Form 8-K for MEDBOX, INC.
Triggering Events That Accelerate or Increase a Direct Financial Obligation or an Ob
In October 2014 the Board of Directors of the Company appointed a special board committee (the “Special Committee”) to investigate a federal grand jury subpoena pertaining to the Company which was served upon the Company’s accountants as well as certain alleged wrongdoing raised by a former employee of the Company. Thereafter the Company received subpoenas from the federal grand jury and the Securities and Exchange Commission. In connection with its investigation of these matters, the Special Committee in conjunction with the Audit Committee initiated an internal review by management and by an outside professional advisor of certain prior period financial reporting of the Company. The outside professional advisor reviewed the Company’s revenue recognition methodology for certain contracts for the third and fourth quarters of 2013. As a result of certain errors discovered in connection with the review by management and its professional advisor, the Audit Committee, upon management’s recommendation, concluded on December 24, 2014 that the consolidated financial statements for the year ended December 31, 2013 and for the third and fourth quarters therein, as well as for the quarters ended March 31, 2014, June 30, 2014 and September 30, 2014, together with all three, six and nine month financial information contained therein, should no longer be relied upon and will be restated to correct the errors. Therefore, all earnings press releases and similar prior communications issued by the Company as well as other prior statements made by or on behalf of the Company relating to financial reporting or results for those periods should not be relied upon. Lastly, as part of the investigation process, the Company will also examine its financial statements for 2012 and the first two quarters of 2013 and if necessary correct those as well.
The errors which led to the announced restatements relate to revenue recognition on some contracts with customers as to which it appears that revenue had been recognized too soon. The company intends to correct the errors in its financial statements to bring them into conformity with accounting principles generally accepted in the United States of America (GAAP) and SEC regulations. The restated financial statements will recognize revenue at a later time as up-front payments are recognized over the longer of the contract period or the customer relationship, revenue is deferred until key contingencies are removed and it is clear the revenue has been earned in accordance with GAAP and SEC regulations. The Company’s internal review, including a review of the practices and procedures that led to the errors, preparation of fourth quarter and full year 2014 financial statements and restatement of prior periods are not yet concluded, and the actual impact of the revenue recognition corrections and other adjustments that may arise from the ongoing internal review of the Company’s prior and future financial results may vary materially.As a result of the preliminary findings of the ongoing internal review, management is continuing to assess the Company’s disclosure controls and procedures and internal controls over financial reporting. The Company does not expect to reach a final conclusion as to this assessment until completion of the restatement process. Since management has not completed its assessment of its disclosure controls and procedures, including internal control over financial reporting, there can be no assurance that additional control deficiencies that could be material weaknesses will not be identified. The Company has previously disclosed that its disclosure controls and procedures and internal controls over financial reporting were not effective.
The Chief Financial Officer of the Company discussed these matters with the Company’s independent registered public accounting firm, Q Accountancy Corporation.
A copy of Amendment No. 2 to the Amended and Restated Bylaws is filed as Exhibit 3.1 to this Form 8-K, and the foregoing description is qualified by reference to such Amendment, which is incorporated herein by reference.
3.1 Amendment No. 2 to the Amended and Restated Bylaws of Medbox, Inc.
99.1 Press Release
Cautionary Note Regarding Forward-Looking Statements
This Current Report on Form 8-K contains certain forward-looking statements, including with respect to the anticipated restatement of the Company’s financial statements and the Company’s ability to file the amended Forms 10-K and 10-Q on the currently expected schedule. These forward-looking statements are preceded by terms such as “expects,” “plans”, “intends,” “anticipates” or “believes.” These forward-looking statements are based on information currently available to the Company. Such forward-looking statements involve risks and uncertainties, and actual results may differ materially from those expressed or implied. Consequently, the Company wishes to caution readers not to place undue reliance on any such statements. Some important factors that could affect the Company’s actual results include, among others, the thorough review of the Company’s internal financial records that is being conducted, the timing and nature of the additional work required to complete the review and the amended Forms 10-K and 10-Q and the resolution of any accounting errors discovered during the Company’s review. The Company undertakes no obligation to update or correct any forward-looking statement made herein due to the occurrence of events after the filing of this Current Report on Form 8-K, except as required under applicable federal securities law.
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