesgy - Private Investor

Okay. For a resale, or again for testing purposes?

Michelle Rush

We've had some testing with their customers that we've done at their site or that they've done at their site with their customers. And I do believe that they're starting the sales of the product.

John Lesgy - Private Investor

Okay. Thank you, Bob and Michelle.

Michelle Rush

No problem.

Robert Lifton

Well, thank you all very much for your patience and your interest. And I wish you a good St. Patrick's Day.

Operator

Ladies and gentlemen, that concludes today's teleconference. You may all disconnect.

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