Gems from the latest S-1. Check out the last page to see what was amended, it was quite a bit. Stuff in parenthesis is mine.
There is no track record for companies pursuing our strategy, and there is no guarantee that our strategy will be successful or profitable. If our strategy is unsuccessful, we may fail to meet our objectives and not realize the revenues or profits from the business we pursue, which may cause the value of the Company to decrease, thereby potentially causing our stockholders to lose their investments. The success of our strategy will depend on numerous factors including:
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the success of dispensary and cultivation operations at locations which we may enter into contracts to oversee the management of;
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our ability to locate suitable candidates to serve on the board of directors of each retail dispensary or cultivation center for locations for which we may arrange and oversee license applications for;
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our ability to find parties that agree to purchase the real estate for which we enter into purchase agreements, so that we will not be required to purchase the property ourselves or forfeit our earnest money deposits;
(Basically MDBX is the middleman)
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our ability to find landlords that charge a reasonable rent for each property used for the submission of a license application; and
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our ability to obtain adequate financing to market and produce our portable vaporizer products;
The integration of the Vaporfection acquisition may be more costly and time consuming than we initially expected and the acquired product line may not be able to be sold at sufficient gross margin and volume levels in order to support the operations or justify the recorded values for intangible assets or goodwill.
The acquisition of Vaporfection International, Inc. in April 2013 included a requirement that we invest approximately $1,600,000 over time for various past obligations and future operations. Among the assets we acquired were an existing product line and a developmental product. With the popularity of vaporizer products increasing many competitors have entered the market, some of whom are very well capitalized. In addition, the market leader has significant early advantages over our product and we expect to have to significantly reduce our production costs for our products to be competitive in the market. Further, significant advertising is needed to generate demand for the products in an overcrowded vaporizer environment. With the existing cost structure of the acquired product and the high cost of entering the market, we may not be able to generate sufficient gross product margin on sales to support the operations of this subsidiary.
(No chance of making money on this one for a long time)
Beneficial ownership of our common stock is highly concentrated.
As of November 4, 2014, our officers, directors and principal stockholders (those holding 5% or more of outstanding shares) beneficially own approximately 78% of our outstanding common stock, including approximately 65% of our outstanding shares which are beneficially owned by Vincent Mehdizadeh, our largest stockholder. As a result, management and our principal stockholders have the ability to control substantially all matters submitted to our stockholders for approval including:
a) election of our Board of Directors;
b) removal of any of our directors;
c) amendment of our Articles of Incorporation or bylaws; and
d) adoption of measures that could delay or prevent a change in control or impede a merger, takeover or other business combination involving us.
In addition, the concentration of our stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.
We can sell additional shares of common stock without consulting stockholders and without offering shares to existing stockholders, which would result in dilution of existing stockholders’ interests in Medbox and could depress our stock price.
Our Articles of Incorporation authorize 100,000,000 shares of common stock, of which 30,442,517 shares of common stock are issued and outstanding as of November 4, 2014, and 10,000,000 shares of preferred stock, of which 3,000,000 shares are outstanding as of November 4, 2014, and our Board of Directors is authorized to issue additional shares of our common stock and preferred stock, including up to 2,000,000 shares of common stock authorized under our 2014 Equity Incentive Plan. Although our Board of Directors intends to utilize its reasonable business judgment to fulfill its fiduciary obligations to our then existing stockholders in connection with any future issuance of our capital stock, the future issuance of additional shares of our common stock or preferred stock convertible into common stock would cause immediate, and potentially substantial, dilution to our existing stockholders, which could also have a material effect on the market value of the shares.
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We are also exploring partnerships and product offerings in the sale and marketing of cannabidiol, or CBD. CBD is one of over 60 compounds found in cannabis that belong to a class of molecules called cannabinoids. Of these compounds, CBD and THC are usually present in the highest concentrations, and are therefore the most recognized and studied. Unlike THC, CBD is not psychoactive; in other words, it does not cause a “high”. Recent published research suggests that CBD may be used for treating symptoms of various diseases. We will not engage in any sales or marketing of CBD products until the federal prohibition on such activities is lifted. (So this is a waste of time and money)
As of October 16, 2014, we have entered into 18 real estate purchase contracts (and one lease), and arranged for the submission of 36 license applications in four states. All of such licenses applications are currently pending, except for one license in Oregon which has been granted. All entities which we have arranged and assisted in applying for licenses have assigned to us the exclusive, assignable right and obligation to manage the operations of the applicable locations, and, with respect to six of such locations, we in turn have assigned such rights to third parties. The planned dispensary, retail and cultivation operations have not yet begun at any of such locations, because (except for one location in Oregon) the licenses applications are still pending. With respect to the Oregon location for which a license has been granted, operations are schedule to begin in November 2014. Accordingly, because the planned dispensary, retail and cultivation operations have not yet begun at any of such locations, we have not yet commenced working with licensees to professionally manage their cultivation and dispensing facilities.
The Medbox machines are manufactured according to MDS’s patented design. We have contracted with a manufacturer based in Corona, California to manufacture the Medbox. The local manufacturer, AVT, Inc., which is controlled by Shannon Illingworth, one of our non-affiliate stockholders, has subcontracted the building of the physical machines to a manufacturer located in Spain. We do not have a contractual relationship with the Spanish manufacturer. (The subcontractor subcontracts the machines. Seems MDBX could go straight to the manufacturer.)
Although we do not have a minimum order requirement, MDS typically purchases machines in lots of 26 units shipping via an intermodal shipping container. The machines are shipped from the Spanish sub-contractor to the local manufacturer, which then installs the biometric and card reader equipment as well as the touch-screen interface. Shipping and related costs are undertaken by our Corona, California manufacture, who also arranges for shipping to the U.S. and to the location of the dispensary/purchaser upon our instructions. We make payments on these containers, which vary by contract but range from 10% to 25% of total order value: upon placing the order; an additional amount to reach 50% of the total order value deposited when the machines are ready to ship to the United States; and the remainder of the order as each machine is shipped to our directed location.( When did MDBX need 26 machines?)
A conventional temperature-controlled Medbox Secure Safe machine retails for $50,000. Sales terms with customers are a 50% deposit with order and 50% upon delivery.
As of November 4, 2014, we have nine full time employees and we also use the services of 13 independent contractors. These independent contractors perform the services of Chief Strategist, Advisor to the CEO, accounting/bookkeeping support, sales, real estate procurement, marketing assistance and web site optimization in addition to project manager duties in various localities nationwide.
VII-Product sales
In the second quarter of 2014, the Company sold $15,916 of vaporizer products and accessories through our VII operating subsidiary. This is a reduction of $3,636 or 18.6% compared to $19,522 sold in three months ended June 30, 2013. We expect to be able to release our newest portable vaporizer product for general availability late in the fourth quarter of 2014. ($15k in sales for a company that was bought for $1.6 million, that's pathetic.)
Finder fees
During the second quarter of 2014, the Company entered into an agreement with MJ Holdings, Inc., a publicly traded company that provides real estate financing and related solutions to licensed marijuana operators. Medbox agreed to market MJ Holdings' real estate financial products and offerings to its consulting clients and agreed to direct all incoming real estate related opportunities to MJ Holdings (for details see also note to financial statements, Note 10 – Marketable Securities and Customer Deposits). Revenue recognized in three months ended June 30, 2014 from this agreement was $98,532. There were no similar revenues for the three months ended June 30, 2013.
As of June 30, 2014, the Company had cash on hand of $975,027 compared to $168,003 at December 31, 2013. The $807,024 increase in cash on hand is primarily the result of stock sale proceeds of $2,442,859, proceeds from net notes payable from a related party of $404,880 and net loans payable of $76,738 partially offset by repayment on the note payable of $75,000 and the use of cash for general operations and for developments of new markets of $1,807,451, the purchases of tangible and intangible assets related to development of the new product of $195,002 and the issuance of notes receivable of $40,000.
Management believes that the Company’s cash balances on hand, cash flows expected to be generated from operations, proceeds from current and future expected debt issuances and proceeds from future share capital issuances will be sufficient to fund the Company’s net cash requirements through June 2015. However, in order to execute the Company’s long-term growth strategy, which may include selected acquisitions of businesses that may bolster the expansion of the Company’s management services business, and purchases of real estate which would be used as a basis for acquiring retail dispensary and cultivation facilities in regulated markets, the Company will need to raise additional funds through public or private equity offerings, debt financings, or other means.
As of November 4, 2014, there were approximately 1,475 holders of record of the Company’s common stock.
Prior to his resignation on July 23, 2014 Dr. Bedrick was employed as our Chief Executive Officer on an at-will basis at an annual salary of $120,000.
On August 18, 2014 Mr. Bedrick resigned from all remaining officer and directorship positions in all of the Company’s subsidiaries and he entered into a consulting agreement with the Company to perform general advisory services to the CEO and the Company. We pay Dr. Bedrick $12,500 per month for his services. This contract will terminate effective October 31, 2014.
(He gets paid more as a consultant than when he worked for the company)
