MedBox, Inc., filed its S-1 Form with the Securities & Exchange Commission as of July 17, 2013. The S-1 says MedBox intends to raise as much as $98,000,000 from its securities offering. Here are some statements made in the S-1:
Medbox, Inc. is a Nevada corporation. We currently operate through seven wholly-owned subsidiaries:
Prescription Vending Machines, Inc., a California corporation, dba Medicine Dispensing Systems in the State of California (“MDS”), which distributes our Medbox™ product and provides related consulting services;
Vaporfection International, Inc., a Florida corporation through which we distribute our medical vaporizing products and accessories pursuant to a recent acquisition;
Medicine Dispensing Systems, Inc., an Arizona corporation, which provides our consulting services in Arizona;
Mini-Storage Solutions, Inc., a California corporation that produces and will market our Safe Access Storage Locker product;
Medbox Rx, Inc., a California corporation that produces and will market our Rx product line including Lockbox Rx and Sample-Safe;
Medbox, Inc., a California corporation that is currently inactive and which has the same name as the Company; and
Medbox Leasing, Inc., a California corporation that is currently inactive. . . .
We expect to receive net proceeds from this offering of approximately $75 million . . . . We intend to use the net proceeds of the offering: (i) to expand the marketing of our existing products and services; (ii) to expand our product lines, including further development and marketing of our new products, initially our Rx line of products and acquiring additional licenses to enhance our existing products or develop new products; (iii) for research and development, including the development of new products; and (iv) for working capital and other general corporate purposes, including purchasing inventory. . . .
If any of the following events occur, our business, financial condition and results of operations could be materially adversely affected. In such case, the value and trading price of our common stock could decline, and you may lose all or part of your investment.
- Our continued success is dependent on additional states legalizing medical marijuana and additional counties in California passing legislation to allow dispensaries. . . .
- The alternative medicine industry faces strong opposition. . . .
- Marijuana remains illegal under federal law. . . .
- Our clients may have difficulty accessing the service of banks, which may make it difficult for them to purchase our products and services. . . .
- We have a limited operating history and may not succeed. . . .
- We may require additional capital to finance our operations in the future, but that capital may not be available when it is needed and could be dilutive to existing stockholders. . . .
- Our financial statements may not be comparable to those of other companies. . . .
- The success of our new and existing products and services is uncertain. . . .
- Our business is dependent upon continued market acceptance by consumers. . . .
- If we are able to expand our operations, we may be unable to successfully manage our future growth. . . .
- We primarily depend on a single product for our revenue. . . .
- We may be unable to adequately protect or enforce our patents and proprietary rights. . . .
- We do not have and independent board of directors which could create a conflict of interests and pose a risk from a corporate governance perspective. . . .
- We depend upon key personnel, the loss of which could seriously harm our business. . . .
- Our management controls a large block of our common stock that will allow them to control us. . . .
- We do not expect to pay any cash dividends in the foreseeable future. . . .
Our revenues increased a modest 2.4%, to $3.53 million, during the year ended December 31, 2012 . . . .
Through MDS and, in Arizona, Medicine Dispensing Systems, Inc., we offer consulting services to individuals in established alternative medicine territories as well as newly emerging states that have recently enacted legislation allowing the use of alternative medicine. Through our consulting services we assist clients in opening an alternative medicine clinic. We provide persons that want to open an alternative medicine clinic comprehensive assistance through the entire clinic opening process, including legal advice through an outside contracted legal services provider, licensing, permitting, zoning hearings, public relations and marketing, site selection, negotiation with landlords and designing and equipping the clinic. In Arizona, for example, we generated over $1.2 million in consulting revenues in less than four months from January 2011 through April 2011. In August 2012, we realized an additional $1.3 million in receivables once the permitting process was finalized in Arizona and our clients were awarded licenses to operate alternative medicine clinics. This model is being duplicated in other states on a going forward basis.On a turn-key clinic product, which we offer in states that have a state regulated permitting process, we collect $50,000 for our general consulting services, $40,000 for a set of machines (Medbox with POS and refrigerated add-on unit), and $60,000 for other store equipment, furniture, displays, and interior construction / leasehold improvements. In general, we typically realize a gross profit on these transactions of $72,500 from the consulting fees/build-out and $21,500 from the Medbox system sales. . . .
On May 22, 2013, Medbox initiated litigation in the Arizona District Federal Court against MedVend Holdings LLC, and its majority shareholders for fraud related to a contemplated transaction during the quarter ended March 31, 2013. The litigation is pending and Medbox has sought a cancellation of the agreement entered into for a 50% ownership stake in MedVend due to a fraudulent conveyance of the asset since, as discussed above, the shareholders did not have the power to sell their ownership stake in MedVend Holdings.From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. Other than described herein, we are not involved in, or the subject of, any pending legal proceedings or governmental actions the outcome of which, in management’s opinion, would be material to our financial condition or results of operations. . . .
Dr. Bruce Bedrick is a highly accomplished, versatile and respected Physician and business owner . . . .
Mr. [Vincent] Mehdizadeh was the Director of Client Relations for the following law offices at various times from 2003 through 2008: Law Office of Donald J. Townley; Law Offices of Frank E. Miller; Law Offices of Thomas R. Lee; Rexford Law Group; and the Moheban Law Firm. . . . In 2007, Mr. Mehdizadeh was involved in the sale of his automobile to a private party. The transaction terms were in dispute by the parties and Mr. Mehdizadeh pled no-contest to charging the vehicle purchaser’s credit card without express written consent. The matter was resolved with Mr. Mehdizadeh receiving and successfully completing probation. Mr. Mehdizadeh has applied for an expungement and understands that the record of the incident will be deleted within a few months.
Related Party Transactions
We previously had an outstanding note with PVMI, a California corporation wholly owned by Mr. Mehdizadeh, in connection with the sale of MDS to Medbox, Inc. The note was issued on January 1, 2012 for an original amount of $1 million and began paying interest of 10% on January 1, 2013. The note contained a maturity date of December 31, 2012, which was voluntary extended by oral agreement of the parties to June 30, 2013 and has since been satisfied in full.
We use Vincent Chase Incorporated, a company that is wholly owned by Mr. Mehdizadeh, our Chief Operating Officer for management advisory and consulting services. During the years ended December 31, 2012 and 2011, we incurred $230,706 and $100,000 in fees, respectively, to Vincent Chase Incorporated for Mr. Mehdizadeh’s advisory services provided through Vincent Chase Incorporated. We incurred fees of $175,000 for these services to date during 2013. During the period April to May 2013, Vincent Chase Incorporated wholly owned by Dr. Bedrick, our President and Chief Executive Officer. Mr. Mehdizadeh transferred Vincent Chase Incorporated to Dr. Bedrick without consideration on a temporary basis as Mr. Mehdizadeh addressed some personal matters.
We use Kind Clinics, LLC, which is wholly owned by Dr. Bedrick, for marketing services. We do not pay Kind Clinics for these services. However, during the year ended December 31, 2012, we paid $34,720 in reimbursements for amounts paid by Kind Clinics on behalf of Medbox.
The Company uses AVT, Inc., a company wholly owned by Shannon Illingworth, a stockholder of the Company and former affiliate, for the manufacture and assembly of its dispensary units. Mr. Illingworth owned 90% of the Company until Mr. Mehdizadeh purchased his shares in August 2012. During the years ended December 31, 2012 and 2011, we incurred approximately $480,500 and $510,000, respectively, in manufacturing costs that were paid to AVT. To date in 2013 we have paid approximately $125,000 in manufacturing costs to AVT. In addition, our existing inventory of dispensary units is held at AVT, Inc.’s manufacturing facility in Corona, California. We believe that our transactions with AVT, Inc. are on terms as favorable to the Company as those that would be available on an arms-length basis.