Greenwave Technology Solutions, Inc. - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

☐   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to _________

Commission File Number: 000-55431

MASSROOTS, INC.

(Exact name of registrant as specified in its charter)

(303) 816-8070

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.001 par value per share

Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ☐    No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐    No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act) Yes ☐    No ☒

The aggregate market value of voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $1,838,262.

Number of shares of common stock outstanding as of April 14, 2021 was 498,174,656.

Documents Incorporated by Reference

Portions of the Registrant’s proxy statement for our 2021 Annual Meeting of Shareholders are incorporated by reference into Part III of this report.

MASSROOTS, INC.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2020
TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K may be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).

Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions.  These statements are often, but not always, made through the use of words or phrases such as “believe,” “will,” “expect,” “anticipate,” “estimate,” “intend,” “plan” and “would.” These statements are based on current expectations, estimates and projections about our business based in part on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may, and are likely to, differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those set forth in “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K. 

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. Any forward-looking statements speak only as of the date on which they are made, and we disclaim any obligation to publicly update or release any revisions to these forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Annual Report on Form 10-K or to reflect the occurrence of unanticipated events, except as required by law.

PART I

Throughout this Annual Report on Form 10-K, the “Company,” “MassRoots,” “we,” “us,” and “our” refers to MassRoots, Inc. and its subsidiaries.

ITEM 1. BUSINESS 

Overview

MassRoots, Inc. was formed in April 2013 as a technology platform for the cannabis industry. In March 2021, we relaunched our website, MassRoots.com, which aims to enable cannabis consumers to find the best products, connect with other enthusiasts, and deliver fresh content that both delights and informs our audience. Additionally, we plan to monetize our YouTube Channel, which has 273,000 subscribers, through product placements and sponsorships. Management believes that our YouTube Channel has one of the largest followings in the regulated cannabis industry while our Instagram account is followed by 378,000 users.

Background

We were incorporated in the state of Delaware on April 26, 2013 as a technology platform for the cannabis industry.

Our principal executive office is located at 1560 Broadway, Office 17-105, Denver, Colorado 80202, and our telephone number is (720) 240-9546.

On January 25, 2017, we consummated a reverse triangular merger (the “Whaxy Merger”) pursuant to which we acquired all of the outstanding common stock of DDDigtal Inc (“DDDigtal”), a Colorado corporation. Upon closing of the Whaxy Merger, each share of DDDigtal’s common stock was exchanged for such number of shares of our common stock (or a fraction thereof) based on an exchange ratio equal to approximately 5.273-for-1, such that 1 share of our common stock was issued for every 5.273 shares of DDDigtal’s common stock. At the closing of the Whaxy Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole purpose of effectuating the Whaxy Merger, were converted into and exchanged for one share of common stock of DDDigtal, and all shares of DDDigtal’s common stock that were outstanding immediately prior to the closing of the Whaxy Merger were automatically cancelled and retired. Upon the closing of the Whaxy Merger, DDDigtal continued as our surviving wholly-owned subsidiary, and the merger subsidiary ceased to exist.

On July 13, 2017, we consummated a reverse triangular merger (the “Odava Merger”) pursuant to which we acquired all of the outstanding common stock of Odava Inc (“Odava”), a Delaware corporation. Upon closing of the Odava Merger, each share of Odava’s common stock was exchanged for such number of shares of our common stock (or a fraction thereof), based on an exchange ratio equal to approximately 4.069-for-1, such that 1 share of our common stock was issued for every 4.069 shares of Odava’s common stock. At the closing of the Odava Merger, all shares of common stock of our newly-formed merger subsidiary formed for the sole purpose of effectuating the Odava Merger, were converted into and exchanged for one share of common stock of Odava, and all shares of Odava’s common stock that were outstanding immediately prior to the closing of the Odava Merger automatically cancelled and retired. Upon the closing of the Odava Merger, Odava continued as our surviving wholly-owned subsidiary, and the merger subsidiary ceased to exist.

Our Products and Services

Our website, MassRoots.com, which aims to enable cannabis consumers to find the best products, connect with other enthusiasts, and deliver fresh content that both delights and informs our audience.

User Growth and Product Distribution Channels

The MassRoots platform is accessible through desktop and mobile web browsers by navigating to www.massroots.com.

Blockchain Technologies

MassRoots Blockchain Technologies, Inc. (“MassRoots Blockchain”) was formed in December 2017 as a wholly-owned subsidiary of the Company to continue the Company’s efforts in exploring how new technologies may be utilized in the cannabis industry. Initially, we are focusing on blockchain technology for several reasons, including, but not limited to:

In December 2017, we commenced the re-development of the MassRoots Business Portal, a platform where dispensaries and other industry participants, such as producers and other ancillary businesses, will be able to advertise their goods and services. To date, we have used approximately $370,000 for the initial development of the MassRoots Business Portal, including features that allow for tracking of advertising impressions, enhanced targeting and serving of advertisements, as well as a program that would be designed to reward audience for providing high quality reviews on cannabis strains and products. The development and implementation of these any other features, including the possible use of digital instruments, is subject to additional funding, is currently contemplated to be made within the MassRoots App and platform, and is intended to generate the growth of Users of the MassRoots platform and stimulate the MassRoots platform’s overall activity.

All initial development has been outsourced to third party development firms and consultants. Specifically, we have outsourced the following services: software development services, including, but not limited to, web and mobile development services, blockchain development and integration services, and infrastructure development, automation, support and management services. As stated in “Risk Factors,” the development of features based upon the use of blockchain technology is subject to numerous risks and uncertainties, and there can be no assurance as to when, or if, any such features will be successfully developed, or that if developed, that they will be accepted or adopted. Further, the likelihood of our development and implementation of features based upon new technology must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with the inception and development of a product or service based upon any such relatively new and developing technology.

While we intend to devote resources to exploring the feasibility of developing these or other solutions, there can be no assurances that we will be successful in implementing such solutions, that any such solutions will be economically viable, or that any of them will result in the generation of User interest, participation or revenue.

We currently anticipate that we will need to raise additional funds to continue to explore and develop potential uses and applications of blockchain technologies and uses for our business and other businesses in the cannabis industry; however, no assurance can be given that additional financing will be available on terms favorable to us, or at all.

Market Conditions

MassRoots is poised to take advantage of two rapidly growing industries: cannabis and mobile technology.

Cannabis Market Growth and Current Trends

On January 4, 2018, Attorney General Jefferson B. Sessions, III issued a memo which rescinded the Cole Memo (as described below) which was adopted by the Obama administration as a policy of non-interference with marijuana-friendly state laws.

The Cole Memo

On August 29, 2013, Deputy Attorney General James Cole issued a memo (the “Cole Memo”) in response to certain states passing measures to regulate the medical and adult-use of cannabis. In the Cole Memo, the Department of Justice made clear that marijuana remains an illegal drug under the Controlled Substances Act and that federal prosecutors will continue to aggressively enforce the statute. The Department of Justice identified eight enforcement areas that federal prosecutors should prioritize. Outside of such enforcement priorities, the federal government has traditionally relied on state and local authorities to address marijuana activity. The Cole Memo established several basic guidelines by which state-regulated cannabis businesses could operate to minimize the risk of intervention and enforcement by the Department of Justice. The guidelines focused on ensuring that cannabis did not cross state lines, keeping dispensaries away from schools and public facilities and strict-enforcement of state laws by regulatory agencies, among other priorities.

The Sessions Memo

On January 4, 2018, Attorney General Jefferson B. Sessions, III issued a memo (the “Sessions Memo”) on federal marijuana enforcement policy announcing a return to the rule of law and the rescission of previous nationwide guidance by the Department of Justice (including, but not limited to, the Cole Memo). In the memorandum, Attorney General Jefferson Sessions directs all U.S. attorneys to enforce the laws enacted by Congress and to follow the well-established principles when pursuing prosecutions related to marijuana activities. These principles include weighing all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.

Although the Sessions Memo rescinded the Cole Memo, it is unclear at this time whether the Biden Administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement; however, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could have a material adverse effect on our business.

Guidance to Banks Relating to the Marijuana Industry

On February 14, 2014, the Department of Justice and the Department of Treasury issued guidance to banks about how to serve the marijuana industry without running afoul of federal regulations. Prior to such guidance, dispensaries were forced to operate on a cash basis, presenting significant security and accounting issues. Although banks have remained reluctant to work with marijuana businesses because of federal prohibition laws, this guidance was a major step in legitimizing and accepting the cannabis industry on a national level. In addition, the adoption of the Joyce Amendment (formerly known as the Rohrabacher-Farr Amendment) (as discussed below) indicates some level of support in Congress for medicinal cannabis, even if its actual effect is still undetermined.

For additional information concerning the Cole Memo, the Sessions Member, the Joyce Amendment and regulatory conditions, see the section entitled “Business – Government Regulation.”

Current States with Laws Permitting the Medical or Adult Use of Cannabis 

Recreational marijuana is regulated in 15 states and the District of Columbia and medical marijuana is regulated in 33 states and the District of Columbia. In addition, 15 additional states have legalized low-tetrahydrocannabinol (“THC”)/high-cannabidiol (“CBD”) extracts for select medical conditions. The states which have enacted such laws are listed in the following table:

* State has enacted laws permitting the adult use of cannabis, in addition to medical use.

Public Support for Regulation of Cannabis Increasing

A Gallup poll conducted in October 2019 found that 66% of Americans supported regulating the use of cannabis which indicates an increasing trend over the past decade toward public support for cannabis.

Market Conditions that Could Limit Our Business

Cannabis is a Schedule I controlled substance under Federal law and, as such, there are several factors that could limit our business operations including, but not limited to:

Please see “Government Regulation” below for additional information.

Government Regulation

Marijuana is a categorized as a Schedule I controlled substance by the Drug Enforcement Agency and the United States Department of Justice and is illegal to grow, possess and consume under Federal law. However, 33 states and the District of Columbia have passed laws that permit doctors to recommend cannabis for medical-use and 11 of those states and the District of Columbia have enacted laws that regulate the personal-use of cannabis by adults, subject to possession limits. Because doctors are prohibited from prescribing a Schedule I controlled substance, the passage of medical marijuana laws does not necessarily guarantee the implementation of a regulated, commercial system through which patients can purchase cannabis products. This has created an unpredictable business-environment for dispensaries and collectives that operate under certain state laws but in violation of Federal law.

Cole Memo

On August 29, 2013, United States Deputy Attorney General James Cole issued the Cole Memo to United States attorneys guiding them to prioritize enforcement of Federal law away from the cannabis industry operating as permitted under certain state laws, so long as:

The Cole Memo was a guide for United States attorneys and did not alter in any way the Department of Justice’s authority to enforce Federal law, including Federal laws relating to cannabis, regardless of state law. As described below, as a result of the issuance of the Sessions Memo by the Department of Justice, on January 4, 2018, the Cole memo was rescinded. Prior to the issuance of the Sessions Memo, we had implemented standard operating procedures and policies to ensure that we were operating in compliance with the Cole Memo. It is unclear at this time whether the Biden administration will issue new guidance or strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement, and we cannot provide assurance that our actions were, are or will be in compliance with the Cole Memo, the Sessions Memo or any other laws or regulations that currently exist or may be amended or adopted in the future.

Pursuant to our currently existing Terms and Conditions:

We have implemented an aggressive content and account review program to ensure compliance with our Terms and Conditions. Users have the ability to report any status or account that is in violation of our Terms and Conditions and we encourage Users to do so as any illegal content jeopardizes the network for all our Users. When a status or account is reported, the post is automatically removed from the network until further review. A MassRoots employee then reviews the content within 24 hours and either approves it as in compliance within our Terms and Conditions or permanently deletes it and bans the User’s account.

In addition, we have implemented geographic restrictions to restrict new Users to our mobile apps to the District of Columbia and the 33 states in which the use of marijuana is permitted.

Our business plan includes allowing cannabis dispensaries to advertise on our network, which we believe could be deemed to be aiding and abetting illegal activities, a violation of Federal law. We continue to evaluate the effects of the Sessions Memo; however, it is unclear at this time whether the Biden administration will issue new guidance or will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement, and we cannot provide assurance that we were, are or will be in compliance with the Cole Memo, the Sessions Memo or any other laws or regulations.

Joyce Amendment (formerly known as the Rohrabacher-Farr Amendment)

On December 16, 2014, H.R. 83 - Consolidated and Further Continuing Appropriations Act, 2015 was enacted and included a provision now known as the “Joyce Amendment” which states:

None of the funds made available in this Act to the Department of Justice may be used, with respect to the States of Alabama, Alaska, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Florida, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, Oregon, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Washington, and Wisconsin, to prevent such states from implementing their own state laws that authorize the use, distribution, possession, or cultivation of medical marijuana.

The Joyce Amendment would appear to protect the right of the states to determine their own laws on medical cannabis use; however, the actual effects of the amendment are still unclear. The Joyce Amendment did not remove the federal ban on medical cannabis and cannabis remains regulated as a Schedule I controlled substance. Further, the United States Department of Justice has interpreted the Joyce Amendment as only preventing federal action that prevents states from creating and implementing cannabis laws - not against the individuals or businesses that actually carry out cannabis laws – and has continued to sporadically initiate enforcement actions against individuals or businesses participating in the cannabis industry despite such participation being regulated under state law. As of April 2020, the United States Court of Appeals, Ninth Circuit, has held in support of the Joyce Amendment and stated on at least one occasion that United States Department of Justice was prohibited from spending federal appropriations funds for prosecuting individuals engaged in conduct permitted by state law. In addition, no matter what the interpretation is adopted by the courts, there is no question that the Joyce Amendment does not protect any party not in full compliance with state medicinal cannabis laws.

The Joyce Amendment represents one of the first times in recent history that Congress has taken action indicating support of medical cannabis. The Joyce Amendment was renewed by Congress in 2015, 2016, 2017, 2018, 2019 and 2020 and is in effect until September 30, 2021.

Sessions Memo

On January 4, 2018, Attorney General Jefferson B. Sessions, III issued a memo on federal marijuana enforcement policy announcing a return to the rule of law and the rescission of previous nationwide guidance by the Department of Justice (including, but not limited to, the Cole Memo). In the memorandum, Attorney General Jefferson Sessions directs all U.S. attorneys to enforce the laws enacted by Congress and to follow well-established principles when pursuing prosecutions related to marijuana activities. These principles include weighing all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community. The effect of this memo is to shift federal policy from a hands-off approach adopted by the Obama administration to permitting federal prosecutors across the country to determine how to prioritize resources to regulate marijuana possession, distribution and cultivation in states where marijuana use is legal.

While we do not directly harvest or distribute cannabis today, we still may be deemed to be violating federal law, or aiding and abetting the violation of Federal law and may be irreparably harmed by a change in enforcement by the federal or state governments.

Although the Sessions Memo rescinded the Cole Memo, it is unclear at this time whether the Biden administration will issue new guidance or will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement; however, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could have a material adverse effect on our business. 

Additional Government Regulations

We are subject to general business regulations and laws as well as Federal and state regulations and laws specifically governing the Internet and e-commerce. These regulations and laws cover among others, sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. Any noncompliance with the foregoing laws and regulations may harm our business and results of operations.

Competitors

We compete with other cannabis information platforms such as WeedMaps and Leafly, which provide information with respect to dispensary locations, strain information, and news relating to the cannabis industry.

Recent Developments 

Financings and Other Sources of Funding

On January 7, 2020, we issued and sold a convertible note in the principal amount of $55,000 (including a $5,000 original issuance discount) to an accredited investor which note matures on July 7, 2020.

On March 5, 2020, we issued and sold a convertible note in the aggregate principal amount of $72,600 (including a $6,600 original issuance discount) to an accredited investor which note matures on September 5, 2020.

On March 17, 2020, we issued and sold a convertible note in the aggregate principal amount of $17,600 (including a $1,600 original issuance discount) to an accredited investor which note matures on September 17, 2020.

On April 17, 2020, we issued and sold convertible notes in the aggregate principal amount of $330,000 (including an aggregate of $30,000 original issuance discount) to accredited investors which notes mature on October 17, 2020.

On May 3, 2020, we received a loan in the principal amount of $50,000 pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The PPP loan matures in May 2022 and bears an interest rate of 1% per annum. The Company has applied for forgiveness of the principal and accrued interest due under the loan.

On June 26, 2020, we issued and sold a secured promissory note in the principal amount of $60,000 with 10% annual interest. On the two-year anniversary of the issuance of this note, June 26, 2022, all principal and interest becomes due and payable.

On July 8, 2020, we issued and sold a promissory note in the principal amount of $22,911 with 10% annual interest maturing on December 31, 2020.

On July 13, 2020, we issued and sold convertible notes in the aggregate principal amount of $110,000 (including an aggregate of $10,000 original issuance discount) to accredited investors which notes mature on January 13, 2021.

On August 31, 2020, we issued and sold convertible notes in the aggregate principal amount of $66,000 (including an aggregate of $6,000 original issuance discount) to accredited investors which notes mature on March 1, 2021. 

On September 1, 2020, we issued and sold convertible notes in the aggregate principal amount of $49,500 (including an aggregate of $4,500 original issuance discount) to accredited investors which notes mature on March 1, 2021. 

On November 25, 2020, the Company entered into a securities purchase agreement with an accredited investor for the sale of 3.3 shares of the Company’s Series X Convertible Preferred Stock, par value $0.0001 per share, resulting in aggregate proceeds of $66,000. The purchase and issuance of such shares of Series X Preferred Stock closed on December 1, 2020.

On December 21, 2020, the Company entered into a securities purchase agreement with an accredited investor for the sale 7.5 shares of the Company’s Series X Convertible Preferred Stock, par value $0.0001 per share, resulting in aggregate proceeds of $150,000. The purchase and issuance of such shares of Series X Preferred Stock closed on December 23, 2020.

On December 22, 2020, the Company entered into a securities purchase agreement with an accredited investor for the sale 5.25 shares of the Company’s Series X Convertible Preferred Stock, par value $0.0001 per share, resulting in aggregate proceeds of $105,000. The purchase and issuance of such shares of Series X Preferred Stock closed on December 29, 2020.

Between December 22 and March 23, 2021, the Company entered into a number of securities exchange agreements with twenty two (22) holders of its equity and debt securities for the total issuance and sale of 659.605674 shares of the Company’s Series Y Convertible Preferred Stock, par value $0.001 per share, resulting in aggregate exchange of 14,896,874,671 warrants to purchase common stock of the Company at $0.0004 per share and the exchange of the promissory notes in the aggregate principal amount and accrued interest totaling $5,947,876.20. The Purchasers constituted a significant portion of warrantholders and debtholders of the Company. See Item 9B. Other Information.

Termination of COWA Agreement and Plan of Merger

On February 12, 2019, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with MassRoots Supply Chain, Inc., a wholly-owned subsidiary of the Company (“Merger Subsidiary”), COWA Science Corporation, a Delaware corporation (“COWA”), and Christopher Alameddin, an individual acting solely in his capacity as a stockholder representative pursuant to which Merger Subsidiary was to be merged with and into COWA with COWA surviving the merger as the wholly-owned subsidiary of the Company. On February 24, 2020, we terminated the Merger Agreement as a result of the closing conditions set forth in the Merger Agreement not being satisfied.

Intellectual Property

MASSROOTS and TOKE are federally registered trademarks of MassRoots, ODAVA is a state registered trademark of MassRoots and RETAIL is a state registered trademark of Odava.

Employees and Consultants

As of April 12, 2021, MassRoots has 3 full-time employees and 1 full-time independent contractor.

ITEM 1A. RISK FACTORS

An investment in our securities involves a high degree of risk. This Annual Report on Form 10-K contains the risks applicable to an investment in our securities. The risks and uncertainties we have described are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our operations. The occurrence of any of these known or unknown risks might cause you to lose all or part of your investment in the offered securities.

Risks Relating to Our Business and Industry

We have a limited history upon which an evaluation of our prospects and future performance can be made and have no history of profitable operations.

We were incorporated in April 2013 and have a limited operating history and our business is subject to all of the risks inherent in the establishment of a new business enterprise. Our likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered in connection with development and expansion of a new business enterprise. We may sustain losses in the future as we implement our business plan. There can be no assurance that we will operate profitably.

Since we have a limited operating history, it is difficult for potential investors to evaluate our business.

Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations. As an early-stage company, we are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in a new business. Investors should evaluate an investment in us in light of the uncertainties encountered by developing companies in a competitive and evolving environment. Our business is dependent upon the implementation of our business plan. We may not be successful in implementing such plan and cannot guarantee that, if implemented, we will ultimately be able to attain profitability.

We will need to obtain additional financing to fund our operations.

We will need additional capital in the future to continue to execute our business plan. Therefore, we will be dependent upon additional capital in the form of either debt or equity to continue our operations. At the present time, we do not have arrangements to raise all of the needed additional capital, and we will need to identify potential investors and negotiate appropriate arrangements with them. We may not be able to arrange enough investment within the time the investment is required or that if it is arranged, that it will be on favorable terms. If we cannot obtain the needed capital, we may not be able to become profitable and may have to curtail or cease our operations. Additional equity financing, if available, may be dilutive to the holders of our capital stock. Debt financing may involve significant cash payment obligations, covenants and financial ratios that may restrict our ability to operate and grow our business.

Cannabis remains illegal under Federal law.

Despite the development of a regulated cannabis industry under the laws of certain states, these state laws regulating medical and adult cannabis use are in conflict with the Federal Controlled Substances Act, which classifies cannabis as a Schedule I controlled substance and makes cannabis use and possession illegal on a national level. The United States Supreme Court has ruled that the Federal government has the right to regulate and criminalize cannabis, even for medical purposes, and thus Federal law criminalizing the use of cannabis preempts state laws that regulate its use. Although the prior administration determined that it was not an efficient use of resources to direct Federal law enforcement agencies to prosecute those lawfully abiding by state laws allowing the use and distribution of medical and recreational cannabis, on January 4, 2018, the current administration issued the Sessions Memo announcing a return to the rule of law and the rescission of previous guidance documents. The Sessions Memo rescinds the Cole Memo which was adopted by the Obama administration as a policy of non-interference with marijuana-friendly state laws. The Sessions Memo shifts federal policy from a hands-off approach adopted by the Obama administration to permitting federal prosecutors across the country to decide how to prioritize resources to regulate marijuana possession, distribution and cultivation in states where marijuana use is regulated. However, it is unclear at this time whether the Biden administration will issue new guidance or will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement. A significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could have a material adverse effect on our business. Furthermore, there can be no assurance that federal prosecutors will not prosecute and dedicate resources to regulate marijuana possession, distribution and cultivation in states where marijuana use is regulated which may cause states to reconsider their regulation of marijuana which would have a detrimental effect on the marijuana industry. Any such change in state laws based upon the Sessions Memo and the Federal government’s enforcement of Federal laws could cause significant financial damage to us and our stockholders.

As the possession and use of cannabis is illegal under the Federal Controlled Substances Act, we may be deemed to be aiding and abetting illegal activities through the services and data that we provide to government regulators, dispensaries, cultivators and consumers. As a result, we may be subject to enforcement actions by law enforcement authorities, which would materially and adversely affect our business.

Under Federal law, and more specifically the Federal Controlled Substances Act, the possession, use, cultivation, and transfer of cannabis is illegal. Our business provides services to customers that are engaged in the business of possession, use, cultivation, and/or transfer of cannabis. As a result, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us, including, but not limited, to a claim of aiding and abetting another’s criminal activities. The Federal aiding and abetting statute provides that anyone who “commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.” As a result of such an action, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.

Federal enforcement practices could change with respect to services provided to participants in the cannabis industry, which could adversely impact us. If the Federal government were to expend its resources on enforcement actions against service providers in the cannabis industry under guidance provided by the Sessions Memo, such actions could have a material adverse effect on our operations, our customers, or the sales of our products.

It is possible that due to the Sessions Memo and the continuing uncertainty respecting enforcement of federal cannabis laws that our clients may discontinue the use of our services, our potential source of customers may be reduced and our revenues may decline. Further, additional government disruption in the cannabis industry could cause potential customers and users to be reluctant to use and advertise our products, which would be detrimental to the Company. We cannot predict the impact of the Sessions Memo, whether the Attorney General Merrick Garland will issue new guidance, or his willingness to enforce federal cannabis laws at this time nor can we predict the nature of any future laws, regulations, interpretations or applications including the effect of such additional regulations or administrative policies and procedures, when and if promulgated, could have on our business.

We are subject to legislative uncertainty that could slow or halt the legalization and use of cannabis, which could negatively affect our business.

Continued development of the cannabis industry is dependent upon continued legislative authorization of cannabis at the state level, as well as the U.S. government’s continued non-enforcement of federal cannabis laws against state-law-compliant cannabis businesses. Further, progress, while generally expected, is not assured. Some industry observers believe that well-funded interests, including businesses in the alcohol beverage and the pharmaceutical industries, may have a strong economic opposition to the continued legalization of cannabis. The pharmaceutical industry, for example, is well funded with a strong and experienced lobby that eclipses the funding of the medical cannabis movement. Any inroads legalization opponents could make in halting the impending cannabis industry could have a detrimental impact on our business. While there may be ample public support for legislative action, numerous factors impact the legislative process. Any one of these or other factors could slow or halt use of cannabis, which would negatively impact our business.

Our business depends on continued purchases by businesses and individuals selling or using cannabis pursuant to state laws in the United States.

Thirty-three states and the District of Columbia allow their citizens to use medical cannabis, and eleven states and the District of Columbia have regulated the sale of cannabis for adult use. In addition, several additional states have legalized low-THC/high-CBD extracts for select medical conditions (“CBD States”). Several CBD States are considering legalizing medical cannabis, and several medical states may extend legalization to adult-use.

The states’ cannabis programs have proliferated and grown even though the cultivation, sale and possession of cannabis is considered illegal under U.S. federal law. Under the Controlled Substances Act (“CSA”), cannabis is a Schedule I drug, meaning that the Drug Enforcement Administration recognizes no accepted medical use for cannabis, and the substance is considered illegal under federal law.

In an effort to provide guidance to U.S. Attorneys’ offices regarding the enforcement priorities associated with cannabis in the United States, the U.S. Department of Justice (the “DOJ”) has issued a series of memoranda detailing its suggested enforcement approach. During the administration of former President Obama, each memorandum acknowledged the DOJ’s authority to enforce the CSA in the face of state laws, but noted that the DOJ was more committed to using its limited investigative and prosecutorial resources to address the most significant threats associated with cannabis in the most effective, consistent, and rational way.

On August 29, 2013, the DOJ issued what came to be called the Cole Memo which gave U.S. Attorneys the discretion not to prosecute federal cannabis cases that were otherwise compliant with applicable state law that had legalized medical or adult-use cannabis and that have implemented strong regulatory systems to control the cultivation, production, and distribution of cannabis. Accordingly, the Cole Memo provided lawful cannabis-related enterprises a tacit federal go-ahead in states with legal cannabis programs, provided that the state had adopted and was enforcing strict regulations and oversight of the medical or adult-use cannabis program in accordance with the specific directives of the Cole Memorandum.

On January 4, 2018, Attorney General Jefferson Sessions issued a memorandum that rescinded previous DOJ guidance on the state-legal cannabis industry, including the Cole Memo. Attorney General Sessions wrote that the previous guidance on cannabis law enforcement was unnecessary, given the well-established principles governing federal prosecution that are already in place. As a result, federal prosecutors could and still can use their prosecutorial discretion to decide whether to prosecute even state-legal adult-use cannabis activities.

In November 2018, Attorney General Sessions resigned and left the DOJ. As a nominee, Attorney General William Barr testified before the U.S. Senate and wrote to Congress that, as Attorney General, he would not seek to prosecute cannabis companies that relied on the Cole Memorandum and are complying with state law. Although proposals have been introduced to Congress in favor of protection state-legal marijuana regulations, as of the date of this Annual Report, no federal law has been enacted.

Since December 2014, companies that are strictly complying with state medical cannabis laws have been protected against enforcement for that activity by an amendment (originally called the Rohrabacher-Blumenauer Amendment, now called the Joyce Amendment) to the Omnibus Spending Bill, which prevents federal prosecutors from using federal funds to impede the implementation of medical cannabis laws enacted at the state level. Federal courts have interpreted the provision to bar the DOJ from prosecuting any person or entity in strict compliance with state medical cannabis laws.

While the protection of the Joyce Amendment prevents prosecutions, it does not make cannabis legal. Accordingly, if the protection expires, prosecutors could prosecute federally illegal activity that occurred within the statute of limitations even if the Joyce Amendment protection was in place when the illegal activity occurred. The protection of the Joyce Amendment depends on its continued inclusion in the federal Omnibus Spending Bill, or in some other legislation, and entities’ strict compliance with the state medical cannabis laws. That protection has been extended through September 30, 2021. While industry observers expect Congress to extend the protection in future Omnibus Spending Bills, there can be no assurance that it will do so.

Although several cannabis law reform bills are pending in the U.S. Congress, passage of any of them and ultimately the President’s support and approval remain uncertain. President Biden has stated that he would support federal legislation that would defer to states that have legalized cannabis (in other words, if a state legalized cannabis, cannabis in that state would not be federally illegal after the point at which the state legalized it).

Until the U.S. Government changes the law with respect to cannabis, and particularly if Congress does not extend the protection of state medical cannabis programs, there is a risk that federal authorities could enforce current federal cannabis law. An increase in federal enforcement against companies licensed under state cannabis laws could negatively impact the state cannabis industries and, in turn, our revenues, profits, financial condition, and business model.

Because our business is dependent, in part, upon continued market acceptance of cannabis by consumers, any negative trends will adversely affect our business operations.

We are dependent on public support, continued market acceptance and the proliferation of consumers in the legal cannabis markets. While we believe that the market and opportunity in the space continue to grow, we cannot predict the future growth rate or size of the market. Any downturns in, or negative outlooks on, the cannabis industry may adversely affect our business and financial condition.

New platform features or changes to existing platform features could fail to attract new users, retain existing users or generate revenue.

Our business strategy is dependent on our ability to develop platforms and features to attract new businesses and users, while retaining existing ones. Staffing changes, changes in user behavior or development of competing platforms may cause Users to switch to alternative platforms or decrease their use of our platform. There is no guarantee that companies and dispensaries will use these features and we may fail to generate revenue. Additionally, any of the following events may cause decreased use of our platform:

We are highly dependent on the services of key executives, the loss of whom could materially harm our business and our strategic direction. If we lose key management or significant personnel, cannot recruit qualified employees, directors, officers, or other personnel or experience increases in our compensation costs, our business may materially suffer.

We are highly dependent on our management team, specifically our Chief Executive Officer, Isaac Dietrich. While we have an employment agreement with Isaac Dietrich, such employment agreement permits Mr. Dietrich to terminate such agreement upon notice. If we lose key employees, our business may suffer. Furthermore, our future success will also depend in part on the continued service of our key management personnel and our ability to identify, hire, and retain additional personnel. We do not carry “key-man” life insurance on the lives of our executive officer, employees or advisors. We experience intense competition for qualified personnel and may be unable to attract and retain the personnel necessary for the development of our business. Because of this competition, our compensation costs may increase significantly.

Our monetization strategy is dependent on many factors outside our control.

There is no guarantee that our efforts to monetize the MassRoots platform will be successful. Furthermore, our competitors may introduce more advanced technologies that deliver a greater value proposition to cannabis related businesses in the future. In addition, dispensaries may not be able to accept credit or bank cards due to banking regulations, which could significantly increase the cost and time required for us to generate revenue. All these factors individually or collectively may preclude us from effectively monetizing our business which would have a material adverse effect on our financial condition and results of operation.

Changes in Amazon App Store, Apple App Store or Google Play Store policies could result in our mobile applications being de-listed. In addition, our third party service providers may decline to provide services due to their policies, or cease to provide services previously provided to us due to a change of policy.

On November 4, 2014, the MassRoots App was removed from Apple’s iOS App Store due to the Apple App Store review team changing their app enforcement guidelines to prohibit all social cannabis applications. After negotiation with Apple and the addition of certain restrictions, the MassRoots App returned to the Apple App Store in February 2015. Although Apple reversed its decision and included our app in the Apple App Store, we cannot provide any assurance that Apple’s policy will not change in the future. The MassRoots App is currently not available in the App Store due to financial constraints facing the Company.

The Apple App Store is one of the largest content distribution channels in the world and management believes that it is the only way to effectively distribute our iOS application to users who own iPhones and iPads. The Apple App Store review team effectively operates as our iOS App’s regulator; they decide what guidelines iOS apps must operate under and how to enforce such guidelines. The Apple guidelines related to cannabis-related apps are not published, enforcement of such guidelines is difficult to predict, and the review and appeal processes are conducted without public oversight. Although we will continue advocating for a more open and transparent Apple App Store review process that will allow decisions that affect a significant portion of the United States smartphone owning population to be open to public scrutiny, there can be no assurance that we will be successful in these efforts.

MassRoots, along with other cannabis apps, regularly encounter issues with the Google Play Store review team in the normal course of business due to Google Play Store’s absence of clear guidelines regarding cannabis-related apps. In November 2016, the MassRoots App was removed from the Google Play Store due to a compliance review. However, on March 21, 2017, Google Play approved the MassRoots App for distribution to Android devices through the Google Play Store once again.

In addition to challenges we face with respect to compliance with the Amazon App Store, Apple App Store and Google Play Store guidelines, service providers may refuse to provide services to us even if they previously provided such services due to our status as a cannabis related company. For example, in January 2016, after building a strong presence on Instagram and having previously used our Instagram account to grow our user count and highlight posts about our business, our account was suspended without warning by Instagram. While the account was reinstated on February 26, 2016, we cannot provide any assurance that our Instagram account will not be suspended in the future and if suspended that our account will be reinstated. Furthermore, we may face similar situations in the future with our other services providers that may cause disruptions to our business plan, all of which may have a material adverse effect on our business and financial condition.

Government actions or digital distribution platform restrictions could result in our products and services being unavailable in certain geographic regions which may harm our future growth.

Due to our connections to the cannabis industry, governments and government agencies could ban or cause our network or apps to become unavailable in certain regions and jurisdictions. This could greatly impair or prevent us from registering new users in affected areas and prevent current users from accessing our network. In addition, government action taken against our service providers or partners could cause our network to become unavailable for extended periods of time.

As discussed herein, as part of our agreement with Apple in connection with our application being returned to the Apple App Store, we agreed to limit registration of new members within our iOS application to the locations where cannabis is permitted under state law (medicinally or recreationally). This restriction prohibits users in several states and countries from accessing our network. Expansions of such policies by Apple, Google or Amazon may slow our user registration rate which may have a material adverse effect on our business and future prospects.

Failure to generate user growth or engagement could greatly harm our business model.

Our business model involves attracting building and maintaining an active audience. There is no guarantee that growth strategies used in the past will continue to bring new users to our platform. Changes in relationships with our partners, contractors and businesses we retain to grow our network may result in significant increases in the cost to acquire new users and audience members. Decreases in the size of our audience and/or decreased engagement on our network may impair our ability to generate revenue.

Failure to attract clients could greatly harm our ability to generate revenue.

Our ability to generate revenue is dependent on the continued growth of our platform. If we are unable to continue to grow our network or bring new clients to our network, our ability to generate revenue would be greatly compromised. There is no guarantee businesses will want to join our platform or that we will be able to generate revenue from our existing user base.

Historically, we have generated most of our revenue from advertising. The loss of clients or reduction in spending by advertisers may have a material adverse effect on our business.

Historically, we have generated most of our revenue from third parties advertising on our website. Some of our third party advertisers have included cannabis companies such as regulated cannabis dispensaries and mainstream brands such as Uber. As is common in the industry, our advertisers usually do not have long-term advertising commitments with us. It is possible that such advertisers may not continue to do business with us for several reasons including that they no longer believe that their advertisements on our website will generate a competitive return relative to other alternatives or in the alternative they may reduce the prices they are willing to pay to advertise their products and services on our website.

Our revenue could be adversely affected by a number of other factors including, but not limited to:

The occurrence of any of these or other factors could result in decreased traffic to our website which may result in less views of third party ads. If we are unable to generate traffic to our website and as a result third party advertisers no longer continue to do business with us, our business, financial conditions and results of operation may be materially affected.

User engagement and growth depends on software and device updates beyond our control.

Our mobile application and websites are currently available on multiple operating systems, including iOS and Android, across multiple different manufacturers, including Motorola, LG, Apple and Samsung and on thousands of devices. Changes to the device infrastructure or software updates on such devices could render our platforms and services useless or inoperable and require users to utilize our website rather than our mobile application which may result in decreased user engagement. Any decrease in user engagement may devalue our value proposition to third party advertisers who may no longer continue to do business with us which may have a material adverse effect on business, financial conditions and results of operation.

We may be unable to manage growth.

Successful implementation of our business strategy requires us to manage our growth. Growth could place an increasing strain on our management and financial resources. To manage growth effectively, we need to continuously:

If we fail to manage our growth effectively, our business, financial condition or operating results could be materially harmed.

We may not be able to compete successfully with other established companies offering the same or similar services and, as a result, we may not achieve our projected revenue and user targets.

We compete with both start-up and established technology companies. Our competitors may have substantially greater financial, marketing and other resources than we do and may have been in business longer than we have or have greater name recognition and be better established in the technological or cannabis markets than we are. If we are unable to compete successfully with other businesses in our existing market, we may not achieve our projected revenue and/or user targets which may have a material adverse effect on our financial condition.

Expansion by our well-established competitors into the cannabis industry could prevent us from realizing anticipated growth in users and revenues.

Competitors in the social network space, such as Twitter and Facebook, have continued to expand their businesses in recent years into other social network markets. If they decided to expand their social networks into the cannabis community, this could harm the growth of our business and user base and cause our revenues to be lower than we expect. In addition, competitors in the point-of-sale and compliance software space may expand their offerings into the cannabis space which could harm the growth of our business and user base and cause our revenues to be lower than we expect.

Government regulation of the Internet and e-commerce is evolving, and unfavorable changes could substantially harm our business and results of operations.

We are subject to general business regulations and laws as well as Federal and state regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, e-commerce or other online services, and increase the cost of providing online services. These regulations and laws may cover sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales, use and other taxes, personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business and results of operations.

The failure to enforce and maintain our intellectual property rights could enable others to use trademarks used by our business which could adversely affect the value of the Company.

The success of our business depends on our continued ability to use our existing tradename in order to increase our brand awareness. As of the date hereof, MASSROOTS and TOKE are federally registered trademarks owned by us, ODAVA is a state registered trademark owned by us and RETAIL is a state registered trademark of Odava, Inc. The unauthorized use or other misappropriation of any of the foregoing trademarks could diminish the value of our business which would have a material adverse effect on our financial condition and results of operation.

Due to our involvement in the cannabis industry, we may have a difficult time obtaining insurance coverage for our business which may expose us to additional risk and financial liabilities.

Insurance that may otherwise be readily available, such as workers compensation, general liability, and directors and officers insurance, is more expensive and difficult for us to obtain because we are a service provider to companies in the cannabis industry. If we are unable to obtain and maintain insurance related to our Company and business operations we will be exposed to additional risk and financial liabilities which may have a material adverse effect on our business and financial condition.

We and our customers may have difficulty accessing the service of banks, which may make it difficult for us and for them to sell our products.

Financial transactions involving proceeds generated by cannabis-related activities can form the basis for prosecution under the U.S. federal money laundering statutes, unlicensed money transmitter statutes and the U.S. Bank Secrecy Act. Guidance issued by  the Financial Crimes Enforcement Network clarifies how financial institutions can provide services to cannabis-related businesses consistent with their obligations under the Bank Secrecy Act. Furthermore, since the rescission by U.S. Attorney General Sessions on January 4, 2018 of the Cole Memo, U.S. federal prosecutors have had greater discretion when determining whether to charge institutions or individuals with any of the financial crimes described above based upon cannabis-related activity. As a result, given these risks and their own related disclosure requirements, some banks remain hesitant to offer banking services to cannabis-related businesses. Consequently, those businesses involved in the cannabis industry continue to encounter difficulty establishing banking relationships. While we do not presently have challenges with our banking relationships, should we have an inability to maintain our current bank accounts, or the inability of our customers to maintain their current banking relationships, it would be difficult for us to operate our business, may increase our operating costs, could pose additional operational, logistical and security challenges and could result in our inability to implement our business plan.

Our independent registered accounting firm has expressed concerns about our ability to continue as a going concern.

The report of our independent registered accounting firm expresses concern about our ability to continue as a going concern based on the absence of significant revenues, our significant losses from operations and our need for additional financing to fund all of our operations. It is not possible at this time for us to predict with assurance the potential success of our business. The revenue and income potential of our proposed business and operations are unknown. If we cannot continue as a viable entity, we may be unable to continue our operations and you may lose some or all of your investment in our securities.

In the past we have experienced material weaknesses in our internal control over financial reporting, which if continued, could impair our financial condition.

As reported in our Annual Report on Form 10-K, our management concluded that our internal control over financial reporting was not effective as of December 31, 2020 and 2019 due to material weaknesses regarding our controls and procedures. The Company did not have sufficient segregation of duties to support its internal control over financial reporting. Due to our small size and limited resources, segregation of all conflicting duties has not always been possible and may not be economically feasible in the near term; however, we do expect to hire additional accounting personnel in the near future. We have and do endeavor to take appropriate and reasonable steps to make improvements to remediate these deficiencies. If we have continued material weaknesses in our internal financial reporting, our financial condition could be impaired or we may have to restate our financials, which could cause us to expend additional funds that would have a material impact on our ability to generate profits and on the success of our business.

The spread of the COVID-19 outbreak has caused severe disruptions in the U.S. and global economy and financial markets and could potentially create widespread business continuity issues of unknown magnitude and duration. 

The outbreak of COVID-19 has severely impacted global economic activity and caused significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and many countries, including the United States, have reacted by instituting quarantines and restricting travel. Many experts predict that the outbreak will trigger a period of global economic slowdown or a global recession. COVID-19 or another pandemic could have material and adverse effects on our ability to successfully operate due to, among other factors:

The rapid development of this situation makes it nearly impossible to predict the ultimate adverse impact of COVID-19 on our business and operations. Nevertheless, COVID-19 presents material uncertainty which could adversely affect our results of operations, financial condition and cash flows. We continue to assess the potential impact of COVID-19, which remains uncertain at this time. 

Risks Relating to Use of New Technology

Government regulation of the Internet, blockchain technology and cryptocurrency is evolving, and unfavorable changes could substantially harm us and our subsidiary.

We are subject to federal and state regulations and laws governing the Internet, blockchain technology and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, blockchain technology and e-commerce and/or other online services, and may increase the cost of providing online services. Changes in regulations and laws may effect sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, intellectual property rights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. In addition, many governments and regulatory agencies have not established specific regulations pertaining to blockchain technology and other instruments that use such technology and no assurance can be given that such governments or regulatory authorities will not implement adverse changes to laws and regulations. Any such changes to federal and state regulations and laws may harm our and our subsidiary’s business and results of operations.

There are no assurances that we will be successful in developing blockchain-based solutions, that such solutions will be economically viable or that such solutions will be able to generate any revenue.

While we intend to continue to devote development resources to exploring the feasibility of developing block-chain based solutions, there can be no assurances that we will obtain additional funding to continue such development or that we will be successful in implementing such solutions, that they will be economically viable, or such solutions will generate any revenue.

The development and acceptance of digital instruments is subject to a variety of factors which are difficult to evaluate.

We may explore the use of digital instruments for use in connection with our platform or programs; however, there can be no assurance that we will adopt or use any such instruments, or be successful in doing so. The development and use of such instruments is subject to a variety of factors that are difficult to evaluate including, but not limited to:

The slowing or stopping of the development, general acceptance, adoption and usage of digital instruments or compliance with regulations by governmental and quasi-governmental agencies may deter or delay the acceptance of such instruments.

The potential application of U.S. laws with respect to traditional investment securities to digital instruments is unclear.

The use of digital instruments is novel and the application of U.S. federal and state securities laws is unclear in many respects. Specifically, regulation with respect to such instruments is currently undeveloped, likely to evolve, may vary significantly among international, federal, state and local jurisdictions and is subject to significant uncertainty. Various legislative and executive bodies in the United States and in other countries may in the future adopt laws, regulations, or guidance, or take other actions, which may severely impact the permissibility of the use of digital instruments, the technology behind them or the means of transaction in or transferring them. In the event that securities laws restrict the ability for digital instruments to be transferred in a manner similar to traditional investment securities, this would have a material adverse effect on the value of such instruments, which could result in a material impact on the use of such instruments as a possible means to provide rewards on the MassRoots platform.

Our failure to comply with any laws, rules and regulations, some of which may not exist yet or that are subject to interpretations that may be subject to change, could result in a variety of adverse consequences, including civil penalties and fines. The effect of any future regulatory change is impossible to predict, but such change could be substantial and materially adverse to the adoption and value our new technology, when and if developed, accepted and adopted.

Risks Related to Digital Assets

The further development and acceptance of cryptographic and algorithmic protocols governing the issuance of and transactions in cryptocurrencies, which represent a rapidly changing industry, are subject to a variety of factors that are difficult to evaluate.

The use of Digital Assets to, among other things, buy and sell goods and services and complete transactions, is part of a new and rapidly evolving industry that employs cryptocurrency assets based upon a computer-generated mathematical and/or cryptographic protocol. Large-scale acceptance of cryptocurrencies as a means of payment has not, and may never, occur. The growth of the Digital Assets industry in general, and the use of Digital Assets in particular, is subject to a high degree of uncertainty. The factors affecting the further development of the Digital Assets industry, include but are not limited to:

The outcome of these factors could have negative effects on our ability to continue as a going concern or to pursue our business strategy at all, which could have a material adverse effect on our business, prospects or operations as well as potentially negative effect on the value of any bitcoin, ethereum or other Digital Assets we hold or acquire, which would harm investors in our securities.

Currently, there is relatively small use of bitcoins in the retail and commercial marketplace in comparison to relatively large use by speculators, thus contributing to price volatility that could adversely affect an investment in us.

As relatively new products and technologies, bitcoins and the Bitcoin Network have only recently become widely accepted as a means of payment for goods and services by many major retail and commercial outlets, and use of bitcoins by consumers to pay such retail and commercial outlets remains limited. Conversely, a significant portion of bitcoin demand is generated by speculators and investors seeking to profit from the short- or long-term holding of bitcoins. A lack of expansion by bitcoins into retail and commercial markets, or a contraction of such use, may result in increased volatility or a reduction in the price of bitcoin, either of which could adversely impact an investment in us.

Political or economic crises may motivate large-scale sales of Digital Assets, which could result in a reduction in Digital Asset values and adversely affect an investment in us.

Geopolitical crises may motivate large-scale sales of Digital Assets, which could rapidly decrease the price of Digital Assets. Alternatively, as an emerging asset class with limited acceptance as a payment system or commodity, global crises and general economic downturn may discourage investment in Digital Assets as investors focus their investment on less volatile asset classes as a means of hedging their investment risk.

As an alternative to fiat currencies that are backed by central governments, Digital Assets such as bitcoin and ethereum, which are relatively new, are subject to supply and demand forces based upon the desirability of an alternative, decentralized means of buying and selling goods and services, and it is unclear how such supply and demand will be impacted by geopolitical events. Nevertheless, political or economic crises may motivate large-scale acquisitions or sales of Digital Assets either globally or locally. Large-scale sales of Digital Assets would result in a reduction in Digital Asset values and could adversely affect an investment in us.

Regulatory changes or actions may alter the nature of an investment in us or restrict the use of Digital Assets in a manner that adversely affects our business, prospects or operations.

As Digital Assets have grown in both popularity and market size, governments around the world have reacted differently to Digital Assets; certain governments have deemed them illegal, and others have allowed their use and trade without restriction, while in some jurisdictions, such as in the U.S., subject to extensive, and in some cases overlapping, unclear and evolving regulatory requirements. Ongoing and future regulatory actions may impact our ability to continue to operate, and such actions could affect our ability to continue as a going concern or to pursue our new strategy at all, which could have a material adverse effect on our business, prospects or operations.

Current interpretations require the regulation of bitcoins and other Digital Assets under the CEA by the CFTC, we may be required to register and comply with such regulations. To the extent that we decide to continue operations, the required registrations and regulatory compliance steps may result in extraordinary, non-recurring expenses to us. We may also decide to cease certain operations. Any disruption of our operations in response to the changed regulatory circumstances may be at a time that is disadvantageous to investors.

Current and future legislation, CFTC and other regulatory developments, including interpretations released by a regulatory authority, may impact the manner in which bitcoins and other Digital Assets are treated for classification and clearing purposes. In particular, derivatives on these assets are not excluded from the definition of “commodity future” by the CFTC. We cannot be certain as to how future regulatory developments will impact the treatment of bitcoins and other Digital Assets under the law.

Bitcoins have been deemed to fall within the definition of a commodity and, we may be required to register and comply with additional regulation under the CEA, including additional periodic report and disclosure standards and requirements. Moreover, we may be required to register as a commodity pool operator and to register us as a commodity pool with the CFTC through the National Futures Association. Such additional registrations may result in extraordinary, non-recurring expenses, thereby materially and adversely impacting an investment in us. If we determine not to comply with such additional regulatory and registration requirements, we may seek to cease certain of our operations. Any such action may adversely affect an investment in us.

If federal or state legislatures or agencies initiate or release tax determinations that change the classification of bitcoins, ethereum or other Digital Assets as property for tax purposes (in the context of when such Digital Assets are held as an investment), such determination could have a negative tax consequence on our Company or our shareholders.

Current IRS guidance indicates that Digital Assets such as bitcoins should be treated and taxed as property, and that transactions involving the payment of bitcoins for goods and services should be treated as barter transactions. While this treatment creates a potential tax reporting requirement for any circumstance where the ownership of a bitcoin passes from one person to another, usually by means of bitcoin transactions (including off-blockchain transactions), it preserves the right to apply capital gains treatment to those transactions which may have adversely affect an investment in our Company.

On December 5, 2014, the New York State Department of Taxation and Finance issued guidance regarding the application of state tax law to Digital Assets such as bitcoins. The agency determined that New York State would follow IRS guidance with respect to the treatment of Digital Assets such as bitcoins for state income tax purposes. Furthermore, they defined Digital Assets such as bitcoin to be a form of “intangible property,” meaning the purchase and sale of bitcoins for fiat currency is not subject to state income tax (although transactions of bitcoin for other goods and services maybe subject to sales tax under barter transaction treatment). It is unclear if other states will follow the guidance of the IRS and the New York State Department of Taxation and Finance with respect to the treatment of Digital Assets such as bitcoins for income tax and sales tax purposes. If a state adopts a different treatment, such treatment may have negative consequences including the imposition of greater a greater tax burden on investors in bitcoin or imposing a greater cost on the acquisition and disposition of bitcoins, generally; in either case potentially having a negative effect on prices in the Bitcoin Exchange Market and may adversely affect an investment in our Company.

Foreign jurisdictions may also elect to treat Digital Assets such as bitcoins differently for tax purposes than the IRS or the New York State Department of Taxation and Finance. To the extent that a foreign jurisdiction with a significant share of the market of bitcoin users imposes onerous tax burdens on bitcoin users, or imposes sales or value added tax on purchases and sales of bitcoins for fiat currency, such actions could result in decreased demand for bitcoins in such jurisdiction, which could impact the price of bitcoins and negatively impact an investment in our Company.

Security Risks Related to Our Digital Assets Holdings

Our Digital Assets may be subject to loss, damage, theft or restriction on access.

There is a risk that part or all of the Digital Assets we may hold in the future could be lost, stolen, destroyed or become inaccessible. To minimize the risk of loss, damage and theft, security breaches, and unauthorized access we may hold our Digital Assets at exchanges. Nevertheless, the exchanges we utilize may not be impenetrable and may not be free from defect or immune to acts of God, and any loss due to a security breach, software defect or act of God will be borne by us. Any of these events may adversely affect our operations and, consequently, an investment in us.

The loss or destruction of a private key required to access a Digital Assets may be irreversible. Our loss of access to our private keys could adversely affect an investment in our Company.

Digital Assets such as bitcoin are controllable only by the possessor of both the unique public key and private key relating to the local or online digital wallet in which the Digital Assets are held. We plan to safeguard and keep private the private keys we may hold in the future relating to our Digital Assets not held at exchanges; to the extent a private key is lost, destroyed or otherwise compromised and no backup of the private key is accessible, we will be unable to access the Digital Assets held by it and the private key will not be capable of being restored by the Network. Any loss of private keys relating to digital wallets used to store our Digital Assets could adversely affect an investment in us.

Security threats to us could result in, a loss of Company’s Digital Assets.

Security breaches, computer malware and computer hacking attacks have been a prevalent concern in the Bitcoin Exchange Market since the launch of the Bitcoin Network. Any security breach caused by hacking, which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption of data, software, hardware or other computer equipment, and the inadvertent transmission of computer viruses, could harm our business operations or result in loss of our bitcoins and other Digital Assets. Any breach of our infrastructure could result in damage to our reputation which could adversely affect an investment in us. Furthermore, we believe that, as our assets continues to grow, it may become a more appealing target for security threats such as hackers and malware.

The security system and operational infrastructure may be breached due to the actions of outside parties, error or malfeasance of an employee of ours, or otherwise, and, as a result, an unauthorized party may obtain access to our, private keys, data or bitcoins. Additionally, outside parties may attempt to fraudulently induce employees of ours to disclose sensitive information in order to gain access to our infrastructure. As the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, or may be designed to remain dormant until a predetermined event and often are not recognized until launched against a target, we may be unable to anticipate these techniques or implement adequate preventative measures. If an actual or perceived breach of our security system occurs, the market perception of the effectiveness of our security system could be harmed, which could adversely affect an investment in us. In the event of a security breach, we may be forced to cease operations, or suffer a reduction in assets, the occurrence of each of which could adversely affect an investment in us.

Incorrect or fraudulent Digital Asset transactions may be irreversible.

Digital Asset transactions are not, from an administrative perspective, reversible without the consent and active participation of the recipient of the transaction. Once a transaction has been verified and recorded in a block that is added to a blockchain, an incorrect transfer of Digital Assets or a theft of Digital Assets generally will not be reversible, and we may not be capable of seeking compensation for any such transfer or theft. It is possible that, through computer or human error, or through theft or criminal action, our Digital Assets could be transferred from us in incorrect amounts or to unauthorized third parties. To the extent that we are unable to seek a corrective transaction with such third party or are incapable of identifying the third party which has received our Digital Assets through error or theft, we will be unable to revert or otherwise recover incorrectly transferred Digital Assets. To the extent that we are unable to seek redress for such error or theft, such loss could adversely affect an investment in us.

Lack of insurance protection and limited legal recourses for digital assets expose us and our shareholders to the risk of loss of the Digital Assets we may hold for which no person is liable.

The Digital Assets we may purchase are not insured. Therefore, a loss may be suffered related to our Digital Assets which is not covered by insurance and for which no person or entity is liable in damages which would adversely affect our operations and, consequently, adversely affect an investment in us.

Digital Assets are not subject to FDIC or SIPC protections.

The bitcoins and other Digital Assets we may purchase and hold will likely not be held at a banking institution or a member of the Federal Deposit Insurance Corporation (“FDIC”) or the Securities Investor Protection Corporation (“SIPC”) and, therefore, the Digital Assets will not be subject to the protections enjoyed by depositors with FDIC or SIPC member institutions.

Risks Relating to our Common Stock

Due to our connection to the cannabis industry, there can be no assurance that our common stock will ever be approved for listing on a national securities exchange.

Currently, shares of our common stock are quoted on the OTC Pink Tier of the OTC Markets and are not traded or listed on any securities exchange. Even if we desire to have our shares listed on a national securities exchange, the fact that our network is associated with the use of cannabis, the legal status of which is uncertain at the state and Federal level, may make any efforts to become listed on a securities exchange more problematic. While we remain determined to work towards getting our securities listed on a national exchange, there can be no assurance that this will occur. As a result we may never develop an active trading market for our securities which may limit our investors’ ability to liquidate their investments.

The market price of our common stock may be volatile and adversely affected by several factors.

The market price of our common stock could fluctuate significantly in response to various factors and events, including, but not limited to: our ability to execute our business plan; operating results below expectations; announcements regarding regulatory developments with respect to the cannabis industry; our issuance of additional securities, including debt or equity or a combination thereof, necessary to fund our operating expenses; announcements of technological innovations or new products by us or our competitors; period-to-period fluctuations in our financial results; and other events or factors, many of which may be out of our control, including, but not limited to, pandemics such as COVID-19.

In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

Our common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.

Rule 15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

We are an “emerging growth company” within the meaning of the Securities Act, and if we decide to take advantage of certain exemptions from various reporting requirements applicable to emerging growth companies, our common stock could be less attractive to investors.

For as long as we remain an “emerging growth company,” as defined in the Jumpstart Our Business Startups (“JOBS”) Act, we will have the option to take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”), and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We may take advantage of these and other exemptions until we are no longer an “emerging growth company”. In addition, the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

We will remain an emerging growth company until the earliest of (1) the last day of the fiscal year during which we have total annual gross revenues of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering, (3) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt, and (4) the date on which we are deemed to be a “large accelerated filer” under the Exchange Act (i.e., the first day of the fiscal year after we have (a) more than $700,000,000 in outstanding common equity held by our non-affiliates, measured each year on the last day of our second fiscal quarter, and (b) been public for at least 12 months).

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We do not anticipate paying dividends on our common stock, and investors may lose the entire amount of their investment.

Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares of common stock. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.

You could lose all of your investment.

An investment in our securities is speculative and involves a high degree of risk. Potential investors should be aware that the value of an investment in the Company may go down as well as up. In addition, there can be no certainty that the market value of an investment in the Company will fully reflect its underlying value. You could lose your entire investment.

Because we can issue additional shares of common stock, purchasers of our common stock may incur immediate dilution and experience further dilution.

We are authorized to issue up to 500,000,000 shares of common stock of which 498,174,656 shares of common stock are issued and outstanding as of April 14, 2021. Our Board of Directors has the authority to cause us to issue additional shares of common stock without consent of any of stockholders. In addition, we are authorized to issue up to 10,000,000 shares of preferred stock of which 6,000 shares are designated as Series A Preferred Stock, of which no shares are issued and outstanding, 2,000 shares are designated as Series B Preferred Stock, of which no shares are issued and outstanding, 1,000 shares are designated as Series C Preferred Stock, of which 1,000 shares are issued and outstanding, 100 shares of Series X Preferred Stock, of which 26.05 are issued and outstanding, and 1,000 shares of Series Y Preferred Stock, of which 659.605674 are issued and outstanding, as of April 14, 2021. Consequently, our stockholders may experience further dilution in their ownership of our stock in the future, which could have an adverse effect on the trading market for our common stock. Furthermore, our Certificate of Incorporation gives our Board the right to create one or more new series of preferred stock. As a result, our Board may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that could adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be used to discourage, delay or prevent a change of control of our Company, which could materially adversely affect the price of our common stock.

Our Certificate of Incorporation contains an exclusive forum provision with respect to all Internal Corporate Claims, which may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable and discourage lawsuits against us or our current or former directors or officers and/or stockholders in such capacity.

Our Certificate of Incorporation provides that all Internal Corporate Claims (as defined in the Certificate of Incorporation) must be brought solely and exclusively in the Court of Chancery of the State of Delaware (or, if such court does not have jurisdiction, the Superior Court of the State of Delaware, or, if such other court does not have jurisdiction, the United States District Court for the District of Delaware). All of our stockholders are subject to the exclusive forum provision of our Certificate of Incorporation. The exclusive forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes based upon Internal Corporate Claims, which may discourage lawsuits against us or our current or former directors or officers and/or stockholders in such capacity. In addition, if a court were to find this exclusive-forum provision to be inapplicable or unenforceable in an action, we may incur costs associated with resolving the dispute in other jurisdictions, which could have a material adverse effect on our business and operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES

 
On May 1, 2020, we entered into a Membership Agreement (the “Membership Agreement”) with WeWork pursuant to which we lease offices located at 1560 Broadway, Suite 17-105, Denver, Colorado 80202. The initial term of the Membership Agreement is for six months which term shall automatically be renewed for successive one month periods unless terminated by either party. Pursuant to the terms of the Membership Agreement, we pay a fee of $1,170 per month for the leased premises.

We do not own any property or land.

We believe that our facilities are adequate for our current needs and that, if required, we will be able to expand our current space or locate suitable new office space and obtain a suitable replacement for our executive and administrative headquarters.

ITEM 3. LEGAL PROCEEDINGS 

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. Except as set forth below, we are currently not aware of any such legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results. 

Power Up Lending Group, Ltd. Complaint

On October 11, 2019, Power Up Lending Group, Ltd. (“Power Up”) filed a complaint against the Company and Isaac Dietrich, an officer and director of the Company, in the Supreme Court of the State of New York, County of Nassau. The complaint alleges, among other things, (i) the occurrence of events of default in certain notes (the “Power Up Notes”) issued by the Company to Power Up, (ii) misrepresentations by the Company including, but not limited to, with respect to the Company’s obligation to timely file its required reports with the SEC and (iii) lost profits as a result of the Company’s failure to convert the Power Up Notes in accordance with the terms thereof. In addition, the complaint alleges, among other things, that Mr. Dietrich took affirmative steps to deliberately cause the Company to breach its financial obligations. As a result of the foregoing, Power Up has requested: (i) the greater of $312,000 and the “parity value” as such term is defined in the Power Up Notes together with $2,000 per day until the Company issues shares upon conversion of the Power Up Notes together with applicable interest thereon; (ii) $165,000 as a result of the misrepresentations; (iii) an amount of lost profits to be determined by the court, but in no event less than $312,000; (iv) $312,000 as against Mr. Dietrich; (v) an award for reasonable legal fees and costs of litigation; (vi) a judgment awarding specific performance under the Power Up Notes; and (vii) the costs and disbursement of the action, pre-judgment interest, default interest and such other further relief as the court deems proper. On August 24, 2020, the Supreme Court of the State of New York, County of Nassau adjourned a hearing on Power Up’s motion for default judgment with respect to the complaint filed by Power Up on October 11, 2019, against the Company and Mr. Dietrich until September 14, 2020.

On September 14, 2020, Power-Up filed a motion for leave to enter a default judgment against the Company and Mr. Dietrich, alleging that the defendants failed to appear and did not establish a meritorious defense to the claims made or a reasonable excuse for the delay in interposing their answer. On February 9, 2021, a motion for default judgment was granted and the default judgment in the total amount of $350,551.10 was entered against the Company and Mr. Dietrich jointly and severally.

Sheppard Mullin’s Demand for Arbitration

On December 1, 2020, Sheppard, Mullin, Richter & Hampton LLP (“Sheppard Mullin”), the Company’s former securities counsel, filed a demand for arbitration at JAMS in New York, New York against the Company, alleging the Company’s breach of an engagement agreement dated January 4, 2018, and a failure of the Company to pay $487,390.73 of outstanding legal fees to Sheppard Mullin. Sheppard Mullin seeks to collect the entirety of the amount owed by the Company in accordance with said engagement agreement.

Rother Investments’ Petition

On October 28, 2020, Rother Investments, LLC (“Rother Investments”) filed a complaint in the District Court of 419th Judicial District, Travis County, Texas against the Company, alleging the Company’s default under a certain promissory note (the “Rother Investments Note”) in payment of the outstanding principal amount and interest under the Note, as described in the complaint. Rother Investments seeks to collect the amount of $124,750.00 as of the date of the complaint with late fees continuing to accrue on a daily basis, monetary relief of over $100,000 but not more than $200,000.00 pursuant to Tex. R. Civ. P. 47(c)(3), court’s costs and attorney’s fees, pre-judgment and post-judgment interest, and such other relief as the court deems appropriate.

Trawick’s Complaint

On or about January 25, 2021, Travis Trawick (“Trawick”) filed a complaint against the Company and Isaac Dietrich, an officer and director of the Company, in the Circuit Court for the City of Virginia Beach, Virginia, asserting the Company’s failure to remit payments under the certain promissory note, as subsequently amended and modified, and ancillary documents thereto (collectively, the “Note”), and Mr. Dietrich’s failure to fulfill its obligations, as the guarantor, under the Note. Trawick demands a judgment in his favor in the amount exceeding $130,336.15, the exact amount to be proven at trial including pre and post-judgment interest, reasonable attorneys’ fees, court costs, other taxable costs, and such other relief as the court deems appropriate.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

From April 9, 2015 to October 16, 2019, our common stock was quoted on the OTCQB under the symbol “MSRT.” Since October 17, 2019, our common stock has been quoted on the OTC Pink Tier of the OTC Markets under the symbol “MSRT.”

Holders

As April 14, 2021, there were 165 stockholders of record per the Company’s transfer agency’s listing of stockholders. The number of record holders was determined from the records of our transfer agent and does not include beneficial owners of common stock whose shares are held in the names of various security brokers, dealers, and registered clearing agencies. The transfer agent of our common stock is Pacific Stock Transfer Company, located at 173 Keith Street, Suite 3, Warrenton, Virginia 20186.

Dividend Policy

We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our Board of Directors.

Recent Sales of Unregistered Securities 

During the quarter ended December 31, 2020, we issued 16.05 shares of Series X Preferred Stock for proceeds of $321,000.

The issuance of the above securities was deemed to be exempt from the registration requirements of the Securities Act, by Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.

Between December 22 and March 23, 2021, the Company entered into a number of securities exchange agreements with twenty two (22) holders of its equity and debt securities for the total issuance and sale of 659.605674 shares of the Company’s Series Y Convertible Preferred Stock, par value $0.001 per share, resulting in aggregate exchange of 14,896,874,671 warrants to purchase common stock of the Company at $0.0004 per share and the exchange of the promissory notes in the aggregate principal amount and accrued interest totaling $5,947,876.20. The Purchasers constituted a significant portion of warrantholders and debtholders of the Company. The Company issued an aggregate of 659.605674 shares of Series Y Preferred Stock in reliance upon Section 3(a)(9) of the Securities Act of 1933, as amended, as involving an exchange by the Company exclusively with its security holders. See Item 9B. Other Information.

Securities Authorized for Issuance Under Equity Compensation Plans

ITEM 6. SELECTED FINANCIAL DATA

As a “smaller reporting company,” we are not required to provide the information required by this Item.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed in the section titled “Risk Factors.” 

Overview 

MassRoots, Inc. was formed in April 2013 as a technology platform for the cannabis industry. In March 2021, we relaunched our website, MassRoots.com, which aims to enable cannabis consumers to find the best products, connect with other enthusiasts, and deliver fresh content that both delights and informs our audience. Additionally, we plan to monetize our YouTube Channel, which has 273,000 subscribers, through product placements and sponsorships. Management believes that our YouTube Channel has one of the largest followings in the regulated cannabis industry while our Instagram account is followed by 378,000 users.

Competitors 

We compete with other cannabis information platforms such as WeedMaps and Leafly, which provide information with respect to dispensary locations, strain information, and news relating to the cannabis industry. 

Blockchain Technology 

In December 2017, we formed MassRoots Blockchain Technologies, Inc., our wholly-owned subsidiary, to explore how blockchain technology may be utilized in the cannabis industry. 

Recent Developments and Other Sources of Funding 

Financings 

On January 7, 2020, we issued and sold a convertible note in the principal amount of $55,000 (including a $5,000 original issuance discount) to an accredited investor which note matures on July 7, 2020.

On March 5, 2020, we issued and sold a convertible note in the aggregate principal amount of $72,600 (including a $6,600 original issuance discount) to an accredited investor which note matures on September 5, 2020. 

On March 17, 2020, we issued and sold a convertible note in the aggregate principal amount of $17,600 (including a $1,600 original issuance discount) to an accredited investor which note matures on September 17, 2020. 

On April 17, 2020, we issued and sold convertible notes in the aggregate principal amount of $330,000 (including an aggregate of $30,000 original issuance discount) to accredited investors which notes mature on October 17, 2020. 

On May 3, 2020, we received a loan in the principal amount of $50,000 pursuant to the PPP of the CARES Act. The PPP loan matures in May 2022 and bears an interest rate of 1% per annum. The Company has applied for forgiveness of the principal and accrued interest due under the loan.

On June 26, 2020, we issued and sold a secured promissory note in the principal amount of $60,000 with 10% annual interest. On the two-year anniversary of the issuance of this note, June 26, 2022, all principal and interest becomes due and payable. 

On July 8, 2020, we issued and sold a promissory note in the principal amount of $22,911 with 10% annual interest maturing on December 31, 2020. 

On July 13, 2020, we issued and sold convertible notes in the aggregate principal amount of $110,000 (including an aggregate of $10,000 original issuance discount) to accredited investors which notes mature on January 13, 2021. 

On August 31, 2020, we issued and sold convertible notes in the aggregate principal amount of $66,000 (including an aggregate of $6,000 original issuance discount) to accredited investors which notes mature on March 1, 2021. 

On September 1, 2020, we issued and sold convertible notes in the aggregate principal amount of $49,500 (including an aggregate of $4,500 original issuance discount) to accredited investors which notes mature on March 1, 2021. 

On November 25, 2020, the Company entered into a securities purchase agreement with an accredited investor for the sale of 3.3 shares of the Company’s Series X Convertible Preferred Stock, par value $0.0001 per share, resulting in aggregate proceeds of $66,000. The purchase and issuance of such shares of Series X Preferred Stock closed on December 1, 2020.

On December 21, 2020, the Company entered into a securities purchase agreement with an accredited investor for the sale 7.5 shares of the Company’s Series X Convertible Preferred Stock, par value $0.0001 per share, resulting in aggregate proceeds of $150,000. The purchase and issuance of such shares of Series X Preferred Stock closed on December 23, 2020.

On December 22, 2020, the Company entered into a securities purchase agreement with an accredited investor for the sale 5.25 shares of the Company’s Series X Convertible Preferred Stock, par value $0.0001 per share, resulting in aggregate proceeds of $105,000. The purchase and issuance of such shares of Series X Preferred Stock closed on December 29, 2020.

Results of Operations For the Year Ended December 31, 2020 Compared to the Year Ended December 31, 2019

Since inception on April 26, 2013, and during the year ended December 31, 2020, our business operations have been primarily focused developing our mobile applications, web platform and blockchain features for our products, and increasing our User-base.

Revenues

For the year ended December 31, 2020, we generated $6,964 in revenues, as compared to $23,703 for the year ended December 31, 2019, a decrease of $16,739. This decrease is primarily related to service interruptions on our platform and downsizing of our sales and corporate staff.

Operating Expenses

For the years ended December 31, 2020 and 2019, our operating expenses were $1,167,175 and $3,469,139, respectively, a decrease of $2,301,964. The decrease was mainly attributed to stock-based compensation to our employees and key consultants which, for 2020, was $0 as compared to $222,700 for 2019, a non-cash decrease of $222,700. In addition, impairment expense decreased by $196,315 as impairment expense was $0 in 2020 as compared to $196,315 in 2019, which was mainly attributed to impairment expenses associated with our business portal. There was an decrease in payroll and related expenses of $853,064 as payroll and related expenses were $303,850 for 2020 as compared to $1,156,914 for the same period in 2019, which was the result of a decrease in our labor force. Advertising expense increased by $29,197 to $58,961 for 2020 as compared to $29,764 for 2019 due to a re-focus on the Company’s YouTube channnel. For the years ended December 31, 2020 and 2019, we recorded amortization of software costs of $0 and $38,549, respectively.

Our other general and administrative expenses decreased to $803,081 for the year ended December 31, 2020 from $1,460,867 for the year ended December 31, 2019, a decrease of $657,786. This decrease was mainly attributed to the following:

The decrease of these expenditures resulted in our total operating expenses declining to $1,167,175 during the year ended December 31, 2020 compared to $3,469,139 during the year ended December 31, 2019, a decrease of $2,301,964.

Loss from Operations

Our loss from operations decreased $2,285,225 to $1,160,211 during the year ended December 31, 2020, from $3,445,436 during the year ended December 31, 2019.

Other (Expense)

During the year ended December 31, 2020, we incurred other (expense) of $(13,550,249), as compared to $(30,823,476) for the year ended December 31, 2019, a decrease of $17,273,227. This decrease is primarily due to a gain of the forgiveness of debt of $250,000 and a gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable of $162,109,131 for the year ended December 31, 2020. The Company’s derivative liability for authorized shares shortfall expense increased by $(151,398,053) to $(170,319,590) in fiscal year 2020 from ($18,921,537) during fiscal year 2019. Preferred stock issuance costs fell to $0 during the year ended December 31, 2020 from $(5,585,594) during the same period in 2019. The Company realized a $882 gain on the conversion of convertible debentures during fiscal year 2020 as compared to a $(603,529) loss in fiscal year 2020. In addition, interest expense increased by $203,851 to $(5,139,321) during fiscal year 2020 as compared to $(4,935,470) during fiscal year 2019. Lastly, the expense for the loss on change in fair value of derivative liabilities decreased by $234,064, to $(451,351) during fiscal year 2020, as compared to $(685,415) during the prior year.

Net Loss

Our net loss decreased by $19,558,452 to $14,710,460 during the year ended December 31, 2020, from $34,268,912 during the year ended December 31, 2019.

Liquidity and Capital Resources 

Net cash used in operations for the year ended December 31, 2020 and 2019 was $1,037,843 and $1,797,227, respectively. The decrease in 2020 resulted primarily from the net loss of $14,710,460, partially offset by non-cash items including derivative liability for authorized shares shortfall of $170,319,590, gain on settlement of convertible notes payable and accrued interest, warrants and accounts payable of $162,109,131, interest and amortization of debt discount of $5,139,321, change in fair value of derivative liabilities of $451,351, gain on forgiveness of debt of $250,000 and gain on conversion of convertible notes payable of $882, as well as an increase in accrued payroll and related expenses of $140,005 and an increase in accounts payable and accrued expenses of $77,520. The decrease in 2019 resulted primarily from the net loss of $34,268,912, partially offset by non-cash items including derivative liability for authorized shares shortfall of $18,921,537, preferred stock issuance costs of $5,585,594, interest and amortization of debt discount of $4,716,970, change in fair value of derivative liabilities of $685,415, and loss on conversion of convertible notes payable of $603,529, as well as an increase in accrued payroll and related expenses of $732,027 and an increase in accounts payable and accrued expenses of $557,360.

Net cash provided by (used in) investing activities for the year ended December 31, 2020 and 2019 was $0 and $90,981, respectively. Net cash provided by investing activities for the year ended December 31, 2019 was attributed to proceeds from sale of investments of $90,981.

Net cash provided by financing activities for the year ended December 31, 2020 and 2019 was $1,038,208 and $1,677,798, respectively. For the year ended December 31, 2020, these funds came mainly from the sale of Series X Preferred Stock amounting to $321,000, proceeds from issuance of convertible debt of $637,000, proceeds from issuance of non-convertible notes payable of $82,911, proceeds from the issuance of a $50,000 PPP loan, offset by repayment of advances in the amount of $3,009, repayment of non-convertible notes in the amount of $39,641, and the repayment of $13,749 in bank overdrafts. Comparatively, for the year ended December 31, 2019, these funds came mainly from the sale of Series B Preferred Stock and warrants amounting to $1,407,500, proceeds from issuance of convertible debt of $549,000 and proceeds from issuance of non-convertible notes payable of $175,000, offset by repayment of advances in the amount of $595,000. 

Capital Resources

As of December 31, 2020, we had cash on hand of $1,485. We currently have no external sources of liquidity such as arrangements with credit institutions that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.

We are dependent on the sale of our securities to fund our operations, and will remain so until we generate sufficient revenues to pay for our operating costs; however, no assurance can be given that additional financing will be available on terms favorable to us, or at all.

Fundraising

During the year ended December 31, 2020, the Company received proceeds of $637,000, $132,911, and $321,000 from the issuance of convertible notes, non-convertible notes, and Series X preferred shares, respectively.

Required Capital over the Next Fiscal Year

We do not believe that we have sufficient capital to become cash-flow positive from operations. We expect that we will need to raise additional funds to continue to fund operations.

We prepared the accompanying consolidated financial statements assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. We have not yet established an ongoing source of revenues sufficient to cover our operating costs and allow us to continue as a going concern. Our ability to continue as a going concern depends on our ability to obtain adequate capital to fund operating losses until we generate adequate cash flows from operations to fund our operating costs and obligations. If we are unable to obtain adequate capital, we could be forced to cease operations.

We depend upon our ability to secure equity and/or debt financing. We cannot be certain that additional funding will be available on acceptable terms, or at all. Our management has determined that there is substantial doubt about our ability to continue as a going concern within one year after the consolidated financial statements are issued.

The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Recent Accounting Pronouncements 

In August 2020, the FASB issued ASU 2020-06, which simplifies the guidance on accounting for convertible debt instruments by removing the separation models for: (1) convertible debt with a cash conversion feature; and (2) convertible instruments with a beneficial conversion feature. As a result, the Company will not separately present in equity an embedded conversion feature in such debt. Instead, we will account for a convertible debt instrument wholly as debt, unless certain other conditions are met. We expect the elimination of these models will reduce reported interest expense and increase reported net income for the Company’s convertible instruments falling under the scope of those models before the adoption of ASU 2020-06. Also, ASU 2020-06 requires the application of the if-converted method for calculating diluted earnings per share and the treasury stock method will be no longer available. The provisions of ASU 2020-06 are applicable for fiscal years beginning after December 15, 2021, with early adoption permitted no earlier than fiscal years beginning after December 15, 2020. The Company is currently evaluating the impact of ASU 2020-06 on its consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 removes certain disclosure requirements, including the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation processes for Level 3 fair value measurements. ASU 2018-13 also adds disclosure requirements, including changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The amendments on changes in unrealized gains and losses, and the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU 2018-13 became effective for us on January 1, 2020. The adoption of this update did not have a material impact on the Company’s consolidated financial statements and related disclosures.

There are other various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company,” we are not required to provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements required to be included in this report appear as indexed in the appendix to this report beginning on page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Pursuant to Rules 13a-15(b) and 15-d-15(b) under the Exchange Act, we carried out an evaluation, with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Based upon such evaluation, our CEO and CFO concluded that our disclosure controls and procedures as of December 31, 2020 were not effective due to identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment.

To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this Annual Report on Form 10-K have been prepared in accordance with generally accepted accounting principles in the U.S. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Our principal executive officer and principal financial officer do not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

There was a material weakness in our internal control over financial reporting due to the fact that we did not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion.

We plan to take steps to enhance and improve the design of our internal control over financial reporting. To remediate our material weaknesses, we plan to appoint additional qualified personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters; however, such remediation efforts are largely dependent upon our securing additional financing or generating significant revenue to cover the costs of implementing the changes required.

Until we remediate our material weakness in internal control over financial reporting such weaknesses could result in material misstatements in our financial statements not being prevented or detected.

The Company’s management, including the Company’s CEO and CFO, does not expect that the Company’s internal control over financial reporting will prevent all errors and all fraud. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

The Company’s CEO and CFO has identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment. The small size of the Company’s accounting staff may prevent adequate controls in the future, such as segregation of duties, due to the cost/benefit of such remediation.

Because of the above material weakness, management has concluded that we did not maintain effective internal control over financial reporting as of December 31, 2020, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO.

This Annual Report does not include an attestation of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the fourth quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

The information set forth below is included herein for the purpose of providing the disclosure required under “Item 1.01 – Entry into a Material Definitive Agreement.” of Form 8-K.

Between December 22 and March 23, 2021, the Company entered into a number of securities exchange agreements (each, individually, the “Exchange Agreement”) with twenty two (22) holders of its equity and debt securities (each, individually, the “Purchaser”) for the total issuance and sale of 659.605674 shares of the Company’s newly-created Series Y Convertible Preferred Stock, par value $0.001 per share (the “Series Y Preferred Stock”), resulting in aggregate exchange of 14,896,874,671 warrants to purchase common stock of the Company at $0.0004 per share and the exchange of the promissory notes in the aggregate principal amount and accrued interest totaling $5,947,876.20. The Purchasers constituted a significant portion of warrantholders and debtholders of the Company.

The terms and condition of Exchange Agreement for each Purchaser are essentially the same, except for the date of the agreement and the number of securities exchanged, as more particularly illustrated in the table below:

The Company may hold one or more subsequent closings to sell the remaining shares of Series Y Preferred Stock pursuant to securities Exchange Agreements substantially in the form of the Exchange Agreement (the “Refinancing”).

The Exchange Agreement contains certain customary representations, warranties, and covenants for transactions of this type.

The foregoing description of the Exchange Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the form of Exchange Agreement, a copy of which is attached hereto as Exhibit 10.45 and is incorporated herein by reference.

The information set forth below is included herein for the purpose of providing the disclosure required under “Item 3.02 – Unregistered Sales of Equity Securities.” and “Item 5.03 – Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.” of Form 8-K.

Reference is made to the disclosures set forth above for the purpose of providing the disclosure required under “Item 1.01 – Entry into a Material Definitive Agreement.” which are hereby incorporated herein by reference.

659.605674 shares of Series Y Preferred Stock sold pursuant to the Exchange Agreement in accordance with and subject to the limitations contained in the Series Y COD (defined infra). The shares of Series Y Preferred Stock have not been registered under the Securities Act of 1933, as amended (the “Securities Act”). The Company issued an aggregate of 659.605674 shares of Series Y Preferred Stock in reliance upon Section 3(a)(9) of the Securities Act of 1933, as amended, as involving an exchange by the Company exclusively with its security holders.

The information set forth below is included herein for the purpose of providing the disclosure required under “Item 3.03 – Material Modification to Rights of Security Holders.” of Form 8-K.

In connection with the Financing, on December 30, 2020, the Company filed the Certificate of Designations, Preferences and Rights of the Series Y Convertible Preferred Stock (the “Series Y COD”) with the Delaware Secretary of State.

Pursuant to the Series Y COD, 1,000 shares of the Company’s blank check preferred stock have been designated as “Series Y Preferred Stock.” The Series Y Preferred Stock have the following rights, preferences, powers, privileges and restrictions, qualifications and limitations:

Dividends. The holders of Series Y Preferred Stock shall have no dividend rights except as may be declared by the Company’s board of directors.

Ranking. The Series Y Preferred Stock rank senior to the Company’s Common Stock and preferred stock with respect to the payment of dividends and distributions of the assets of the Company upon liquidation, dissolution or winding up of the Company. Series Y Preferred Stock is, however, junior to Series X Preferred Stock of the Company.

Voting. Except as otherwise required by law, or as provided in the section entitled “Protective Provisions,” shares of Series Y Preferred Stock are not entitled to vote on any matter. As to all matters for which voting by class is specifically required by law, each outstanding share of Series Y Preferred Stock is entitled to one vote.

Protective Provisions. Except where the vote or written consent of the holders of a greater number of shares is required by law, without first obtaining the affirmative vote or the written consent of a majority of the outstanding Series Y Preferred Stock, including the Required Holder (as defined in the Series Y COD), the Company will not: (a) amend or repeal any provision of, or add any provision to, its Certificate of Incorporation or bylaws, or file any certificate of designations or articles of amendment of any series of shares of preferred stock, if such action would adversely alter or change in any respect the preferences, rights, privileges or powers, or restrictions provided for the benefit, of the Series Y Preferred Stock; (b) increase or decrease (other than by conversion) the authorized number of Series Y Preferred Stock; (c) create or authorize (by reclassification or otherwise) any new class or series of shares that has a preference over or is on a parity with the Series Y Preferred Stock with respect to dividends or the distribution of assets on the liquidation, dissolution or winding up of the Company; (d) pay dividends or make any other distribution on any shares of any capital stock of the Company junior in rank to the Series Y Preferred Stock; (e) issue any Series Y Preferred Stock other than as provided in the Series Y COD; or (f) circumvent a right of the Series Y Preferred Stock.

Participation in Future Financing. Except for certain exempt issuances, from the Initial Closing Date until the eighteen (18) month anniversary of the Initial Closing Date, upon any issuance by the Company of Common Stock or Common Stock Equivalents for cash consideration, indebtedness or a combination of such in a transaction exempt from registration under the Securities Act (a “Subsequent Financing”), the holders of the Series Y Preferred Stock will have the right to participate in an amount equal to an aggregate of thirty percent (30%) of the Subsequent Financing on the same terms, conditions and price provided for in the Subsequent Financing. In addition, the Purchaser has the right to exchange the Series Y Preferred Stock as consideration in a Subsequent Financing.

Redemption. Upon receipt of a conversion notice for Series Y Preferred Stock from a holder, the Company shall have the right (but not the obligation) to redeem all or part of the Series Y Preferred Stock which the holder is seeking to convert at a price per share equal to the product of 125% of the (1) Series Y Stated Value plus (2) the Series Y Additional Amount.

Purchase Rights If at any time the Company grants, issues or sells any options, convertible securities or rights to purchase stock, warrants, securities or other property pro rata to all or substantially all of the record holders of any class of Common Stock (the “Purchase Rights”), then each holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon complete conversion of all the Series Y Preferred Stock (without taking into account any limitations or restrictions on the convertibility of the Series Y Preferred Stock) held by such holder immediately prior to the date on which a record is taken for the grant, issuance or sale of such Purchase Rights.

Price Protection. Except for certain exempt issuances, in the event the Company issues or sells any securities, including options or convertible securities (or amends any outstanding securities of the Company), at an effective price of, or with an exercise or conversion price of less than the Series Y Conversion Price, then upon such issuance or sale, the Series Y Conversion Price shall be reduced to the sale price or the exercise or conversion price of the securities issued or sold.

The foregoing description of the Series Y COD is not complete and is qualified in its entirety by reference to the full text of the Series Y COD, a copy of which is attached hereto as Exhibit 3.8 and is incorporated herein by reference.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information required by this item is incorporated by reference to our proxy statement for our 2021 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference to our proxy statement for our 2021 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. 

The information required by this item is incorporated by reference to our proxy statement for our 2021 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this item is incorporated by reference to our proxy statement for our 2021 Annual Meeting of Stockholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this item is incorporated by reference to our proxy statement for our 2021 Annual Meeting of Stockholders.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Financial Statements

(b) Exhibit Index

SIGNATURES

Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 15th day of April, 2021.

Pursuant to the requirements of the Securities Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

MassRoots, Inc. and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of MassRoots, Inc. and subsidiaries (collectively, the “Company”) as of December 31, 2020 and 2019 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

The Company’s Ability to Continue as a Going Concern 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit, recurring losses, and expects continuing future losses that raise substantial doubt about the Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans regarding these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

MASSROOTS, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

MASSROOTS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these consolidated financial statements.

MASSROOTS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

FOR THE YEARS ENDED DECEMBER 31, 2020 AND 2019