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.
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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.
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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.
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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:
● Emergence of competing platforms and applications;
● Inability to convince potential companies to join our platform;
● Securities breaches with respect to our data;
● A rise in safety or privacy concerns; and
● An increase in the level of spam or undesired content on the network.
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.
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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.
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Our revenue could be adversely affected by a number
of other factors including, but not limited to:
● decreases in audience, including time spent on our website and mobile app;
● loss of market share to our competitors;
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:
● Evaluate definitive business strategies, goals and objectives;
● Maintain a system of management controls; and
If we fail to manage our growth effectively, our
business, financial condition or operating results could be materially harmed.
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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.
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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:
● a general decline in business activity of cannabis dispensaries;
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.
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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 acceptance and use of the new technology by consumers;
● regulation by governmental and quasi-governmental agencies;
● the maintenance and development of the protocols for the new technology;
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.
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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:
● changes in consumer demographics and public tastes and preferences;
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.
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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.
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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.
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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.
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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