MDBX Conference Call Transcript:
Medbox, Inc. (OTCQB:MDBX)
Q4 2014 Results Earnings Conference Call
March 30, 2015, 12:00 PM ET
Executives
Roger Pondel - IR
Guy Marsala - Chairman and CEO
Doug Mitchell - CFO
Analysts
Presentation
Operator
Good day ladies and gentlemen and welcome to the Medbox Update Conference Call. All participants are in a listen-only mode. Questions that were emailed will be answered at the conclusion of the call. As a reminder, today's call is being recorded.
I would now like to turn the conference over to Roger Pondel, Investor Relations representative for Medbox. Sir, you may begin.
Roger Pondel
Thank you, Tony and welcome everyone to today's conference call. Speaking today will be the company's President and Chief Executive Officer Guy Marsala, who will focus on the progress and the transition Medbox continues to make in the rapidly emerging marijuana sector and Doug Mitchell, Chief Financial Officer, who will provide some color and clarity in the recently filed 2014 Form 10-K.
While there will not be a live question-and-answer session, the company has received a number of questions via email and Guy and Doug will be discussing those following the formal remarks.
But before Guy begins, just a reminder that certain statements on the call constitute forward-looking statements within the meaning of federal securities laws. Such statements are based on current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the company's control.
In addition, such forward-looking statements are subject to assumptions with respect to future business strategies and decision that are subject to change, Potential risks and uncertainties also include, but are not limited to technical advances in the industry as well as political and economic conditions present within the industry and Medbox does not assume any obligation to update any forward-looking statement to reflect events or developments after a forward-looking statement was made unless required by law.
And with that, it is my pleasure to turn he call over to Guy Marsala. Guy?
Guy Marsala
Thank you Roger and thanks to each of you for joining us today. It's been over four months since our last call and much has occurred in that timeframe and I appreciate the opportunity to update you.
As Medbox continues to cement its position as a leader in the legal marijuana sector, I am happy today to report that many of the corporate issues the company has faced in recent months are behind us. We believe Medbox is now poised to move forward in a professional businesslike manner on positive initiatives to meet our collective goal of achieving enhanced and sustained long-term shareholder value.
Our financial reporting is now current. Thanks to our CFO, Doug Mitchell and his staff and the company is now in a position to receive additional capital with a Form S-1 expected to be filed in early April.
Externally the medical marijuana sector continues to make enormous strides and provide myriad opportunities. 23 states have now approved the use of medical marijuana and four states plus the District of Columbia have approved marijuana for recreational use.
We believe this is just a tip of the iceberg and that Medbox is in an excellent position to become a leader in all states where approval has been or will be granted.
Our strongest asset is our Board of Directors and Senior Management team, which we believe to be the best in our sector. I would like Doug to take a few minutes to briefly provide some background on the company's financial position and then before we answer some of the questions received email, I'll summarize Medbox's business today and where the company is heading. Doug?
Doug Mitchell
Thank you, Guy. Perhaps one of the biggest tasks since I joined Medbox last October was completing a restatement of our filings for the years ended December 2012 and 2013 and for the first three quarters of 2014.
This has been accomplished and the company is now current in all of its filings. We also just filed our Form 10-K for the year ended December 31, 2014. The numbers alone however, which candidly were not very pretty do not tell the company's story.
The company's revenue model was significantly different in 2014 as compared with 2013. Looking to the future, we're moving away from the business model of obtaining licenses for clients for a one-time upfront fee and are in the process of implementing our new business model, which will provide recurring revenues to Medbox through ongoing management and support services.
During this transition period, expenses to secure new contracts and licenses have been and continue to be incurred and revenues deferred principally until new licenses are obtained and new dispensaries and cultivation centers begin operating. We're confident that this model will better position Medbox for sustainable and predictable revenue growth.
Medbox registered a consolidated net loss of $16.5 million for 2014 versus a loss of $3.8 million for 2013 and revenue of $629,000 compared with $2.1 million the prior year.
Much of the loss was non-cash in nature and reflected such items as stock-based compensation and non-recurring write-offs of inventory and increase in interest expense due to the use of convertible debentures carrying a high financing cost, expenses related to increased cost for new licenses in new markets as well as legal expenses.
As part of the corporate restructuring and positioning for future growth and in an effort to attract new talent to management and the Board of Directors, the company introduced a new stock compensation plan in 2014 that added $4.4 million to operating cost.
Please also be assured that stringent expense controls are now in place including a sharply lower cost corporate overhead structure. So, although now without challenges, we believe the long-term future for Medbox is very encouraging.
With that, I’ll turn the call back over to Guy.
Guy Marsala
Thanks, Doug. As Doug mentioned our business model is changing and I’d like to devote the next few minutes to defining precisely, what that new model is and why we’re optimistic about the company’s future.
Medbox provides specialized consulting services to the marijuana industry as well as sales related patented products namely our Medbox medical dispensing system and medical vaporizer devices.
We work with clients who seek to enter the medical, recreational and cultivation marijuana markets in those states where approved. We offer turnkey solutions that assist with licensing and compliance, dispensary site selection, design and permitting, safety and security along with full build-out and operational oversight.
In essence, our experience and expertise help create structure and process for clients seeking licenses and the subsequent development of their commercial operations. It’s an exciting time to be in this business with all the positive change taking place and with so many entrepreneurs wanting to establish their own businesses.
As I mentioned earlier, the big change for us is a shift to a recurring revenue model whereby we’ll continue to help clients obtain licenses and launch their operations, but once launched, will provide ongoing consulting to both new and established businesses in the areas of regulatory compliance, security and other matters that leverage our expertise and industry knowledge.
During the past year, we arranged for the submission of 36 licenses on behalf of clients in five states. As of today we’ve also entered into four letters of intent or real estate purchase contracts with third-party seeking to open dispensaries and two leases for dispensaries.
Additionally, five licensed applications for clients are currently pending and 12 licenses or registrations have been approved in the States of Oregon, Illinois, Nevada and Washington. As part of our strategic plan, it’s also our intent to develop a consistent, predictable and valuable business model through revenue sharing where permissible, allowing us to receive a percentage of the sales generated from our clients businesses.
It’s important to note that Medbox does not itself engage in the production, sale or marketing of any marijuana products, nor do we intent to. We leave that to our clients.
I also want to discuss our original product, the Medbox Medical Dispensing System, which is used for the control and dispensing of medical marijuana and is part of the build-out that we provide for dispensaries.
Early last year, we introduced an upgraded version of the Medbox product called the Secure Safe, which is designed to securely store and dispense marijuana through a point-of-sale terminal at the control of dispensary operators.
A conventional Medbox Secure Safe product sells for $50,000 and we believe there is no other company that markets such an underwriters Laboratory rated Safe. In addition to the Medbox product and to what we believe will become our dominate core consulting business, we also distribute a line of award-winning medical vaporizing products as manufactured by our wholly owned subsidiary, Vaporfection International.
This is a small business at present that currently has one product on the market a table-top vaporizing unit. A new second product, a portable device is scheduled for launch in the second quarter of this year and we believe it has excellent potential.
Our intent today is to provide you with an update on how the company is evolving and convey our deep gratitude to all of our shareholders, who stayed the course and you continue to support our mission.
The ride has been bumpy for sure, but we’re confident that with our corporate structure in place, with our strategic growth plan formulated, with the positive changes and growth taking place in our industry, Medbox has a great future.
Over the months ahead, we'll be operating on our progress, changing our look with a new website that better describes our new direction and continuing to strengthen our talented team.
Thank you for your support. I’ll turn the call back over to you, Roger.
Roger Pondel
Okay, thanks Guy. There is about three or four questions that repeatedly are coming in from shareholders and so the first one really is, what is the current status of the share purchase that was announced a couple of weeks ago, the share purchase by Lizada from the founder?
Guy Marsala
Sure. Under this agreement Lizada would purchased a specified number of shares from Vincent Mehdizadeh for approximately $15 million with a total of $5 million of the funds being designated for purchase of Medbox restricted shares of common stock directly from Medbox.
Lizada would become Medbox's largest shareholder and a representative of Lizada would join Medbox's Board of Directors. The transaction has six separate closings over the course of 18 months and Lizada is currently conducting due diligence and is expected to complete the due diligence in the next few weeks.
Roger Pondel
What about the SEC investigation and can you chat a little bit about whether that investigation is still in process?
Guy Marsala
Yes, the investigation is still in process. However, I’d like you to know that correspondence with the SEC remains productive and positive and the SEC has expressed appreciation for Medbox continued commitment to cooperate with the investigation.
Roger Pondel
Great and what about the class action lawsuits? There are a number of those and how is the company handling that?
Guy Marsala
Okay. Lawsuits of this nature are typically filed by opportunistic law firms. Medbox intends to vigorously defend itself against these suits.
Roger Pondel
All right and maybe a final question that we get repeatedly and extremely important one, what is the company doing to raise capital?
Guy Marsala
Sure Roger, well the good news is the company will receive more than $2 million in already committed funds from our existing lenders when the Form S-1 is filed and that’s expected to be in April and it’s declared effective by the SEC. This was outlined in the 8-K that was filed in late January of 2015.
We’re also in discussions with other investors to raise additional capital and we’re planning a road show to meet investors in the second quarter of 2015.
Roger Pondel
Great, thank you guys. Thanks ladies and gentlemen, that will conclude today's conference call. A replay will be available for the next couple of weeks through April 13 by dialing and I’ll read this slowly, 800-839-1337. So thanks everyone again for joining us today. Bye bye.
Guy Marsala
Thank you everyone.
Operator
Thank you. This does conclude your conference. You may disconnect anytime and have a great day.
