[ ] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 |
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES ACT OF 1934
For the fiscal year ended December 31, 2014
2015
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934 |
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES ACT OF 1934
Commission File Number: 333-196735
MASSROOTS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 46-2612944 | |
(State or other jurisdiction of Incorporation or organization) | (IRS Employer Identification No.) | |
1624 Market Street, Suite 201, Denver, CO 80202 (720) 442-0052 Securities registered pursuant to Section 12(b) of the Act: None |
2247 Federal Blvd., Denver, CO 80211(Address, including zip code, of principal executive offices)
(720) 442-0052(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:
Title of Each Class | ||
Common Stock, $0.001 par value per share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes[ ]No[X]
]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.Yes [ ] No[X]No [X]
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[X]No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K isnot contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] | Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes[ ]No [X] [X]
As of June 30, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, there was no public market for the Registrant’s common stock. As of June 30, 2014,2015, the aggregate market value of the Registrant's 5,968,478 shares ofregistrant's common stock held by non-affiliates of the Registrant at that dateregistrant was $596,848$18,862,120 based on the fixed price of $0.10 per share of commonat which stock as described in the Registration Statementwas last sold on Form S-1 filed on July 7, 2014.
that date.
As of March 10, 2015,30, 2016, there were 41,179,00047,766,466 shares of the Registrant’s common stock outstanding issued and outstanding.
Documents incorporated by reference: None.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2014
Page | ||
PART I | ||
Item 1. | Business | |
Item 1A. | Risk Factors | |
Item 1B. | Unresolved Staff Comments | |
Item 2. | Properties | |
Item 3. | Legal Proceedings | |
Item 4. | Mine Safety Disclosures | |
PART II | ||
Item 5. | Market for the Registrant’s Common Stock and Related Stockholder Matters | |
Item 6. | Selected Financial Data | |
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 8. | Financial Statements and Supplementary Data | |
Item 9. | Changes in and/or Disagreements with Accountants on Accounting and Financial Disclosure | |
Item 9A. | Controls and Procedures | |
Item 9B. | Other Information | |
PART III | ||
Item 10. | Directors, Executive Officers and Corporate Governance | |
Item 11. | Executive Compensation | |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
Item 13. | Certain Relationships and Related Transactions and Director Independence | |
Item 14. | Principal Accountant Fees and Services | |
PART IV | ||
Item 15. | Exhibits and Financial Statement Schedule |
FORWARD-LOOKING STATEMENTS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this report may be "forward-looking statements." 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 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 described above and those risks discussed from time to time in this report, including the risks described under "Risk Factors" in our most resent registration statement and any risks described in any other filings we make with the SEC. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this report.
Management’s discussion and analysis of financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate these estimates, including those related to useful lives of real estate assets, cost reimbursement income, bad debts, impairment, net lease intangibles, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. There can be no assurance that actual results will not differ from those estimates.
NOTE REGARDING KEY METRICS
We review a number of metrics, including active users (“Users”), User interactions ("Interactions"), and other metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate business plans and make strategic decisions. See the section entitled “Business – Definitions of Key Metrics.”
While these numbers are based on what we believe to be reasonable estimates for the applicable period of measurement, there are inherent challenges in measuring usage and user engagement across our user base around the country. For example, we treat multiple accounts held by a single person or organization as multiple users for purposes of calculating our active users because we permit people and organizations to have more than one account. Additionally, some accounts used by organizations are used by many people within the organization. As such, the calculations of our active users may not accurately reflect the actual number of people or organizations using our platform.
PART I
ITEM 1. BUSINESS
Unless we have indicated otherwise or the context otherwise requires, references in this Annual Report on Form 10-K to “MassRoots,” the “Company,” “we,” “us” and “our” or similar terms are to MassRoots, Inc. Unless otherwise indicated, all share and per share information relating to our common stock in this Annual Report on Form 10-K has been adjusted to reflect the “Exchange” which occurred during our “Reorganization”. See the section entitled “Fundraising During the Year and Our Reorganization” contained in this “Item 1” for additional discussion of the Exchange and Reorganization.
Organization
Company Information
MassRoots, Inc. is aWe were incorporated in the state of Delaware corporation formed on April 24, 2013. 26, 2013 as a social network for the cannabis community.
Our principal place of businessexecutive office is located at 2247 Federal Blvd.MassRoots, Inc., 1624 Market Street, Suite 201, Denver, CO 80211,80202, and our telephone number is (720) 442-0052 and442-0052.
For the year ended December 31, 2015, we raised an aggregate of $3,617,663 from the sale of our website is www.massroots.com. The information onsecurities (including the exercise of previously issued warrants for the purchase of our website or mobile apps is notcommon stock). For the year ended December 31, 2015, we had a partnet loss of this Annual Report on Form 10-K.$8,472,898.
Our independent registered public accounting firm has issued an audit opinion for our Company, which includes an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern.
Emerging Growth Company
We are an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies.
Section 107(b) of 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. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably opted out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
We could remain an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues are $1 billion, as adjusted, or more, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
Background
MassRoots was formed in April 2013 as a social network for the cannabis community. In July 2013, we launched in the App Store and since that time, have grown into a community of more than 775,000 cannabis consumers. Our users utilize MassRoots to share their cannabis experiences, follow their favorite dispensaries, and stay informed of legalization updates. Businesses use MassRoots to advertise their products directly to cannabis consumers. Our growth has been primarily driven by MassRoots’ increasing popularity as one of the first national cannabis brands and word of mouth virility from our users. We believe that by creating a central community of hundreds of thousands of cannabis consumers, we are creating a valuable marketing channel for cannabis and its ancillary products.
As a technology company, MassRoots is able to rapidly scale its products and services with minimal marginal costs – each additional user or business that we add to our platform adds negligible server hosting costs. It also allows us to have exposure to every regulated cannabis market without establishing a physical presence in each state. This minimizes the costs of scaling and required capital while, at the same time, offering a direct role in the cannabis industry without ever touching the plant itself.
MassRoots has strong relationships in both the technology and cannabis industries. As a semi-finalist for the Extreme Tech Challenge, MassRoots was introduced to some of the leading technology investors and developers in Silicon Valley and became one of the first cannabis-related companies to present on stage at the Consumer Electronics Show (CES) in early 2016. At the same time, MassRoots raised much of its seed-stage capital from the ArcView Group, the largest network of cannabis investors and businesses in the industry, enabling the Company to develop relationships with the key plays in the cannabis sector.
Definitions of Key Metrics
On April 30, 2014, at Facebook's F8 Conference, Parse Inc. (“Parse”) announced it was implementing an improved analytics platform for applications built using its services. As these metrics are compiled by third party and are becoming an industry-standard, MassRoots decided to begin implementing Parse's analytics platform immediately and to thereafter rely on Parse's metrics for key usage statistics.
Total users ("Users") is defined as every user who currently has an account with MassRoots. It does not include users who have deleted their account. It does not reflect active usage over any set period of time.
User interactions ("Interactions") is defined as anytime a User follows another User, posts a status, comments on a status, or likes a status.
Our Products and Services
Our technology platform consists of: our consumer-facing social network (accessible through our Android application, iOS application, and web portal) and our business-facing advertising portal, MassRoots for Business.
Overview of the Business and Recent Developments
MassRoots, Inc. was formed in 2013 to be a social network for the cannabis community. Given the history of cannabis in the United States, many people would prefer to keep their cannabis experiences separate from Facebook, Instagram and Twitter where a user’s family, co-workers and employers may be connected with them. Our goal was to provide a platform where users were not required to provide personally identifiable information, and to create a semi-anonymous environment where users feel comfortable posting about cannabis.
MassRoots launched in the App Store in July 2013 and in our first 6 weeks we obtained about 6,500 users. We took that initial traction to the ArcView Group meeting in September 2013, where we were able to raise seed capital of $150,000. From October 2013 to March 2014, we invested those funds into scaling our network to 100,000 users. In March 2014, we closed a $475,000 common stock round of financing, which included a reorganization of our equity structure. The proceeds from this financing were used to register the Company’s then outstanding shares with the SEC and to continue to grow our network. By September 2014, MassRoots had grown into a community of 170,000 users and, during this month, our Registration Statement on Form S-1 went effective by operation of law in September 2014. We then started raising a common stock round, closing $776,000 from September 2014 to March 2015 and investing those funds into scaling our network to 275,000 users by March 4, 2015. Since inception, our main objective has been to grow our user-base and acquire market share.
MassRoots’ primary goals for 2015 are building out features and services that attract new users and increase their engagement while, at the same time, significantly investing in the growth and infrastructure of our network. Our lack of profitability today is part of a deliberate strategy of prioritizing our limited resources on what will deliver the greatest long-term value for our shareholders: a growing and thriving user-base of end cannabis consumers. In order to build that user-base, our developers must focus on creating the best user experience, our marketing staff must be focused on acquiring end-cannabis consumers and our leadership team needs to focus on the requisite strategies to reach one million users; once that has been accomplished, we can start focusing on developing, marketing and growing an advertising platform that will connect cannabis-related businesses to end cannabis consumers. If we attempt to develop the advertising portal prematurely, it will jeopardize the growth of the MassRoots user-base, the ultimate source of shareholder value.
Over the coming months, MassRoots plans to develop or acquire leading software solutions for consumers, businesses and developers in the cannabis industry. By doing so, we are seeking to create a valuable distribution channel for cannabis and its ancillary products.
MassRoots’ Value Proposition to Advertisers:
To date, MassRoots has mainly focused on building out its user-facing platforms and growing its network; businesses are only interested in advertising on networks with a large and active user base, which we are just now starting to achieve. As of early February 2015, we have a self-service advertising portal for dispensaries, glass shops and cannabis brands in private beta. We expect it to take several more months for MassRoots to perfect the system and have it ready to scale nationwide. The reasons we believe businesses will advertise on MassRoots are:
MassRoots’ Value Proposition to Developers:
Over the coming months, we will be introducing an Application Programming Interface (API) to developers looking to integrate MassRoots’ network into their cannabis-related platform. We believe the benefits to developers are:
MassRoots’ Value Proposition to Investors:
For investors looking to capitalize on the rapidly growing cannabis industry permissible under laws of certain states, we believe MassRoots presents a unique and valuable opportunity for the following reasons:
Our Products and Services
Our current products include our social network, accessible through our iOS and Android applications along with our website, and MassRoots for Business.
The MassRoots Network
Examples showing the current user interface of our iOS application.
The MassRoots network is accessible as a free mobile application through the iOS App Store, the Google Play Marketplace, and as a website at www.MassRoots.com. These applications and services work in a similar manner as other social networks, such as Facebook, Instagram, Twitter and Vine:
Users may create a profile by choosing a username, setting their password and agreeing to our Terms and Conditions. We do not require users’ real names, email address or phone numbers.
• | Users have the ability to like, comment and report statuses from other users. By “liking” a status, a user is indicating their approval of the posts’ content. By commenting on a status, users are free to voice their opinions or comments on the posts’ content. By reporting a status, users can flag content that violates our Terms and Conditions, including spam, harassing content and posts about other drugs. |
• | Users have the ability to tag other users and use hashtags to categorize posts. By using the “@” symbol followed by a username, users can tag other users in posts they want them to see or if they are included in the picture or post. By using the “#” followed by a categorical word, users can categorize posts based on their content. |
• | Users have the ability to search for users based on their username and the ability to search by hashtag to display all results within a particular category. Users can sort hashtag searches by their popularity or when they were posted. |
• | Users have the option to provide their phone number to MassRoots (but is not required) so their friends can search their contacts for friends with a MassRoots profile. Users also have the ability to invite their contacts that are not on MassRoots to join via text message. |
• | Whenever an Interaction takes place involving a user (follow, like, comment, tag), they are sent a push notification on their mobile device notifying them of the action. |
• | Users have the ability to set their profile to public and private, as well as enabling and disabling web-access. By setting their profile to public, any user on MassRoots’ apps will be able to see the public profile’s posts and follow the account. When a profile is private, another user must request to follow their account and the account owner must grant permission before they can view any of the account’s posts. By setting an account to web-enabled, it allows public profiles to be visible via the MassRoots website. By setting an account to web-disabled, both public and private profiles are not viewable through www.MassRoots.com. |
In early December, MassRoots released a new web platform, indexing the public profile’s postscontent on MassRoots on Google for the first time. Alexa ratings are a public measure of a website’s popularity and followare used by advertising agencies to gauge websites’ advertising value – similar to a Nielsen rating for television broadcast. During the account. When a profile is private, another user must request to follow their account and the account owner must grant permission before they can view anymonth of January 2016, MassRoots.com experienced its highest ever Alexa ratings 21 out of the account’s posts. By setting an account to web-enabled, it allows public profiles to be visible via the MassRoots website. By setting an account to web-disabled, both public and private profiles are not viewable through www.MassRoots.com.
We designed our product in that way so a significant portion of our users would immediately feel comfortable with the design and functionality of our app. We believe this serves as a solid foundation from which we can develop additional features specifically for the cannabis community, such as giving users the ability to tag the particular strain of cannabis they are consuming. The MassRoots Android application saw the greatest improvement in user-experience and functionality over the course of 2014 and is now more advanced than our iOS Application in many aspects, such as our new Discover page that gives users more effective ways to find the best content on our network.
Focus on Recruitment of Developers
In late 2014, MassRoots started prioritizing technical recruitment as one of main areas of focus – the quality31 days of the products we produce is directly correlatedmonth, reflecting increasing amounts of web traffic. Over the coming months, MassRoots plans to the qualityintroduce new features to our network to accelerate our user growth, boost retention, and skill of the developers we are able to bring on board. To that end, we’re competing against Google, Facebook and well-funded Silicon Valley start-ups for a limited pool of technical talent. Our mission of empowering and connecting the cannabis community may be a compelling and unique reason for many of these developers to consider joining MassRoots; however, in order to close the deal, we must offer competitive compensation to what they could be earning at these other companies. This simply was not feasible after MassRoots raised a $150,000 seed round in fall of 2013 or the $475,000 round in March of 2014 – these rounds would have barely covered the costs of a few developers, let alone our other operational costs. This will be a capital-intensive undertaking that we believe will result in the best products and software for businesses and consumers in the cannabis industry.
open additional revenue streams.
MassRoots Store
MassRoots also operates MassRootsStore.com, an e-commerce platform built on the Shopify Platform. Visitors are able to order MassRoots t-shirts, jars and stickers by selecting the products they would like to order, entering their shipping and billing information and confirming the order. MassRootsStore.com is not part of the Company’s primary business plan we do not expect it to be a main focus of the Company as we grow.
MassRoots for Business
Since January 2014, MassRoots has been internally beta testing several strategies to boost the followers of businesses, the number of likes they receive per post and engagement amongst their follower base. We involved approximately 30 companies in these tests, including vaporizer, edible and dispensary brands, in an attempt to minimize outside factors,such as the popularity of one particular brand. These beta tests involved MassRoots’ self-service advertising portal known aslaunched MassRoots for Business that allowin early March 2015 as an online portal for dispensaries to schedule posts, view analytics and gain insights into their followers. The basic service is available to businesses to promote posts within their target users' news feeds. Itfor no cost. Over 1,000 cannabis businesses were utilizing MassRoots for Business as of December 31, 2015, including 62% of the dispensaries in Colorado.
MassRoots for Business operates in a mattermanner similar to the one described herein:
While we had originally plannedWe started monetizing MassRoots’ network in August 2015 through advertising. We currently offer businesses the ability to launchsponsor posts through widely-followed MassRoots for Business for widespread useaccounts run by our employees, have their products featured in Q4 2014, several factors delayed our decisionweekly email newsletter to launch.over 500,000 opt-in email subscribers, and sponsor content on the MassRoots blog. We formally launchedgenerated over $150,000 in revenue through these channels in the last 4 months of 2015. We believe the revenue MassRoots for Businessis generating will continue cutting the Company’s monthly negative cash flow.
MassRoots’ business model is designed to Coloradoscale as marijuana legalization continues to spread; every state that legalizes the medicinal or adult-use of cannabis expands the number of licensed businesses in March 2015. As of March 24, 2015, we currently have over 50 dispensaries actively posting onthe industry, increasing our networkpotential customer base and we are not charging dispensaries to create an account and distribute content to their followers. We view this an opportunity to introduce MassRoots to the business community, build a working relationship, and then push additional, paid features out over time, such as sponsored posts and other advertising options. As with our user-facing applications, our focus is to get businesses using the applications.potential revenues.
Monetization of Our Network and Other Long Term Plans
While MassRoots does not collect users’Users’ names email addresses or phone numbers, we still collect a sufficient amount of information to effectively monetize our network. For instance:
Because we do not collect personally-identifiable information, this data has relatively little value outside of our network, so MassRoots has no intention of selling or disclosing this information.information to third parties for use outside of our network. However, it has significant value when used to target advertising and services directly to users within the MassRoots network; therefore, it is of the highest importance that MassRoots is able to build out products and services that keep our users engaged and on the network for extended periods of time. The amount of revenue MassRoots may be able to generate per userUser is directly correlated to the time they spend on the network, their engagement with other users and the quality of posts they put on the network. Additionally, the number of Apps, Websites and Services built using MassRoots’ APIs will also significantly impact the value per userUser – so long as MassRoots is integrated with these 3rd party applications, we will be able to collect data, serve advertising and boost engagement to, from and between our users,Users, increasing their value.
Integration with Dispensary Point of Sale Systems
WhenDuring Q3 2016, we reachexpect to begin integrating MassRoots with dispensary point of sale systems, enabling businesses to target advertising to users based on their purchasing history. For example, if a critical mass of usersparticular user goes to a dispensary every week for a month and aspurchases a chocolate brownie edible and then does not come back for two weeks, the relevant state regulations permit, we will begin pushing updates to our applications to facilitate order ahead, delivery, and in-app purchase of ancillary products. When fully developed, we willdispensary would be able to deploy these featuressend them a targeted ad offering them 20% off their next chocolate brownie edible purchase. The dispensary would be able to hundredscontrol the advertising offer, the targeting options, and all other relevant information. This will enable cannabis-related businesses to use data to target advertising directly to the consumers most likely to take action based on them, very similar to other social networks.
To facilitate this integration with dispensary point of thousandssale systems, during the second quarter of users simultaneously on2015, MassRoots invested $175,000 in exchange for preferred shares of Flowhub LLC (“Flowhub”), a platform they’re already using forseed-to-sale system, equal to 8.95% of the then outstanding equity of Flowhub. Since that time, we have been working with Flowhub to integrate their marijuana-related activities.system with our network. We do not believe that Flowhub has developed the “next generation” of seed-to-sale software and believe there is tremendous amount of synergies between the data both MassRoots and Flowhub collect. We believe that by consolidating data from such cannabis point of sale systems, grow operations, and our consumer-facing social network, we will have some of the development resources to launch these features until late 2015 or early 2016.
most important data available in the cannabis industry.
Users Growth and Product Distribution Channels
The MassRoots app is distributed free of charge through the iOS App Store and the Google Play Marketplace. Prospective users can search for MassRoots on these platforms, read user-reviews and make a decision on whether to download and utilize the MassRoots app. The MassRoots network is also accessible on through desktop and mobile web browsers by navigating to www.MassRoots.com. Our MassRoots for Business portal is distributed at Business.MassRoots.com where businesses may request access.
MassRoots has primarily gained users through organic growth - users telling their friends to join the network. This is supported by the number of endorsements MassRoots receives on Instagram and Twitter, viewable by searching “#MassRoots”.
MassRoots also retains the owners of several widely-followed Instagram, Facebook and Twitter accounts as independent contractors. We quickly discovered that Instagram was one of the most effective ways to gain new users and re-engage with existing ones. We estimate there are over 2,000,0006,000,000 people actively posting about cannabis or following cannabis-related pages on Instagram – our team viewed this as the easiest market for us to capture as these users were already discussing cannabis in a social environment on a mobile application. We currently have one of the largest cannabis-related followings on Instagram at www.Instagram.com/MassRoots. with 162,000 followers as of March 23, 2015 and we utilize the platform to highlight the best content from our community as well as engaging in pro-legalization advocacy.
Apple App Store Removal, User Support and Restatement, and Similar Matters
On November 4, 2014, the MassRoots App was removed from Apple’s iOS App Store due to what we originally believed was a compliance issue with the App Store review team. Existing iOS users were still able to access and use the MassRoots App, however new users were prohibited from downloading it. We discovered that this was a result of the App Store review team changing their app enforcement guidelines to prohibit all social cannabis applications.
When we learned of the true nature of this policy change, we immediately began organizing the cannabis community and industry against it. In early January 2015, we co-signed a letter to Apple’s CEO, Tim Cook, along with several cannabis business leaders, arguing that the App Store’s policies were stifling innovation in the cannabis industry. Over 10,000 of our users sent personal emails to Apple advocating why MassRoots should return to the App Store – with their arguments ranging from freedom of speech and expression to cannabis patients suffering from anxiety who need social support networks.
In early February 2015, an App Store representative informed us Apple had revised their enforcement guidelines – social cannabis applications that were geo-restricted to the 23 states with medical cannabis laws were once again permitted. On February 12, 2015, MassRoots returned to the App Store.
Store after we implemented the geo-restrictions.
While we are grateful to Apple for reversing its decision, we cannot guarantee this policy will remain in place. The iOS App Store is one of the largest content distribution channels in the world and is the only way to effectively distribute software to the 41.6% of the United States population who own iPhones and iPads. The iOS App Store review team is essentially a primarily regulator for our product – they decide what rules all applications in the iOS App Store must operate by and how to enforce those regulations. The rules related to cannabis-related apps are not published, are arbitrarily enforced, and the App review and appeal processes are conducted in secret without public oversight. MassRoots will continue to push for a more open and transparent app review process – especially when such policies and decisions directly impact a large portion of the population – but there is no guarantee we will be successful in those efforts.
MassRoots has not encountered any regulatory issues with the Google Play Store nor have any of our competitors. Under their respective developer license agreements, Apple, Inc. and Google, Inc. have the right to update their iOS App Store and Play Store policies, respectfully, to prohibit cannabis-related applications at any time. This could result in many prospective users being unable to access and join our network and existing users being unable to access our App.
Our activities outside of the application stores have also faced backlash and resistance due to our status as a cannabis-related company. For example, our Instagram account has a wide following of over 380,000 followers, the most of any cannabis related company per social media research website, Awesomepova.com and we utilize this following to help expand our user base. However, in a situation similar App Store removal, our Instagram account (along with several other cannabis related accounts) was suspended in January 2016 without notice or explanation from Instagram. The account was later reinstated on February 26, 2016. While we feel that our platform is at the point where any potential suspension will not affect our user growth, we expect to continue to face similar situations in the future that may cause disruptions, if only temporary, to our business plan.
MassRoots Store
MassRoots also operates MassRoots.com/shop, an e-commerce platform built on the Shopify Platform. Visitors are able to order MassRoots t-shirts, jars and stickers by selecting the products they would like to order, entering their shipping and billing information and confirming the order. MassRoots.com/shop is not part of the Company’s primary business plan and we do not expect it to be a main focus of the Company as we grow – it is primarily meant to distribute marketing collateral to our fan base to help raise awareness and accelerate our user growth.
Market Conditions
MassRoots is poised to take advantage of two rapidly growing industries: cannabis and mobile technology.
Cannabis Market Growth and Current Trends
Since the MassRoots app first launched in July 2013, there have been a series of events that have help further shape the development of the cannabis and mobile technology industries:
Further, the passing of the Rohrabacher Farr Amendment (defined below) in 2014 and 2015 indicates some level of support in Congress for medicinal cannabis, even if its actual effect is still undetermined. See additional discussion on government regulations in the “Government Regulation” section below.
Current States With Laws Permitting the Medical or Adult Use of Cannabis
As of December 31, 2015, 23 states and the District of Columbia have passed laws allowing some degree of medical use of cannabis, while four of those states and the District of Columbia have also legalized the adult-use of cannabis. The states which have enacted such laws are listed below:
State | Year Passed | |||
1. Alaska* | 1998 | |||
2. Arizona | 2010 | |||
3. California | 1996 | |||
4. Colorado* | 2000 | |||
5. Connecticut | 2012 | |||
6. District of Columbia* | 2010 | |||
7. Delaware | 2011 | |||
8. Hawaii | 2000 | |||
9. Illinois | 2013 | |||
10. Maine | 1999 | |||
11. Maryland | 2014 | |||
12. Massachusetts | 2012 | |||
13. Michigan | 2008 | |||
14. Minnesota | 2014 | |||
15. Montana | 2004 | |||
16. Nevada | 2000 | |||
17. New Hampshire | 2013 | |||
18. New Jersey | 2010 | |||
19. New Mexico | 2007 | |||
20. New York | 2014 | |||
21. Oregon* | 1998 | |||
22. Rhode Island | 2006 | |||
23. Vermont | 2004 | |||
24. Washington* | 1998 |
* State has enacted laws permitting the adult use of cannabis, in addition to medical use.
Public Support for Legalization Increasing
A Gallup poll conducted in October 2013 found that 58% of the American people supported legalizing the adult-use of cannabis, an increase of 22% from 2005 alone. This is the first time in American history the majority of registered voters support the full legalization of cannabis for adult-use. Moreover, of 67% participants aged 35 and below voted in support of recreational adult-use, setting the trend for years to come.
A 20132016 ArcView Market Research report predicts an additional 14 states will legalize the adult-use of cannabis and two states will legalize medical-use within the next five years. If public support for cannabis legalization continues to increase, we believe it is likely that Federal policies towards marijuana will be reformed. The combination of additional states legalizing adult-use under state law, expansion of medical-use provisions in states where it is currently permitted under state law and increased public awareness is projected to cause marijuana sales permitted under state law to grow from $1.43 billion in 2013 to $10.2 billion in 2018, according to ArcView Market Research.
The Rise of Mobile-First Networking
The popularity, market share and value of mobile-first networks are surging, especially if focused on a niche market.
Additionally, there has been rapid growth in other mobile user driven niche networks, such as: Whisper (anonymous confessions) recently raised $30 million at a reported $200 million valuation; Vine (short videos) was acquired pre-launch by Twitter for $30 million; and Badoo (adventurers) has a reported valuation of $2 billion.
The Intersection of Mobile, Niche-Networking and Cannabis
MassRoots’ top priority will remain expanding our user-base and increasing engagement on the network. In addition to strengthening MassRoots’ standing within the cannabis community, public markets have placed significant value on rapidly expanding networks, as seen by the market capitalizations and price-to-earnings ratios (where applicable) in the social networking industry. As a mobile-first network focused on the cannabis industry where permitted under state laws, MassRoots is poised to take advantage of the increasing popularity of mobile devices, the emergence of a multi-billion dollar cannabis industry and the decelerating growth of Twitter and Facebook.
We believe that MassRoots is currently the largest and most active social network of cannabis consumers. As of March 4, 2015, MassRoots has gained 275,000 users and facilitated 75 million user-to-use interactions.
Cannabis Related 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 market and our business. They include, but are not limited to:
Additional discussion of government regulations is available in the “Government Regulation” section below.
PatentsTechnology Industry
Mobile Devices Dominate the Industry
Over the past five years, mobile devices have redefined the technology industry. Smartphones were owned by two-thirds of U.S. mobile subscribers as of the fourth quarter of 2013, according to a February 2014 Nielsen Research Report. Smartphone sales worldwide increased 38.4% worldwide in 2013 according to a January 2014 IDC’s Worldwide Quarterly Mobile Phone tracker report. Additionally, 195 million mobile tablets were sold in 2013, an increase of 67.9% year over year, according to a March 2014 Gartner Research Report.
When the rapidly-growing smartphone and Trademarkstablet market size is combined with the development fast, reliable and relatively inexpensive data plans from wireless carriers, it becomes clear why mobile applications “Apps” have surged in popularity and value over recent years.
The Rise of Mobile-First Networking
The popularity, market share and value of mobile-first networks are increasing, especially if focused on a niche market.
Additionally, there has been rapid growth in other mobile user driven niche networks, such as: Whisper (anonymous confessions) recently raised $30 million at a reported $200 million valuation; Vine (short videos) was acquired pre-launch by Twitter for $30 million; and Badoo (adventurers) has a reported valuation of $2 billion.
The Intersection of Mobile, Niche-Networking and Cannabis
MassRoots’ top priority will remain expanding our user-base and increasing engagement on the network. In addition to strengthening MassRoots’ standing within the cannabis community, public markets have placed significant value on rapidly expanding networks, as seen by the market capitalizations and price-to-earnings ratios (where applicable) in the social networking industry. As a mobile-first network focused on the cannabis industry where permitted under state laws, MassRoots is poised to take advantage of the increasing popularity of mobile devices, the emergence of a multi-billion dollar cannabis industry and the decelerating growth of Twitter and Facebook.
Fundraising and Previous Offerings
Since our inception, we have spent considerable effort on fundraising to support the operations of the Company. This included the following:
In connection with an offering that occurred in October 2013, the Company filed an Amended and Restated Certificate of Incorporation which authorized the issuance of 21 shares of preferred stock (6,397,958 common shares post-Exchange, defined below) with a par value of $1.00 per share, 17.65 shares (5,377,332 common shares post-Exchange) of which were designated as Series A Preferred Stock. Among other rights and privileges, holders of Series A Preferred Stock are entitled to a cumulative dividend of 7% annually, preferential payments over common stock in liquidation and other events, and the ability to convert their Series A Preferred Stock to common stock on a one to one basis (taking into account any unpaid dividends).
In October 2013, the Company entered into agreements to issue 5.88, 5.88, and 5.89 Series A Preferred shares (1,791,428, 1,791,428, and 1,791,475 common shares post-Exchange) to Bass Point Capital, LLC, WM18 Finance LTD, and Rother Investments, LLC, respectively, in exchange for a $50,000 investment from each. In addition, the Company entered into an agreement to issue as compensation for services provided a total of 2.94 Series A Preferred shares (895,715 common shares post-Exchange) to Douglas Leighton for financial consulting services (collectively, the “Original Offering”).
The Reorganization, March 2014 Offering and Registration Rights
In preparation for the March 2014 Offering (as defined herein) and the Company’s intention of becoming a publicly traded entity, on March 18, 2014 the Company entered into an Agreement and Plan of Reorganization with its shareholders in which the following was effected: (i) on March 21, 2014, the Company’s Amended and Restated Certificate of Incorporation was amended to allow for the issuance of 200,000,000 shares of the Company’s common stock and amended the par value of the Company’s common stock to $0.001 per share; (ii) on March 24, 2014, each of the Company’s preferred shareholders converted their shares into common stock on a one for one basis (including the accrued divided); and (iii) on March 24, 2014, each of the Company’s shareholders surrendered their shares of the Company’s common stock in exchange for the pro-rata distribution of 36,000,000 newly issued shares of Company’s common stock, based on the percentage of the total shares of common stock held by the shareholder immediately prior to the exchange (the “Exchange”).
In March 2014, we raised gross proceeds of $475,000 through an offering of our securities to certain accredited and non-accredited investors consisting of: (i) $269,100 face amount of convertible debentures convertible into up to 2,691,000 shares of the Company’s common stock at $0.10 per share (the “Debentures”), together with warrants, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock underlying the Debentures, at $0.40 per share; and (ii) 2,059,000 shares of our common stock at $0.10 per share with a warrant, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock purchased, at $0.40 per share (collectively, the “March 2014 Offering”). Five investors received Debentures and warrants, while 36 accredited and unaccredited investors received the common stock and warrants. In July 2015, one investor exchanged 1,000,000 shares of Common Stock for a warrant exercisable into 1,000,000 shares of our common stock at $0.001 per share, with materially the same terms as the $0.001 Consulting Warrants, defined below.
In connection with the March 2014 Offering, we entered into certain registration rights agreements (the “Registration Rights Agreement”), whereby we agreed to use our commercially reasonable efforts to prepare and file a registration statement with the SEC within forty-five (45) days after March 24, 2014, covering all outstanding shares of common stock (including all shares of Common Stock sold in the March 2014 Offering), in addition to all shares of common stock underlying the Debentures, Debenture Warrants, and Common Stock Warrants.
Additionally, as payment for consulting services provided in relation to the March 2014 Offering, we issued Dutchess Opportunity Fund, II LP (“Dutchess”) a warrant exercisable into 4,050,000 shares of our common stock at $0.001 per share, and a warrant exercisable into 2,375,000 shares of our common stock at $0.40 per share. The Company also granted certain registration rights to Dutchess covering all shares of common stock issuable upon the excise of each of the warrants it received in connection to the March 2014 Offering.
On September 15, 2014 our resale registration statement on Form S-1 covering 50,400,000 shares of common stock outstanding or shares of common stock underlying warrants or debentures received in connection to the March 2014 Offering (“2014 Registration Statement”) became effective.
In March 2016, holders of the Debentures agreed to revise the maturity date of the Debentures to be March 24, 2018 from March 24, 2016.
Additional Offerings of our Securities
From September 15, 2014 to March 11, 2015, we completed an offering of $861,000 of our securities to certain accredited and non-accredited investors consisting of 1,722,000 shares of our common stock at $0.50 per share and warrants to purchase up to 861,000 shares of common stock at $1 per share.
From April 1, 2015 through April 17, 2015, we completed an offering of 960,337 shares of the Company’s common stock to certain accredited and unaccredited investors, pursuant to which, the Company received gross proceeds of $576,200. The Company terminated this offering as of April 17, 2015. The Company compensated Chardan Capital Markets, LLC, its placement agent for the offering, $20,000 in cash and 262,560 shares of common stock as commission for this placement.
From June 10, 2015 through July 13, 2015, MassRoots sold 1,540,672 shares of unregistered common stock to certain accredited investors for gross proceeds of $1,140,502. In connection with this offering, Chardan Capital, its placement agent for the offering, received $27,200 in cash and 80,560 shares of the Company’s common stock as commission for this placement.
On November 9, 2015, MassRoots sold 815,500 shares of common stock, with warrants to purchase 407,475 shares of common stock, in a registered offering to certain unaccredited and accredited investors for gross proceeds of $1,019,375 to the Company. MassRoots did not utilize a placement agent in this transaction.
In December 2015, MassRoots issued 146,200 three year warrants with an exercise price of $1.06 to our holders of outstanding warrants issued in conjunction with our September 15, 2014 to March 11, 2015 offering. These warrants were issued in exchange for the holder agreeing to waive certain provisions providing price protection of the warrant received in the September 15, 2014 to March 11, 2015 offering.
In March 2016, MassRoots completed a private offering (“March 2016 Note Offering”) to certain accredited investors of six (6) month secured convertible notes with a principal amount of $1,514,667 along with together with five year warrants to purchase an amount of shares of the Company’s common stock equal to the number of shares of common stock issuable upon the conversion of the notes in full and having an exercise price of $1.00 per share. The notes may be convertible into shares of the Company’s common stock at a price per share equal to the lower of (i) one dollar ($1.00), and (ii) a 25% discount to the price at which the Company next conducts an offering after the issuance date of the note; provided, however, if any part of the principal amount of the note remains unpaid at its maturity date, the conversion price would be equal to 65% of the average of the three trading days with the lowest daily weighted average prices of the Company’s common stock occurring during the fifteen days prior to the notes’ maturity date. If the note is not repaid by the maturity date, the investors will receive, in aggregate but calculated pro rata to the principal amounts remaining outstanding at the time of maturity, up to five hundred thousand (500,000) shares of the Company’s common stock. Gross proceeds received by MassRoots in this offering was $1,420,000, while net proceeds were $1,271,600 (excluding any legal fees). In connection with this offering, Chardan Capital, its placement agent for the offering, received $123,400 in cash as commission for this placement.
Employees and Consultants
MassRoots has 33 full-time employees, two part time employees, and one full time independent contractor.
Amount Spent on Research and Development
MassRoots invests a significant portion of its operating budget in developing new mobile communications tools, location-based services and in cross-platform compatibility software. We expect to spend approximately $1,500,000 during fiscal year ended December 31, 2016 on development-related payroll and expenses. We spent $651,000 on research and development-related salaries for the year ended December 31, 2015.
Insurance
In December 2015, MassRoots began offering health, dental and vision insurance to its employees at an estimated monthly cost of $10,000. MassRoots also carries general liability and worker’s compensation insurance for its employees. We do not currently hold any other forms of insurance. Because we do not have any insurance, if we are made a party of a legal action, we may not have sufficient funds to defend the litigation. If that occurs a judgment could be rendered against us that could cause us to cease operations.
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, 23 states and the District of Columbia have passed state laws that permit doctors to prescribe cannabis for medical-use and four states and the District of Columbia have enacted laws that legalize the adult-use of cannabis for any reason. This has created an unpredictable business-environment for dispensaries and collectives that legally 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 is meant only as a guide for United States Attorneys and does 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. We believe and have implemented procedures and policies to ensure we are operating in compliance with the "Cole Memo". However, we cannot provide assurance that our actions are in full compliance with the Cole Memo or any other laws or regulations. Per MassRoots’ 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 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 within our terms and conditions or permanently deletes it and bans the user account.
In addition, as part of the agreement to allow our app to return to the Apple App Store, we implemented restrictions to restrict new users to our mobile apps to the 23 states with medical cannabis laws.
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 intend to remain within the guidelines outlined in the Cole Memo. However, we cannot provide assurance that we are in full compliance with the Cole Memo or any other laws or regulations.
Rohrabacher Farr Amendment
On December 16, 2014, H.R. 83 - Consolidated and Further Continuing Appropriations Act, 2015 was enacted and included a provision known as the “Rohrabacher Farr 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 Rohrabacher Farr Amendment represents one of the first times in recent history that Congress has taken action indicating support of medical cannabis. The Rohrabacher Farr Amendment was renewed by Congress in 2015 and remains in effect currently.
However, the Rohrabacher Farr Amendment would appear to protect the right of the states to determine their own laws on medical cannabis use, the actual effects of the amendment are still unclear. The Rohrabacher Farr 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 Rohrabacher Farr 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 commence enforcement actions against individuals or businesses participating in the cannabis industry despite such participation being legal under state law. Whether this interpretation is appropriate is still being litigated, and, while an initial district court decision has not supported the Department of Justice’s interpretation, such decision is currently under appellate review. In addition, no matter what the interpretation is adopted by the courts, there is no question that the Rohrabacher Farr Amendment does not protect any party not in full compliance with state medicinal cannabis laws.
Potential Changes to Federal Laws and Enforcement Priorities
Although the Department of Justice has stated in the Cole Memo that it is not an efficient use of limited resources to direct federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis, there is no guarantee that the Department of Justice’s position will not change regarding the low-priority enforcement of federal laws. Further, United States is undergoing an election year in 2016 and a new administration could introduce a less favorable cannabis enforcement policy. There can be no assurances that any future administration would not change the current enforcement policy and decide to strongly enforce the federal laws.
In light of the 2005 U.S. Supreme Court ruling in Gonzales v. Raich, under the commerce clause of the constitution, Congress may pass laws to criminalize the production and use of home-grown cannabis even where states have approved its use for medicinal purposes, which leads to the conclusion that the Controlled Substances Act may preempt state laws relating to any cannabis-related activity. Any such change in the federal enforcement program of current federal laws could cause significant financial damage to our business. While we do not directly harvest, distribute, or distribute cannabis today, we still may be deemed to be violating federal law we may be irreparably harmed by a change in enforcement by the federal or state governments.
Trademarks
On March 31, 2014, we applied for a trademark of the “MassRoots, Inc.” name in the United States. However, several factors, including the Company’s app being removed from Apple’s iOS App Store, required the Company to focus its resources in other areas, away from completing the trademark application process.process, and the trademark application was deemed to be abandoned. The Company intendsexpects to reapply for this trademark in the second quarter of 2015.2016.
Competitors, Methods of Completion, Competitive Business Conditions
We do not believe that we face significant direct competition in the “social network for the cannabis community” sector. No other network in the space currently has a significant user base or significant outside funding.
MassRoots competes with Facebook, Instagram and Twitter, and other social networks for users’ engagement; many of these competing social networks have substantially more financial resources, a better user-experience and a significantly larger user-base than MassRoots. Our differentiator is that MassRoots is solely dedicated to cannabis-related content, information most users do not feel comfortable sharing on these other networks as it may jeopardize their personal and professional reputations. Additionally, MassRoots is developing specialized features for the cannabis industry (such as a strain tagger) that competing networks likely will not spend the time and resources to develop given that only a small portion of their user-base consumes cannabis. This density of cannabis consumers and content is what makes MassRoots attractive to cannabis consumers and serves as our main competitive advantage.
Network effects have come to dominate consumer habits, which can provide protection to networks such as MassRoots. For example, Google+ failed to obtain a dominant market share in desktop-based social networking because it wasn’t introduced until Facebook had already conquered the market. Similarly, when Facebook introduced Poke as a competitor to SnapChat in late 2012, it failed to overtake SnapChat due to the market dominance already achieved by SnapChat. Even if a well-financed competitor to MassRoots were to emerge, they would not only have to convince users on why their platform is superior, but also get them to switch away from the network their friends are already using. Every user that MassRoots gains, every interaction that takes place on our network and every day that we grow, the barrier to entry to competitors becomes higher.
While it is true that some networks, such as Friendster and MySpace, failed after building significant user-bases, we believe a primary reason for their failure was technical: their platforms underwent routine maintenance that took the network offline for hours at a time and they did not focus on the underlying user-experience, and overwhelmed the users with advertisements. This created opportunities for well-financed competitors to emerge. We believe that by employing a similar strategy to other successful social networks and maintaining a focus on the user experience, this, combined with strong network effects of our large user-base, will allow us to create and maintain significant long-term shareholder value.
MassRoots competes with other cannabis networks such as WeedMaps, Leafly and THC Finder for advertisers’ dollars. WeedMaps and THC Finder are platforms that allow users to find and review dispensaries. Leafly is primaryprimarily a strain-guide that allows users to find information on strains, add a review and find it a dispensary closest to the user. In most situations, cannabis consumers are not looking to change dispensaries often. All of these services – WeedMaps, Leafly and THC Finder – lack the daily, weekly and monthly recurring usage that drives long-term value for advertisers. We believe that MassRoots’ recurring usage and the ability to target advertisements to users based on their previous posts will present a superior value proposition to advertisers.
Fundraising During the Year and Our Reorganization
During 2014, we spent considerable effort on fundraising to support the operations of the Company. This included the following:
On March 18, 2014, as part of a Plan of Reorganization entered into by the Company, (i) all preferred shareholders converted their shares of stock into common stock as was outlined in our certificate of incorporation; (ii) the Company’s certificate of incorporation was amended to allow for the issuance of 200,000,000 shares of our common stock, (iii) the Company’s current shareholders exchanged their shares of our common stock for the pro-rata percentage of 36,000,000 shares of our common stock (the “Exchange”).
On March 24, 2014, we completed an offering (“March 2014 Offering”), under which we offered $475,000 of our securities to certain accredited and non-accredited investors consisting of (i) $269,100 of principle face amount Debentures convertible into shares of the Corporation’s common stock at $0.10 per share, together with the Debenture Warrants, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock underlying the Debentures, at $0.40 per share; and (ii) 2,059,000 shares of our common stock at $0.10 per share, together with a warrant, exercisable into an amount of our common stock equal to fifty percent (50%) of the Common Stock purchased, at $0.40 per share. Additionally, as payment for consulting services provided in relation to the March 2014 Offering, we issued Dutchess Opportunity Fund, II LP (“Dutchess”) a warrant exercisable into 4,050,000 shares of our common stock at $0.001 per share and a warrant exercisable into 2,375,000 shares of our common stock at $0.40 per share. Further, in connection with the March 2014 Offering, we entered into certain registration rights agreements, whereby we agreed to register our then outstanding shares with the Securities and Exchange Commission (“SEC”), pursuant to a registration statement (“Registration Statement”) filed under the Securities Act of 1933 (“Securities Act”). The Registration Statement became effective on September 15, 2014.
From September 15 to December 31, 2014, we completed a separate offering of $524,000 of our securities to certain accredited and non-accredited investors consisting of 1,048,000 shares of our common stock, with a warrant, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock purchased, at $1.00 per share.
We expect to have to continue to raise funds during fiscal 2015 to support our business.
Government Regulation
As of the date of this Annual Report on Form 10-K, the Company has performed minimal advertising which has not included advertising for cannabis itself or any cannabis infused products. As such, we do not believe our activities have violated Federal law. Over the coming months, 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 intend on remaining within the guidelines outlined in the Cole Memo (as more fully described in this Annual Report), which does not alter the Department of Justice's authority to enforce Federal law, including Federal laws relating to cannabis, but does recommend that U.S. Attorneys prioritize enforcement of Federal law away from the cannabis industry operating as permitted under certain state laws so long as certain conditions are met. However, we cannot provide assurance that we are in full compliance with the Cole Memo or any other laws or regulations
Legal Proceedings
We are not currently a party to any legal proceedings, and we are not aware of any pending or potential legal actions.
Sources and Availability of Raw Materials
We do not use raw materials in our business
Employees and Consultants
MassRoots has sixteen full-time employees and three full time independent contractors.
Backlog of Orders
We have no backlog of orders.
Seasonal Aspect of our Business
None of our products are affected by seasonal factors.
Reports to Security Holders
We are required to file reports and other information with the SEC. You may read and copy any document that we file at the SEC's public reference facilities at 100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for more information about its public reference facilities. Our SEC filings are available to you free of charge at the SEC's web site at www.sec.gov. We are an electronic filer with the SEC and, as such, our information is available through the Internet site maintained by the SEC that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. This information may be found at www.sec.gov and posted on our website at investors.massroots.com/.
ITEM 1A. RISK FACTORS
As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 2. PROPERTIES
Our executive and administrativeOn April 14, 2015, the Company completed the relocation of its headquarters are currently located in a total of 2,800 square feet at 2247 Federal Blvd.to 1624 Market Street, Suite 201, Denver, CO 80211. This location is co-leased by the Company, along with CannaBuild, LLC, from 2247 Federal Boulevard, LLC80202 which we leased on March 20, 2015 pursuant to a written lease which expires on July 22, 2015 and contains an option for a one year renewal at the same monthly rate. This location is shared with CannaBuild, LLC, which pays a portion of the monthly rent. The lease is for a total of $3,450 per month, which, pursuant to an expense sharing agreement between the Company and CannaBuild, LLC, the Company is responsible for paying $2,250 per month.
On March 20, 2015, we executed a lease with RVOF Market Center, LLC (“201 Lease”). Under the 201 Lease, we agreed to rent 3,552 square feet of office space at 1640 Market Street, Denver, CO 80202that location for a term of 37 months, under which the Company will pay a base rate of $0 for the first month, $8,288 for months two through 13, $8,584.00 for the months 14 through 25, and $8,880.00 for the months 25 through 37. We expect to move our executive and administrative headquarters to this location during the second quarter of 2015. We dodid not expect to incur a significant cost related to the move to this move.location.
We amended this lease in January 2016 to include Suite 203, also located at 1624 Market Street in Denver, CO 80202, which allows us to expand our headquarters by an additional 1,508 square feet of office space. For this expansion (and in addition to the rent paid under the 201 Lease), we will pay $0 until May 30, 2016, $3,644 for each month from June 1, 2016 to May 30, 2017, $3,770 for each month from June 1, 2017 to May 30, 2018, and $3,896 for each month from June 1, 2018 to November 30, 2018.
The Company had previously rented virtual office space from Opus Virtual Offices, which provides conference rooms, mail forwarding and call answering for $99 per month ($1,188 on an annual basis). This lease was cancelled by the Company and expired September 14, 2014. We do not own any properties 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
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
There is no public market forSince April 9, 2015, our common stock. Althoughstock has been quoted on the OTCQB under the symbol “MSRT”. Trading in our common stock has historically lacked consistent volume, and the market price has been volatile.
The following table presents, for the periods indicated, the high and low sales prices of the Company’s common stock, and is based upon information provided by the OTCQB Marketplace. These quotations below reflect inter-dealer prices, without retail mark-up, mark-down, or commission, and may not necessarily represent actual transactions.
2015 | ||||||||
High | Low | |||||||
Second Quarter | $ | 7.01 | $ | 1.02 | ||||
Third Quarter | $ | 2.34 | $ | 0.80 | ||||
Fourth Quarter | $ | 1.80 | $ | 0.84 |
2016 | ||||||||
High | Low | |||||||
First Quarter | $ | 1.25 | $ | 0.65 |
As of March 4, 2016, there were 90 shareholders of record per the Company’s transfer agency’s listing of shareholders. 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 not currently listed on a public exchange, we are in the process of having our common stock quoted on the OTCQB. There can be no assurance that such an application for quotation will be approved. In the event we are successful in our attempts to have a market maker quote our stock on the OTCQB, we will need to comply with ongoing reporting requirements in order to insure that the market maker will continue to quote our stock.
Our common stock may never be quoted on the OTCQB, or, even if quoted, a liquid or viable market may not materialize. There can be no assurance that an active trading market for our shares will develop, or, if developed, that it will be sustained.
As of March 10, 2015, there were approximately 71 holders of record of the Company's common stock as determined from the Company's transfer agent's list.
As of March 10, 2015, 200,000,000 shares of common stock, $0.001 par value per share were authorized and 21 shares of Series A PreferredPacific Stock were authorized. As of March 10, 2015, there were 41,179,000 shares of our common stock issued and outstanding and 0 shares of Series A Preferred Stock issued and outstanding.
As of March 10, 2015, 11,946,000 shares of our common stock were subject to convertible debentures or warrants to purchase our common stock, 2,420,000 shares of common stock issuable upon the exercise of options.
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;
In March 2016, MassRoots completed a private offering to certain accredited investors of six (6) month secured convertible notes with a principal amount of $1,514,667 along with together with five year warrants to purchase an amount of shares of the Company’s common stock equal to the number of shares of common stock issuable upon the conversion of the notes in full and having an exercise price of $1.00 per share. The notes may be convertible into shares of the Company’s common stock at a price per share equal to the lower of (i) one dollar ($1.00), and (ii) a 25% discount to the price at which the Company next conducts an offering after the issuance date of the note; provided, however, if any part of the principal amount of the note remains unpaid at its maturity date, the conversion price would be equal to 65% of the average of the three trading days with the lowest daily weighted average prices of the Company’s common stock occurring during the fifteen days prior to the notes’ maturity date. Gross proceeds received by MassRoots in this offering was $1,420,000, while net proceeds were $1,271,600 (excluding any legal fees). In connection with this offering, Chardan Capital, our placement agent in the offering, received $123,400 in cash as commission for this placement.
Use of Proceeds from Registered Securities
From October 1, 2014 until December 31, 2014, we completed sales of $405,000 of our securities to certain accredited and non-accredited investors consisting of 202,500On November 9-10, 2015, MassRoots sold 815,500 shares of our common stock, at $0.50 per share, with a warrant, exercisable into an amountwarrants to purchase 407,475 shares of our common stock, equalin a registered offering pursuant to fifty percent (50%) of the common stock purchased, at $1.00 per share.
On September 15, 2014, the Company’s Registration Statement on Form S-1 (File No. 333-196735) asa registration statement filed with the SEC became effective. Underon October 30, 2015, and declared effective on November 3, 2015, to certain unaccredited and accredited investors for gross proceeds of $1,019,375 to the Registration Statement, we registered the sale of an aggregate of 50,400,000 shares of our common stock held by certain selling security holders (identified in the Registration Statement). The selling security holders may sell these shares from time to time in the open market at prevailing prices or in individually negotiated transactions, through agents designated from time to time or through underwriters or dealers. All of the shares registered in the Registration Statement were registered for the account of the selling security holders.Company. The Company will not receive anyincurred the expenses and received net proceeds as set forth below:
SEC registration fees | $ | 2,666 | ||||
Legal fees and expenses: | $ | 30,000 (estimated) | ||||
Accountants fees and expenses: | $ | 2,000 (estimated) | ||||
Miscellaneous | $ | 7,500 | ||||
Net Proceeds | $ | 977,209 |
We used the net proceeds from the sale ofoffering for our general corporate purposes and working capital, to accelerate user-growth, develop new feature sets for our mobile applications, expand the services we offer to businesses. The Company had registered up to 6,200,000 shares of our common stock byand warrants to purchase 3,100,000 shares of common stock. The Company closed the selling security holders.Offering on November 10, 2015. MassRoots did not utilize a placement agent in this transaction.
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 report. 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 below and elsewhere, particularly in “Risk Factors” section of the Company’s prospectus, dated and filed with the SEC on September 15, 2014.November 9, 2015.
Overview
MassRoots, Inc. was incorporated in the state of Delaware on April 24, 2013, to be a mobile networktechnology platform for the cannabis community.industry. We are a development-stage company and since our inception we have generated only minimal revenues from business operations.
Our independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that we can continue as an on-going business unless we obtain additional capital to pay our ongoing operational costs. Accordingly, we must locate sources of capital to pay our operational costs.
Our operational expenditures are primarily related to development of the MassRoots platform, marketing costs associated with getting users to join our networkattracting and engage with otherretaining users, and the costs related to being a fully reporting company with the Securities and Exchange Commission. As
2015 was a year of March 24, 2015,transformation for MassRoots has built a network of 275,000 Users and facilitated 75 million Interactions. This growth has been aided by– our userbase more than tripled, growing from roughly 200,000 to 700,000 over the growing use of mobile applications and the popularitycourse of the cannabis legalization movement among young adults,year; we started monetizing our primary users.network through advertising in August and generated our first $200,000 in revenue; and our team grew from a handful of employees to more than 20. We believe that 2015 will serve as a solid foundation for continued growth in the quarters and years to come.
Results Of Operations
For the Fiscal Year ended | ||||||||||||||||
31-Dec-15 | 31-Dec-14 | $ Change | % Change | |||||||||||||
Gross revenue | $ | 213,963 | $ | 9,030 | $ | 204,933 | 2,269 | % | ||||||||
Operating expenses | 6,339,063 | 1,616,253 | 4,722,811 | 292.21 | % | |||||||||||
Loss from Operations | (6,125,100 | ) | (1,607,223 | ) | (4,517,877 | ) | 281.1 | % | ||||||||
Other Income /(Expense) | (2,347,798 | ) | (828,919 | ) | (1,518,879 | ) | 183.23 | % | ||||||||
Net Loss | (8,472,898 | ) | (2,436,142 | ) | (6,036,757 | ) | 247.80 | % | ||||||||
Net loss per share - basic and diluted | $ | (0.19 | ) | $ | (0.17 | ) | $ | (0.02 | ) | 11.7 | % |
Since inception on April 24, 2013, and during the year ended December 31, 2014,2015, our business operations have been primarily focused developing our mobile applications, websitesweb platform and increasing our user base.
Revenues
WeSince beginning to monetize our platform in August 2015, we have generated only minimal revenues from our operations thus far.operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us, forand risks associated the implementation of our business strategies. To become profitable and competitive, we must develop the business plan and execute the plan.
For the year ended December 31, 20142015, we generated $9,030$213,963 in advertising revenues, while we generated $470 in advertising revenues from April 24,2013 (inception) through December 31, 2013. For the 6 months ended December 31, 2014, we generated $7,291 in advertising revenues, while we generated $1,739 in advertising revenues from January 1as compared to June 30, 2014. This revenue was primarily generated from our Marijuana Tech Startup Weekend we hosted in late September 2014, an event designed to recruit development talent for the MassRoots team. These revenues are not indicative of our future monetization strategy and will most likely decrease during the early part of 2015.
For the year ended December 31, 2014 we incurred $1,615,563 in operating expenses, related principally to stock warrants issued for services and legal expenses. Excluding expenses related to the stock warrants, common stock and stock options issued for services, our total operating expenses$9,030 for the year ended December 31, 2014, an increase of $204,933. This revenue was $969,834. These expenses wereprimarily generated from advertising on the MassRoots network, in our email newsletters, and our website since we began monetizing our platform in August 2015. Of our $213,963 in 2015 revenues, $180,000, or 84.1% was generated from advertising services and $140,000 of these revenues occurred during the fourth quarter. Our user base averaged roughly 625,000 users during this time period, equating to an average of $0.35 in revenue per user during our first 4 months of monetization.
Operating Expenses
Our cost of revenues increased $56,921 during 2015, from $690 during fiscal year 2014 to $57,611 during fiscal year 2015. This increase was primarily related to inventory for MassRoots.com/Store, an ecommerce platform hosted on Shopify that we use to market shirts and other merchandise to our userbase. The primary purpose of the continuousMassRoots Store is to raise awareness of the MassRoots platform and drive user registration. Going forward, we believe the vast majority of MassRoots’ revenues and shareholder value will come from digital advertising on our platform, not merchandise sales.
We incurred $717,773 in advertising expenses during, an increase of $563,997, from $180,776 in fiscal year 2014. This increase was primarily driven by sponsorships of events, digital marketing to cannabis consumers, and physical collateral to display at dispensaries. We believe these expenses were critical in scaling MassRoots’ users base from 200,000 registered users in early January 2015 to 700,000 by the end of the year.
Payroll and related expenses increased $1,118,418 to $1,381,071 during fiscal year 2015 from $262,653 during 2014 primarily as a result of MassRoots expanding its development team to 12 full-time, in-house developers by the end of 2015. This allows MassRoots to introduce new features forto our products more rapidly, which we expect will result in additional user growth and increases in retention in the MassRoots App, advertising to expand MassRoots’ userbase during 2014 and costs related to filing our S-1 Registration Statement with the Securities and Exchange Commission. Operating expenses for 2015 are likely to increase above 2014’s as we continue to expand the MassRoots Team and invest significant resources in scaling our userbase.
From April 23, 2013 (inception) through December 31, 2013, we incurred $919,593 in operating expenses. Expense related to equity awards (common stock and options) issued for services by our executive officers was the largest category of expense, totaling $832,797. Excluding expenses related to the equity grants, our total operating expenses cumulative since inception through December 31, 2014 was $86,796.coming quarters.
Over the course of fiscal year 2015, we issued $1,219,904 in common stock for services, as compared to $30,658 during fiscal year 2014, an increase of $1,189,246. This increase was mainly a result of MassRoots issuing shares under its 2014 and 2015 Employee Stock Option Programs to recruit and retain the most talented developers, as well as issuances to our Chief Operations Officer and investor relations professionals.
Product TrendsOptions issued for services also increased during fiscal year 2015 to $1,273,393 from $59,473 during 2014, an increase of $1,213,920. This increase was mainly a result of MassRoots issuing options under its 2014 and User Growth2015 Employee Stock Option Programs to recruit and retain the most talented developers. We saw a decrease in the value of warrants issued for services from $555,598 during 2014 to $229,365 during 2015, a decrease of $326,233. The warrants for services issued in 2014 were related to assisting MassRoots become a publicly-traded company through the filing of our initial S-1 Registration Statement, whereas the warrants issued in 2015 were issued in conjunction to agreements with previous investors to waive certain price protection provisions in our outstanding warrants that would eliminate MassRoots’ derivative liabilities.
MassRoots’ other general and administrative expenses increased to $1,459,946 during fiscal year 2015 from $526,405 in 2014, an increase of $933,541. This increase was attributed to the following:
During the year, we utilized social networks, such as Instagram to help expand our user base. We viewed this as a strong potential market for us to capture as these users were already discussing cannabis in a social environment on a mobile application. MassRoots currently has one of the largest cannabis-related followings on Instagram with 162,000 followers as of March 23, 2015 and we utilize the platform to highlight the best content from our communityChief Financial Officer, as well as engagingcertain investor relations professionals in pro-legalization advocacy.
By April 2014, MassRoots had scaledhelping to 100,000 usersestablish a market for MassRoots’ common stock.
We designed our productfiscal year 2015 from $23,070 during the same period in that way so a significant portion of our users would immediately feel comfortable with the design and functionality of our app. We believe this serves as a solid foundation from which we can develop additional features specifically for the cannabis community, such as giving users the ability to tag the particular strain of cannabis they’re smoking. The MassRoots Android Application saw the greatest improvement in user-experience and functionality over2014. Over the course of 2014the year, the MassRoots team attended over 20 conferences and is now more advanced than our iOS Application in many aspects, such as our new Discover page that gives users more effective ways to find the best content on our network.
Since MassRoots’ inception, we have been focused on building an active and engaged community on our platform, not generating revenue. When we reach a critical mass of users and state regulations permit, we will begin pushing updates to our applications to facilitate order ahead, delivery, and in-app purchase of ancillary products. When fully developed, we will be able to deploy these features to hundreds of thousandsmeetings with cannabis related businesses that have built the relationships necessary for our Company to grow. The MassRoots team, including management, continues to fly budget airlines and modest hotels to minimize expenditures and maximize shareholder value.
The combination of users simultaneously on a platform they’re already usingthese increasing expenditures resulted in MassRoots’ total operating expenses growing to $6,339,063 in fiscal year 2015 versus $1,615,253 in 2014, an increase of $4,722,810.
Loss from Operations
MassRoots’ Loss from Operations grew to $6,125,100 for their marijuana-related activities. We do not believe we will havefiscal year 2015 from $1,607,223 in 2014, an increase of $4,517,877.
Other Income (Expense)
During fiscal year ended 2015 and 2014, the development resources to launch these features until late 2015 or early 2016.
We formally launched MassRoots for Business, a suite of tools and analytics to help businesses better engage with the MassRoots community, to Colorado businesses in March 2015. We currently have over 50 dispensaries actively posting on our network and we are not charging dispensaries to create an account and distribute content to their followers. We view this an opportunity to introduce MassRootsCompany realized losses related to the business community, build a working relationship,fair value mark to market adjustments of its derivative liabilities of $2,236,401 and then push additional, paid features out over time such sponsored posts. Like our user-facing applications, we believe$753,240, respectively. These derivative liabilities were originally determined as of December 31, 2014. For fiscal year ended 2015 and 2014 the most important thing is get people using our products. Prospective businesses may request access at Business.MassRoots.com.
Throughout 2014, Colorado increasingly emerged as the leading adult-use cannabis market with strong, effective regulationscompany recorded amortization of discount on notes payable of $107,016 and a healthy business ecosystem. We believe that whatever products and services are able to capture the Colorado market will export to the rest of the country as legalization spreads. Our main focus in 2015 is to continue to capture market share of both users and dispensaries in Colorado and other areas.
We believe that MassRoots is the largest and most active social network of cannabis consumers. Over the coming months, MassRoots plans to develop or review potential acquisitions of leading software solutions for consumers, businesses and developers in the cannabis industry
$67,363, respectively.
Net Loss
For fiscal year ended 2015, our net loss grew to $8,472,898, as compared to $2,436,142 for the year ended December 31, 2014, an increase $6,036,757.
Liquidity And Capital Resources
Fundraising
OnFrom January 1 to March 24, 2014,11, 2015, we completed the March 2014 Offering, where we offered $475,000an offering of $337,000 in gross proceeds of our securities to certain accredited and non-accredited investors consisting of (i) $269,100 of principle face amount debentures convertible into shares of the Corporation’s common stock at $0.10 per share (the “Debentures”), together with the warrants, exercisable into an amount of our common stock equal to fifty percent (50%) of the common stock underlying the Debentures, at $0.40 per share; and (ii) 2,059,000 shares of our common stock at $0.10 per share, together with a warrant, exercisable into an amount of our common stock equal to fifty percent (50%) of the Common Stock purchased, at $0.40 per share.
From September 15, 2014 to December 31, 2014, we completed an offering of $524,000 of our securities to certain accredited and non-accredited investors consisting of 1,048,000674,000 shares of our common stock at $0.50 per share with a warrant, exercisable into an amountand warrants to purchase 337,000 shares of our common stock equal to fifty percent (50%)at $1 per share. MassRoots did not utilize a placement agent in this transaction.
From April 1, 2015 through April 17, 2015, MassRoots, Inc. completed an offering of 960,937 shares of the Company’s common stock purchased, at $1.00 per share.to certain accredited and unaccredited investors, pursuant to which, the Company received gross proceeds of $576,200. The Company terminated this offering as of April 17, 2015. The Company compensated Chardan Capital Markets, LLC, its placement agent for the offering, $20,000 cash and 262,560 shares of common stock as commission for this placement.
From June 10, 2015 through July 13, 2015, MassRoots sold 1,540,672 shares of unregistered common stock to certain accredited investors for gross proceeds of $1,140,502. In connection with this offering, Chardan Capital, its placement agent for the offering, received $27,200 in cash and 80,560 shares of the Company’s common stock as commission for this placement.
On November 9, 2015, MassRoots sold 815,500 shares of common stock, with warrants to purchase 407,475 shares of common stock, in a registered offering to certain unaccredited and accredited investors for gross proceeds of $1,019,375 to the Company. MassRoots did not utilize a placement agent in this transaction.
In December 2015, MassRoots issued 146,200 three year warrants with an exercise price of $1.06 to our holders of outstanding warrants issued in conjunction with our September 15, 2014 to March 11, 2015 offering. These warrants were issued in exchange for the holder agreeing to waive certain provisions providing price protection of the warrant received in the September 15, 2014 to March 11, 2015 offering.
Cash on Hand
Our current cash on hand as of December 31, 20142015 was $141,928. Our cash on hand$386,316, as compared to $141,928 as of December 31, 2013 was $80,479.2014. The increase of cash on hand was primarily due to further issuances of our common stock for cash, offset significantly by increases in our operating expenses due to becoming a public company and continuing to expand MassRoots’ payroll and advertising budgets.
expenses.
We currently have no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements 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. Our officers and directors have made no written commitments with respect to providing a source of liquidity in the form of cash advances, loans and/or financial guarantees.
If we are unable to raise the funds we will seek alternative financing through means such as borrowings from institutions or private individuals. There can be no assurance that we will be able to raise the capital we need for our operations from the sale of our securities. We have not located any sources for these funds and may not be able to do so in the future. We expect that we will seek additional financing in the future. However, we may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, we may be forced to cease operations. If we fail to raise funds we expect that we will be required to seek protection from creditors under applicable bankruptcy laws.
Our independent registered public accounting firm has expressed doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 62 of our financial statements.
Use of Cash
We had net cash used in operations for the year ended December 31, 20142015 and from April 23, 2013 (inception) to December 31, 20132014 of $3,129,240 and $922,956, and $85,052, respectively. For the year ended December 31,In 2015 and 2014, net cash used was mainly attributed to our loss of $8,472,898 and $2,436,142, respectively. These amounts were offset by the cash provided from stock warrants andissuances, stock options issuedand warrant exercises for services2015 and change in derivative liabilities. While from April 23, 2013 (inception) through December 31, 2013,2014 of $3,617,663 and $729,972, respectively. In addition, the $85,052net cash used was attributed to loss for the periodalso offset by cash provided by equity issuanceschanges in derivative liabilities of $2,236,401 for services.
We had net cash used in Investing activities for the year ended December 31, 2014 and April 23, 2013 (inception) thruto $30,952 as of December 31, 20132015. This increase was primarily a result of $14,667a deposit on MassRoots’ headquarters in downtown Denver.
In May 2015, MassRoots invested $175,000 into Flowhub, a seed-to-sale tracking platform for cannabis businesses that we intend to integrate with MassRoots over the coming quarters to synchronize and $1,522, respectively.
analyze the most important data from cannabis consumers, dispensary point of sale systems and grow facilities. Computer and office equipment purchases increased by $58,861 to $73,023 as of December 31, 2015 from $14,162 as of December 31, 2014. This increase was primarily driven by purchases of additional computers and equipment for our team.
We had net cash usedprovided in financing activity for the year ended December 31, 20142015 and April 23, 2013 (inception) through December 31, 20132014 of $999,072$3,617,633, and $167,053,$999,072, respectively. These amounts wereare primarily attributed to equity issuances throughout the periods.
Required Capital Over the Next Fiscal Year
We expect to incur losses from operations for the near future. We believe we will have to raise an additional $2.5 million to fund our operations through the end of the 20152016 fiscal year, including roughly $250,000 to remain current in our filings with the SEC. There can be no guarantee or assurances thatSEC; however, we willexpect to be able to raise such capitala majority of these funds through warrant exercises. As of December 31, 2015, there are 3,297,500 warrants outstanding with an exercise price of $0.40 per share and 766,000 warrants outstanding with an exercise price of $1.00 per share, which, if exercised, would generate approximately $2.0 million in cash to the Company.
Future financing may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. Even if we do,are able to raise the funds required, it will likely dilute existing shareholders. We do not believe we will generate significant revenue until at least fiscal year 2016 and there can be no assurancesis possible that we willcould incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, existing holders of our securities may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our securities.
If additional financing is not available or is not available on acceptable terms, we may be successful inrequired to delay or reduce our initiatives or reach profitability.commercialization efforts.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Recent Accounting Pronouncements
Critical Accounting PoliciesThere were various updates recently issued, most of which represented technical corrections to the accounting literature or application to specific industries and Estimates
Forare not expected to a discussionhave a material impact on the Company's consolidated financial position, results of our accounting policies and related items, please seeoperations or cash flows. See the Notes to the Financial Statements included in Item 8.for more information.
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 PROCEDURESPROCEDURES.
Our Principal Executive Officer and Principal Accounting Officer (the “Certifying Officers”) are responsible for establishing and maintaining disclosure controls and procedures for the Company. The Certifying Officers have designed such disclosure controls and procedures to ensure that material information is made known to them, particularly during the period in which this Report was prepared.
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report (the “Evaluation Date”), weWe carried out an evaluation, under the supervision and with the participation of our management, including ourPrincipal Executive Officer principal executive officer and Principal Accounting Officer (ourChief Executive Officer and Chief Financial Officer, respectively),principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were effective to Rule 13a-15ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). Based upon this evaluation, our Chief Executive Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the required time periods specified byin the Securities and Exchange Commission’s rules and forms and that our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer,principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
BecauseOur 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. During the Company’squarter ended December 31, 2015, we carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation and due to identified control deficiencies regarding the lack of segregation of duties and the need for a stronger internal control environment, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures will detect or uncover every situation involvingwere ineffective as of the failureend of persons within the Companyperiod covered by this report.
To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to disclose material information otherwise required to be set forthensure our consolidated financial statements included in the Company’s periodic reports.
Changes in Internal Controls
Therethis annual report have been no changesprepared in our internal controls overaccordance with generally accepted accounting principles. Accordingly, management believes that the financial reporting that occurred during the our last fiscal quarter to whichstatements included in this report relates that have materially affected, or are reasonably likely to materially affect,fairly present in all material respects our internal control over financial reporting.condition, results of operations and cash flows for the periods presented.
Management’s Annual Report on Internal Controls overControl Over Financial Reporting
The Company’sOur management is also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regardingas defined in Rule 13a-15(f) under the reliabilitySecurities Exchange Act of financial reporting and1934, as amended. Our management assessed the preparationeffectiveness of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’sour internal control over financial reporting as of December 31, 2015. 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 process designed to provide reasonable assurance regarding the reliabilitydeficiency, or a combination of financial reporting and the preparation of financial statements for external purposesdeficiencies, in accordance with U.S. generally accepted accounting principles. Internalinternal control over financial reporting, includes those policies and proceduressuch that (1) pertainthere 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 the Company's internal control over financial reporting due to the maintenancefact that he Company did not have an adequate process established to ensure appropriate levels of recordsreview of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion. We expect that the Company will need to hire accounting personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters. The Company may experience delays in reasonable detail, accuratelydoing so and fairly reflect our transactionsany such additional employees would require time and dispositions of our assets; (2) provide reasonable assurancetraining to learn the Company's business and operating processes and procedures. For the near-term future, until such personnel are in place, this will continue to constitute a material weakness in the Company's internal control over financial reporting that transactions are recorded as necessary to permit preparation ofcould result in material misstatements in the Company's financial statements in accordance with U.S. generally accepted accounting principles,not being prevented or detected.
The Company's management, including the Company's CEO and CFO, does not expect that our receiptsthe Company's internal control over financial reporting will prevent all errors and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
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 ofor compliance with the policies or procedures may deteriorate.
The Company's CEO/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.
In connection withBecause of the preparation of our annual financial statements,above material weakness, management has undertaken an assessment of the effectiveness of ourconcluded that we did not maintain effective internal control over financial reporting as of December 31, 20142015, based on the frameworkcriteria established in Internal Control—Integrated Framework (“1992“Internal Control-Integrated Framework”) issued by the Committee of Sponsoring Organizations ofCOSO.
Changes in Internal Controls
We changed the Treadway Commission (COSO). Management’s assessment included an evaluation of the designcomposition of our internal control over financial reportingBoard of Directors to have a majority of independent Directors during the fourth quarter of 2015. We also created an Audit Committee, Nomination and testingCorporate Governance Committee and Compensation Committee during the fourth quarter of the operational effectiveness of those controls.2015.
Based on this evaluation, under that framework, management has concluded that our internal control over financial reporting was not effective as of December 31, 2014. We concluded that we have material weaknesses in our internal control over financial reporting because we do not have an adequate segregation of duties due to a limited number of employees among whom duties can be allocated. The lack of segregation of duties is due to the limited nature and resources of the Company.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal controls over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The names and ages of our Directors and Executive Officers are set forth below. Our By-Laws provide for not less than one and not more than nine Directors. All Directors are elected annually by the stockholders to serve until the next annual meeting of the stockholders and until their successors are duly elected and qualified.
The officers are elected by our Board.
Name | Age | Position and Term | ||||
Isaac Dietrich | 23 | Director and Chairman of the Board (Since 2013), Chief Executive Officer (Since 2013) | ||||
Tripp Keber | 47 | Director (Since 2014) | ||||
Stewart Fortier1 | 25 | Director (Since 2014), Chief Technology Officer (Since 2013) | ||||
Ean Seeb | 40 | Director (Since 2014) | ||||
56 | Director (Since | |||||
22 | Chief Operations Officer (Since | |||||
Jesus Quintero | 54 | Chief Financial Officer (Since 2014) | ||||
1Stewart Fortier and Hyler Fortier, our former Chief Operations Officer, are siblings.
Isaac Dietrich, Chief Executive Officer, Chairman of the Board and Director -IsaacDietrich is the founder, CEO, and Chairman of the Board of MassRoots, each since our inception. He is responsible for executing our strategic business development. In June 2012, Mr. Dietrich co-founded RoboCent, Inc., a self-service call platform that reached $300,000 in revenue in its first 18 month,months, and currently servespreviously served as President and majority shareholder.its President. He also founded Tidewater Campaign Solutions, LLC, a Virginia Beach-based political strategy firm that was retained by more than 30 political campaigns and political action committees from January 2010 to December 2012.
From February to December 2010, Mr. Dietrich served as Field Director for Congressman Scott Rigell’s campaign.
In April 2012, Mr. Dietrich was a finalist for Peter Thiel’s 20 Under 20 Fellowship and was featured in the CNBC documentary “Transforming Tomorrow.” We believe Mr. Dietrich has the business experience in both scalable technology companies and political strategy to successfully lead the development and growth of the Company.
Tripp Keber, Director – Tripp Keber has served as a Director of MassRoots since 2014. Mr. Keber also is a co-founder, Director and Chief Executive Officer of Dixie Elixirs & Edibles, a Colorado licensed medical marijuana infused products manufacturer. He is a founding director of the National Cannabis Industry Association, and, since 2013, has served as a director of the Marijuana Policy Project. He is also an advisory board member of the Medical Marijuana Industry Group in Colorado. Mr. Keber also serves as a board member of American Cannabis Company (2014-current). In his current role as CEO of Dixie, Mr. Keber is responsible for the overall strategy, licensing, marketing, branding and expansion efforts related to the Dixie brand, both domestically and internationally. Mr. Keber has been featured on CBS’s 60 Minutes and CNBC.
Prior to joining Dixie, Mr. Keber served as Chief Operating Officer for Bella Terra Resort Development Company, and EVP of Business Development for Sagebrush Realty Development. He has a BS in Political Science from Villanova University and currently resides in both Aspen and Denver, CO with his family. He is involved in several charitable organizations located within his community and assists in the research and development of cannabis support for veterans suffering from PTSD. As an experienced leader in the legal cannabis industry, we believe that Mr. Keber will use his experience and industry knowledge to help guide our leadership team.
Ean Seeb, Director – Ean Seeb has served as a Director of MassRoots since 2014. Mr. Seeb is also the co-owner and manager of Denver Relief LLC, a Colorado medical cannabis operation. As a founding partner of Denver Relief Consulting LLC and seasoned cannabis dispensary operator, Mr. Seeb has significant experience navigating complex legislation and regulatory demands unique to legal cannabis operations. Mr. Seeb also serves as a board member of Manna Molecular Sciences (2015-current). He serves as Chair of the National Cannabis Industry Association and holds leadership positions with charitable organizations focused on a range of social causes, from civil rights to sustainable volunteer farming. EanMr. Seeb has been actively involved with non-profit groups for over two decades. His years of humanitarian experience lead EanMr. Seeb to conceptualize and develop a cannabis-centric service organization called the Denver Relief GREEN TEAM in 2009. He holds a B.S. degree in Business Administration with an emphasis in Computer Information Systems from University of Northern Colorado. We believe that Mr. Seeb will use his experience and industry knowledge to help guide our leadership team.
Terence Fitch, Director - Terence Fitch has served as a Director of the Company since 2015. Mr. Fitch is a seasoned corporate executive with 23 years of marketing, sales, finance, manufacturing, supply chain and media experience. Mr. Fitch founded Drink Teck, LLC in 2013 and has served as its Chief Executive Officer since that time. Drink Teck LLC is a functional beverage company which uses liposome technology to cost-effectively formulate drinks for the consumer health and wellness sector. Prior to founding Drink Teck LLC, Mr. Fitch spent 3 years at Coca Cola Refreshments as Senior Vice President and General Manager. Before that, 18 years at, Coca-Cola Enterprises, where, from 2004 to 2010, he served as the Senior Vice President and General Manager of the Western Region and was responsible for a team of 13,500 sales, strategy, marketing, operations, manufacturing, supply chain and analytical professionals and accountable for over $4.2 billion in sales. From 1998 to 2002, Mr. Fitch acted as Division Vice President and General Manager for Coca-Cola Enterprises and, from 1994-1998, was the Regional Vice President of Sales and Marketing of the Gulf States for Coca-Cola Enterprises. Mr. Fitch has a Bachelor of Science in Marketing and Finance from Arizona State University. Mr. Fitch brings a strong understanding of financial reporting and corporate governance matters, along with expertise in corporate governance, enterprise risk management and strategic planning, which we believe will strengthen the Board’s collective qualifications, skills, and experience.
Stewart Fortier, Chief Technology Officer, Director - Stewart Fortier is a co-founder and Director of MassRoots, and has served as Chief Technology Officer since our inception. Mr. Fortier is responsible for the development of our iOS application and technical strategy. He is a self-taught software developer with an interest in both entrepreneurship and technology. Prior to joining MassRoots, Mr. Fortier worked for a real estate development company in Washington, D.C., where he was responsible for the underwriting of commercial and multifamily acquisitions. Previously, Mr. Fortier served as a technical adviser to RoboCent, Inc. from June 2012 to April 2013.
Mr. Fortier holds a Bachelor of Arts in Economics and Religious Studies from the University of Virginia. We believe Mr. Fortier has the technical and business experience and skill to be successful in both his Chief Technology Officer and Director roles.
Tyler Knight, Director andDaniel Hunt, Chief MarketingOperations Officer -Tyler Knight is a co-founder, Director andSince June 2015, Daniel Hunt has served as the Company’s Chief MarketingOperations Officer, of MassRoots, responsible for user-acquisitionoverseeing the Company's daily operations, including marketing, sales, business development, staffing, processes and keyinfrastructure. From July 2014 to June 2015, Mr. Hunt served as the Company's Vice President of Marketing, where he was responsible for the coordination and implementation of the Company’s marketing channel relations.initiatives. From June 2011 to July 2014, Mr. Hunt served as Head of Business Development for SearchParty Music, a media production company in Massachusetts. Prior to joining the MassRoots team,Company, Mr. Knight served as Chief Operations Officer for RoboCent, Inc. from January 2013 to April 2013, playing a key role in acquiring more than 250 clients and growing the scalable call platform to $300,000 in revenue in its first 18 months. He also worked on several political campaigns from January 2010 to December 2012, including serving as Deputy Field Director on Ben Loyola’s 2011 campaign for state Senate. Prior to joining MassRoots, Mr. Knight studied marketing at Old Dominion University.
Hyler Fortier, Chief Operations Officer - Hyler Fortier is a co-founder of MassRoots and its Chief Operations Officer, since inception. Mrs. Fortier is responsible for our user interface design, marketing graphics and company presentation materials. Previously, she served in the same position at RoboCent Inc. from June 2012 to April 2013. Ms. Fortier graduated fromHunt attended James Madison University’s SchoolUniversity from 2012-2014, where he gained experience while supporting the operations of Business withearly-stage startups as a Marketing degree in May 2014. She has extensive knowledgemember of graphic design, video rendering and user interface software, especially as they can be applied to enhance user-engagement and retention. She is also active in JMU’sthe Society of Entrepreneurs, often speaking at clubs and events aboutEntrepreneurs. Mr. Hunt also serves on the need for women to hold more executive positions in business.board of managers of Flowhub, LLC, a private cannabis point-of-sale company.
Jesus Quintero, Chief Financial Officer -Jesus Quintero joined MassRoots as its Chief Financial Officer in May 2014. From January 2013 to October 2014, Mr. Quintero has also served as Brazil Interactive Media’s Chief Financial Officer. He has previously served as a financial consultant to several multi-million dollar businesses in Florida. Mr. Quintero has extensive experience in public company reporting and SEC/SOX compliance, and held senior finance positions with Avnet, Inc., Latin Node, Inc., Globetel Communications Corp. and Telefonica of Spain. His prior experience also includes tenure with PricewaterhouseCoopers and Deloitte & Touche. Mr. Quintero earned a B.S. in Accounting from St. John’s University and is a certified public accountant. He is fluent in English and Spanish, and conversant in Brazilian Portuguese.
Legal Proceedings
We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us, or our subsidiaries, or has a material interest adverse to us or our subsidiaries.
None of our executive officers or directors have (i) been involved in any bankruptcy proceedings within the last five years, (ii) been convicted in or has pending any criminal proceedings (other than traffic violations and other minor offenses), (iii) been subject to any order, judgment or decree enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities or banking activity or (iv) been found to have violated any Federal, state or provincial securities or commodities law and such finding has not been reversed, suspended or vacated.
Corporate Governance
Governance of Our Company
We seek to maintain high standards of business conduct and corporate governance, which we believe are fundamental to the overall success of our business, serving our shareholders well and maintaining our integrity in the marketplace. Our corporate governance guidelines and code of business conduct, together with our Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws and the charters for each of our Board committees, form the basis for our corporate governance framework. We also are subject to certain provisions of the Sarbanes-Oxley Act and the rules and regulations of the SEC. The Company’sfull text of the Code of Conduct is available on our website at www.massroots.com/investors.
As described below, our Board has established three standing committees to assist it in fulfilling its responsibilities to the Company and its stockholders: the Audit Committee, the Compensation Committee and the Nominating and Corporate Governance Committee.
Our Board of Directors is composed
Our Board currently consists of five members: Isaac Dietrich, who serves as Chairmanmembers. The number of directors on our Board can be determined from time to time by action of our Board.
Our Board has decided that it would judge the independence of its directors by the heightened standards established by the NASDAQ Stock Market, despite the Company not being subject to these standards at such time. Accordingly, the Board has determined that our three non-employee directors, including Ean Seeb, Terence Fitch, and Tripp Keber, each meet the independence standards established by the NASDAQ Stock Market and the applicable independence rules and regulations of the SEC, including the rules relating to the independence of the members of our Audit Committee and Compensation Committee. Our Board Ean Seeb, Tripp Keber, Stewart Fortier and Tyler Knight. Messrs. Dietrich and Fortier areconsiders a director to be independent when the director is not “independent” asan officer or employee of the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Exchange Act, as amended.
We doCompany or its subsidiaries, does not have any standing audit, nominatingrelationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and compensation committeesthe director otherwise meets the independence requirements under the listing standards of the NASDAQ Stock Market and the rules and regulations of the SEC.
Our Board believes its members collectively have the experience, qualifications, attributes and skills to effectively oversee the management of our Company, including a high degree of personal and professional integrity, an ability to exercise sound business judgment on a broad range of issues, sufficient experience and background to have an appreciation of the issues facing our Company, a willingness to devote the necessary time to their Board and committee duties, a commitment to representing the best interests of the Company and our stockholders and a dedication to enhancing stockholder value.
Risk Oversight. Our Board oversees the management of risks inherent in the operation of our business and the implementation of our business strategies. Our Board performs this oversight role by using several different levels of review. In connection with its reviews of the operations and corporate functions of our company, our Board of Directors oraddresses the primary risks associated with those operations and corporate functions. In addition, our Board of Directors reviews the risks associated with our company's business strategies periodically throughout the year as part of its consideration of undertaking any such business strategies. Each of our Board committees performing similar functions. All Board actions have been taken by Written Action rather than formal meetings.
We currently have a Code of Ethics applicable to our principal executives, financial and accounting officers. A copyalso coordinates oversight of the Codemanagement of our risk that falls within the committee's areas of responsibility. In performing this function, each committee has full access to management, as well as the ability to engage advisors. The Board also is available at our investors website: investors.massroots.com.provided updated by the CEO and other executive officers of the Company on a regular basis.
Section 16(A) Beneficial Ownership16 Reporting Compliance
Currently, we do not have any class of equity securities registered pursuant to- Section 1216(a) of the Securities Exchange Act of 1934 as amended,requires our directors and consequently Section 16(a) is not currentlyexecutive officers and persons who own more than 10% of our outstanding shares of common stock (collectively, “Reporting Persons”) to file with the SEC initial reports of ownership and reports of changes in ownership in our common stock and other equity securities. Specific due dates for these records have been established, and we are required to report in this report any failure in 2015 to file by these dates. To the Company’s knowledge, based solely on its review of the copies of such reports received or written representations from certain Reporting Persons that no other reports were required, the Company believes that during its fiscal year ended December 31, 2015, all filing requirements applicable to our executive officers, directors or stockholders.the Reporting Persons were timely met.
Shareholder Communications
-Although we do not have a formal policy regarding communications with the Board, shareholders may communicate with the Board by writing to us at 2247 Federal Blvd.,1624 Market Street, Suite 201, Denver, CO 80211,80202, Attention: General Counsel.Legal. Shareholders who would like their submission directed to a member of the Board may so specify, and the communication will be forwarded, as appropriate. Please note that the foregoing communication procedure does not apply to (i) shareholder proposals pursuant to Exchange Act Rule 14a-8 and communications made in connection with such proposals or (ii) service of process or any other notice in a legal proceeding.
ITEM 11. EXECUTIVE COMPENSATION
Named Executive Officers
Our “named executive officers” for the 20142015 fiscal year consisted of the following individuals:
Isaac Dietrich, our Chief Executive Officer | |||
Dan Hunt, our Chief | |||
No other executive officers earned over $100,000 during the previous fiscal year.
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and our two most highly compensated executive officers who occupied such position(the “named executive officers” listed above) at the end of our last fiscal year for all services rendered in all capacities to us during the previous two fiscal years.years during which they served as executive officers. Where a named executive officer is also a director, all compensation related to such individuals position as an officer.
Name & Principal Position | Year | Salary $ | Bonus $ | Stock Awards (5) $ | Option Awards (1)(5) $ | Non-Equity Incentive Plan Compensation $ | Non-Qualified Deferred Compensation Earnings $ | All Other Compensation $ | Total $ | |||||||||||||||||||||
Isaac Dietrich Chief Executive Officer, Director | 2013 2014 | $8,750 $53,000 | - - | $ | 112,505 - | (2) | $ | 363,811 - | - - | - - | - - | $485,066 $53,000 | ||||||||||||||||||
Stewart Fortier, Chief Technology Officer | 2013 2014 | $10,513 $62,734 | - - | $ | 25,496 - | (3) | $ | 76,485 - | - - | - - | - - | $112,510 $62,734 | ||||||||||||||||||
Tyler Knight, Chief Marketing Officer, Director | 2013 2014 | $5,000 $35,750 | - - | $ | 25,496 - | (4) | $ | 76,485 - | - - | - - | - - | $106,997 $35,750 |
Name & Principal Position | Year | Salary $ | Bonus $ | Stock Awards (1) $ | Option Awards (1) $ | Non-Equity Incentive Plan Compensation $ | All Other Compensation $ | Total $ | ||||||||||||||||||||||||
Isaac Dietrich Chief Executive Officer, Director | 2015 2014 | 81,220 53,000 | — | — | — | — | — | 81,220 53,000 | ||||||||||||||||||||||||
Daniel Hunt Chief Operating Officer | 2015 | 67,500 | — | 25,000 (2)(4) | 245,951 (2)(3) | — | — | 338,451 | ||||||||||||||||||||||||
(1) |
These amounts are the aggregate fair value of the equity compensation |
(2) | On January 1, 2015, the Company approved the issuance to Daniel Hunt of |
(3) | On December 14, 2015, the Board approved a grant of 800,000 unvested options to purchase shares of common stock at $1.00 per share to Mr. Hunt pursuant to the 2015 Plan (defined below), which vest as follows: upon the Company reaching 1,000,000 registered users, 200,000 options shall vest; upon the Company reaching 2,500,000 registered users, 200,000 options shall vest; upon the Company reaching $1,000,000 in cumulative revenue, 200,000 options shall vest; and, upon the Company reaching $2,500,000 in cumulative revenue, 200,000 options shall vest. As of December 31, 2015, no options had vested. The fair market value of the 200,000 options that vest upon the Company reaching 1,000,000 register users was calculated to be $199,998, assuming approximately 2.23% risk-free interest, 0% dividend yield, 280% volatility, and expected term of 5.25 years. The value of the other 600,000 options was not determinable as the probability of achieving those targets is not currently estimable. The Company incurred compensation expense of $20,118 during the fiscal year 2015 related to the amortization of such options received during the year by Mr. Hunt. |
(4) | On December 14, 2015, the Company’s Board approved the grant of 200,000 unvested restricted shares to Mr. Hunt. However, pursuant to the 2015 Plan (defined below), the grant would not occur until shareholder approval of the 2015 Plan became effective, which occurred in January 2016 (as described further in the section below entitled “2014 and 2015 Equity Incentive Plans“). As such, this grant will be included as compensation for Mr. Hunt in fiscal year 2016. |
Outstanding Equity Awards at December 31, 20142015 Fiscal Year End
NoThe following table sets forth the equity awards our named executive officerofficers had unexercised outstanding equity awards at December 31, 2014.2015.
Option Awards | ||||||||||||||||||
Name | Number of securities underlying unexercised options Exercisable | Number of securities underlying unexercised Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options | Option | Option expiration date | |||||||||||||
Daniel Hunt | 100,000 | — | — | $ | 0.50 | 1/1/2025 | ||||||||||||
— | — | 800,000 (1) | $ | 1.00 | 12/14/2025 |
(1) | The 800,000 unvested options were awarded pursuant to the 2015 Plan (defined below), which vest as follows: upon the Company reaching 1,000,000 registered users, 200,000 options shall vest; upon the Company reaching 2,500,000 registered users, 200,000 options shall vest; upon the Company reaching $1,000,000 in cumulative revenue, 200,000 options shall vest; and, upon the Company reaching $2,500,000 in cumulative revenue, 200,000 options shall vest. |
Narrative Disclosure to Summary Compensation and Option Tables
On April 24, 2013, we entered into an agreement with Isaac Dietrich provides services to us as our Chief Executive Officer and Chairman,pursuant to provide servicesan at-will agreement (with one month notice to us. For his services for a term of four years and in repayment of $17,053 of short term borrowing,be given prior to termination) that provides that Mr. Dietrich received compensation of $1 per month, and was provided a stock award of 15.25 shares (4,646,136 shares post-Exchange) and stock options which allowed Mr. Dietrich to purchase 42.81 shares (13,042,695 shares post-Exchange) ofwould be paid an amount determined by the Company in accordance with the Company’s common stock at $1.00 per share per each individual option. The options vested through January 1, 2017, and contained an acceleration clause which was triggered upon the closure of the Original Financing on January 1, 2014 that caused all options to vest immediately, at which point all options were exercised.The agreement was amended onnormal payroll procedures. From October 1, 2013 to require us to payMarch 31, 2014, Mr. Dietrich was paid a salary of $3,500 monthly to Mr. Dietrich.
On April 24, 2013, we entered into an agreement with Tyler Knight to provide services to us. The agreement had a term of four years and required us to pay $1 monthly to Mr. Fortier for her services, provided a stock award of 3.75 shares (913,994 shares post-Exchange) and provided stock options which allowed Mr. Knight to purchase 9.00 shares (2,741,982 shares post-Exchange) shares of the Company’s common stock at $1.00 per share per each individual option. The options vested through January 1, 2017, and contained an acceleration clause which was triggered upon the closure of the Original Financing on January 1, 2014 that caused all options to vest immediately at which point all options were exercised.The agreement was amended on October 1, 2013 to require us to pay $2,000 monthly to Mr. Knight.
On April 24, 2013, we entered into an agreement with Stewart Fortier to provide services to us. The agreement had a term of four years and required us to pay $20/hour to Mr. Fortier for his services, provided a stock award of 3.0 shares (913,994 shares post-Exchange) and stock options which allowed Mr. Fortier to purchase 9.00 shares (2,741,982 shares post-Exchange) of the Company’s common stock at $1.00 per share per each individual option. The options vested through January 1, 2017, and contained an acceleration clause which was triggered upon the closure of the Original Financing on January 1, 2014 that caused all options to vest immediately, at which point all options were exercised. The agreement was amended on October 1, 2013 to require us to pay $30/hr to Mr. Fortier.
Amended Employment Agreements
Onmonth. From April 1, 2014 MassRoots amended its employment contract with Isaac Dietrich. For his services as Chief Executive Officer,to March 31, 2015, Mr. Dietrich shall be compensated five thousand dollars ($5,000)was paid a salary of $5,000 per month. Upon the successful executionFrom April 1, 2015 and thereon, Mr. Dietrich was paid a salary of all$6,500. Mr. Dietrich did not receive any compensation related to his position as a director.
Dan Hunt provides services to us as our Chief Operating Officer pursuant to an “at-will” agreement that became effective July 19, 2015. Pursuant to this agreement, Mr. Hunt receives a salary of our outstanding forty-cent ($0.40) warrants, Mr. Dietrich’s salary will increase to seven thousand five hundred dollars ($7,500)$78,000 per month. The employment contract is “at-will”year and may be terminated by either party with or without cause with one (1) month’s written notice. From January 1, 2015 until July 17, 2015, Mr. Hunt served as an at will employee with a salary of 3,500 per month.
In addition, on January 1, 2015, the Company approved the issuance to Mr. Hunt 50,000 shares of its common stock and 100,000 options to purchase shares of common stock at $0.50 per share pursuant to the 2014 Plan (defined below), which would vest over the period of one year on a monthly basis. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.17% risk-free interest, 0% dividend yield, 1.50% volatility, and expected term of 5.25 years.
On December 14, 2015, the Board approved a grant of 800,000 unvested options to purchase shares of common stock at $1.00 per share to Mr. Hunt pursuant to the 2015 Plan (defined below), which vest as follows: upon the Company reaching 1,000,000 registered users, 200,000 options shall vest; upon the Company reaching 2,500,000 registered users, 200,000 options shall vest; upon the Company reaching $1,000,000 in cumulative revenue, 200,000 options shall vest; and, upon the Company reaching $2,500,000 in cumulative revenue, 200,000 options shall vest. The fair market value was calculated using the Black-Scholes options pricing model. Under this model, the fair market value of the 200,000 options that vest upon the Company reaching 1,000,000 register users was calculated assuming approximately 2.23% risk-free interest, 0% dividend yield, 280% volatility, and expected term of 5.25 years. No cost is recognized in 2015 for the other 600,000 options as the probability of achieving those targets is not currently estimable. As of December 31, 2015, no options had vested.
On that same date, the Company’s Board approved the grant of 200,000 unvested restricted shares to Mr. Hunt. However, pursuant to the 2015 Plan (defined below), the grant would not occur until shareholder approval of the 2015 Plan became effective, which occurred in January 2016 (as described further in the section below entitled “2014 and 2015 Equity Incentive Plans“). As such, this grant will be included as compensation for Mr. Hunt in fiscal year 2016.
In December 2015, Mr. Dietrich started receiving health, vision and dental insurance. No retirement plan, healthlife insurance or employee benefits program washas been awarded to Mr. Dietrich and he serves at the direction of the Board of Directors.
On April 1, 2014, MassRoots amended its employment contract with Stewart Fortier. For his services as Chief Technology Officer, Mr. Fortier shall be compensated six thousand five hundred dollars ($6,500) per month. UponMarch 29, 2016, the successful executionBoard of all of our outstanding forty-cent ($0.40) warrants, Mr. Fortier’s salary will increase to ten thousand dollars ($10,000) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Fortier and he serves atDirectors, upon the directionrecommendation of the Chief Executive OfficerCompany’s Compensation Committee, approved increases in the salary of Mr. Dietrich and Board of Directors.
On April 1, 2014, MassRoots amended its employment contract with Tyler Knight. For his services as Chief Marketing Officer, Mr. Knight shall be compensated three thousand five hundred dollars ($3,500) per month. Upon the successful execution of all of our outstanding forty-cent ($0.40) warrants, Mr. Knight’s salary will increase to five thousand dollars ($5,000) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Knight and he serves at the direction of the Chief Executive Officer and Board of Directors.
CFO Consulting Agreement
On May 1, 2014, MassRoots executed an agreement with Jesus Quintero for Mr. Quintero to serve as the Company’s Chief Financial Officer and provide it with financial consulting services. This agreement creates an independent contractor relationship and has a term of one year. For this service, Mr. Quintero is paid $2,000Hunt, such that each would receive $10,833 per month and was issued a stock award of 100,000 shares of our common stock on June 6, 2014. No retirement plan, health insurance or employee benefits program was awarded to Mr. Quintero and he serves at the direction of the Chief Executive Officer and Board of Directors. This Agreement may be terminated by either party, with cause, upon ten (10) days prior written notice to the other party. If terminated, Mr. Quintero would receive only the compensation earned, but unpaid under the agreement.
for their services in their respective positions.
At no time during the last fiscal yearperiods listed in the above tables, with respect to any person listed in the Table abovenamed executive officers, was there:
Equity Compensation Plan Information
The following table sets forth equity compensation plan information as of December 31, 2014:
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||
(a) | (b) | (c) | ||||||||
Equity compensation plans approved by security holders: | ||||||||||
2014 Equity Incentive Plan | 2,900,000 | $0.10 | 1,100,000 | |||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||
Total | 2,900,000 | $0.10 | 1,100,000 |
2014 Equity Incentive Plan.In June 2014, our shareholders approved our 2014 Equity Incentive Plan (“2014 Plan”). Our 2014 Plan provides for the grant of incentive stock options to our employees and our parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. Our 2014 Plan also provides that the grant of performance stock awards may be paid out in cash as determined by the Committee (as defined herein).
Authorized Shares. A total of 4,000,000 shares of our common stock are reserved for issuance pursuant to the 2014 Plan. Shares issued under our 2014 Plan may be authorized but unissued or reacquired shares of our common stock. Shares subject to stock awards granted under our 2014 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under our 2014 Plan. Additionally, shares issued pursuant to stock awards under our 2014 Plan that we repurchase or that are forfeited, as well as shares reacquired by us as consideration for the exercise or purchase price of a stock award, will become available for future grant under our 2014 Plan.
Administration. Our Board of Directors, or a duly authorized committee thereof (collectively, the “Committee”), has the authority to administer our 2014 Plan. Our Board may also delegate to one or more of our officers the authority to designate employees other than Directors and officers to receive specified stock, which, in respect to those awards, said officer or officers shall then have all that the Committee would have.
Subject to the terms of our 2014 Plan, the Committee has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and conditions of the award agreements for use under our 2014 Plan. The Committee has the power to modify outstanding awards under our 2014 Plan, subject to the terms of the 2014 Plan and applicable law. Subject to the terms of our 2014 Plan, the Committee has the authority to reprice any outstanding option or stock appreciation right, cancel and re-grant any outstanding option or stock appreciation right in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a repricing under generally accepted accounting principles, with the consent of any adversely affected participant.
Stock Options.Stock options may be granted under the 2014 Plan. The exercise price of options granted under our 2014 Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not exceed 5 years and the exercise price must equal at least 110% of the fair market value on the grant date. The Committee will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the Committee, as well as other types of consideration permitted by applicable law. No single participant may receive more than 25% of the total options awarded in any single year. Subject to the provisions of our 2014 Plan, the Committee determines the other terms of options.
Performance Shares. Performance shares may be granted under our 2014 Plan. Performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The Committee will establish organizational or individual performance goals or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance shares to be paid out to participants. After the grant of a performance share, the Committee, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance shares. The Committee, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof, per the terms of the agreement approved by the Committee and delivered to the participant. This agreement will state all terms and condition of the agreements.
Restricted Stock. The terms and conditions of any restricted stock awards granted to a participant will be set forth in an award agreement and, subject to the provisions in the 2014 Plan, will be determined by the Committee. Under a restricted stock award, we issue shares of our common stock to the recipient of the award, subject to vesting conditions and transfer restrictions that lapse over time or upon achievement of performance conditions. The Committee will determine the vesting schedule and performance objectives, if any, applicable to each restricted stock award. Unless the Committe determines otherwise, the recipient may vote and receive dividends on shares of restricted stock issued under our 2014 Plan.
Other Share-Based Awards and Cash Awards.The Committee may make other forms of equity-based awards under our 2014 Plan, including, for example, deferred shares, stock bonus awards and dividend equivalent awards. In addition, our 2014 Plan authorizes us to make annual and other cash incentive awards based on achieving performance goals that are pre-established by our compensation committee.
Change in Control. If the Company is merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company while awards or options remain outstanding under the 2014 Plan, unless provisions are made in connection with such transaction for the continuance of the 2014 Plan and/or the assumption or substitution of such awards or options with new options or stock awards covering the stock of the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, then all outstanding options and stock awards which have not been continued, assumed or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified in the relevant agreements, terminate immediately as of the effective date of any such merger, consolidation or sale.
Change in Capitalization.If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the common stock outstanding, without receiving consideration therefore in money, services or property, then awards amounts, type, limitations, and other relevant consideration shall be appropriately and proportionately adjusted. The Committee shall make such adjustments, and its determinations shall be final, binding and conclusive.
Plan Amendment or Termination. Our Board has the authority to amend, suspend, or terminate our 2014 Plan, provided that such action does not materially impair the existing rights of any participant without such participant's written consent. The 2014 Plan will terminate ten (10) years after the earlier of (i) the date the 2014 Plan is adopted by the Board, or (ii) the date the 2014 Plan is approved by the stockholders, except that awards that are granted under the 2014 Plan prior to its termination will continue to be administered under the terms of the 2014 Plan until the awards terminate, expire or are exercised.
Director Compensation
Our interested, employee directors do not receive any additional compensation for their service as directors.
The following table shows for the fiscal year ended December 31, 2014,2015, certain information with respect to the compensation of all non-employee directors of the Company:
Name | Fees Earned or Paid in Cash | Stock Awards (1) | Option Awards (1) | Total | Fees Earned or Paid in Cash | Stock Awards (1) | Option Awards (1) | Total | |||||||||||||||||||||||
Ean Seeb | (2) | $ | 0 | $ | 25,000 | $ | 73,863 | $ | 93,836 | (2) | $0 | $ | 0 | (4) | $0(4) | $ | 0 | ||||||||||||||
Tripp Keber | (2) | $ | 0 | $ | 25,000 | $ | 73,836 | $ | 93,836 | (2) | $0 | $ | 0 | (4) | $0(4) | $ | 0 | ||||||||||||||
Terence Fitch | (3) | $0 | $ | 0 | $90,876(5) | $ | 90,876 |
(1) | These amounts are the aggregate fair value of the equity compensation |
(2) | Messrs. Seeb and Keber joined the Company’s Board of Directors on June 4, 2014 and March 31, 2014, respectively. |
(3) | Mr. Fitch joined the Company’s Board of Directors on December 9, 2015. |
(4) | As discussed below, Ean Seeb and Tripp Keber received stock awards and options on June 4, 2014 intended to compensate them for approximately three years of service on the Company’s Board. The Company did not grant any additional awards in 2015 to Mr. Seeb or Mr. Keber, but did incurred compensation cost of $8,333 and $16,605 related to the amortization of the stock awards and options issued on June 4, 2014. |
(5) | The Company incurred compensation expense of $7,573 during the fiscal year 2015 related to the amortization of options received during the year by Mr. Fitch. |
On December 9, 2015, in exchange for his service as a Director, the Board approved the issuance to Mr. Terence Fitch, pursuant to the 2015 Employee Incentive Plan, unvested options to purchase 100,000 up to shares of the Company’s common stock at an exercise price of $0.90 per share that will expire ten years from date of issuance and vest monthly over the period of one year, beginning January 1, 2016. All vesting per the above schedule shall cease thirty days from the time the applicable director is dismissed from the Board, fails to win re-election by shareholders, or resigns as a director. The fair market value of the options was calculated using the Black-Scholes options pricing model, assuming approximately 2.23% risk-free interest, 0% dividend yield, 280% volatility, and expected term of 5.25 years.
On that same date, the Company’s Board approved the grant of 100,000 shares to Mr. Fitch. However, pursuant to the 2015 Plan (defined below), the grant would not occur until shareholder approval of the 2015 Plan became effective, which occurred in January 2016 (as described further in the section below entitled “2014 and 2015 Equity Incentive Plans“). As such, this grant will be included as compensation for Mr. Fitch in fiscal year 2016.
On June 6, 2014, each of Ean Seeb and Tripp Keber, our independent directors, received the following pursuant to our 2014 Employee Incentive Plan for their service as a director: (i) a stock award of 250,000 shares of our Common Stock (the “Stock Award”) and (ii) options to purchase up to 750,000 shares of our common stock at $0.10 per share (each an “Option”) which vest as follows:
All vesting per the above schedule shall cease thirty days from the time the applicable director is dismissed from the Board, fails to win re-election by shareholders, or resigns as a director. Each of the Options and Stock Awards granted to Messrs. Keber and Seeb shall not be exercised or sold, respectively, unless (i) permitted by all Federal and state laws, including Rule 144 of the Securities Act, and (ii) all outstanding Debentures have been redeemed or converted into shares of our common stock. As of December 31, 2014, 62,5002015, 250,000 Options held by each of Messrs. Seeb and Keber had vested and were available for exercise. No additional grants were made to Messrs. Keber and Seeb during 2015. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.61% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 10 years.
Indemnification of Officers and Directors
NoOur Amended and Restated Certificate of Incorporation provides that we shall indemnify our officers and directors to the fullest extent permitted by applicable law against all liability and loss suffered and expenses (including attorneys" fees) incurred in connection with actions or proceedings brought against them by reason of their serving or having served as officers, directors or in other capacities. We shall be required to indemnify a director receivedor officer in connection with an action or proceeding commenced by such director or officer only if the commencement of such action or proceeding by the director or officer was authorized in advance by the Board of Directors.
We do not currently maintain director’s and officer’s liability insurance but we may do so in the future.
2014 and 2015 Equity Incentive Plans
2015 and 2014 Equity Incentive Plans.In June 2014, our shareholders approved our 2014 Equity Incentive Plan (“2014 Plan”) and in December 2015, our shareholders approved our 2015 Equity Incentive Plan (“2015 Plan”, and collectively, the “Plans”), such approval becoming effective in January 2016. The Plans are identical, except for number of shares reserved for issuance under each.
The Plans provide for the grant of incentive stock options to our employees and our parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. Our Plans also provide that the grant of performance stock awards may be paid out in cash as determined by the Committee (as defined herein).
The following table and information below sets forth information as of December 31, 2015 on our Plans:
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||||
(a) | (b) | (c) | ||||||||||||
Equity compensation plans approved by security holders: | ||||||||||||||
2014 Equity Incentive Plan | 2,900,000 | $ | 0.263 | 0 | ||||||||||
2015 Equity Incentive Plan | 2,755,000 | * | $ | 0.929 | 1,745,000* | |||||||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||||
Total | 1,745,000* |
*In December 2015, the grant of 540,000 shares of our common stock and 2,755,000 options to purchase shares of our common stock were authorized by the Company under the 2015 Plan. These grants occurred after the Board and shareholders approved the 2015 Plan, but before the shareholder approval was deemed to have become effective under Delaware law (which occurred in January 2016). Under the terms of the 2015 Plan, no shares of common stock may be issued and no options may be exercised until shareholder approval of the 2015 Plan occurs. As such approval had been obtained but was not yet effective as of December 31, 2015, the grant and issuance of the 540,000 shares of our common stock under the 2015 Plan did not occur until January 2016 and are still listed as available for issuance in column “(c)” above.
Summary of the Plans
Authorized Shares. A total of 4,000,000 shares of our common stock are reserved for issuance pursuant to the 2014 Plan. A total of 4,500,000 shares of our common stock are reserved for issuance pursuant to the 2015 Plan. Shares issued under our Plans may be authorized but unissued or reacquired shares of our common stock. Shares subject to stock awards granted under our Plans that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under our Plans. Additionally, shares issued pursuant to stock awards under our Plans that we repurchase or that are forfeited, as well as shares reacquired by us as consideration for the exercise or purchase price of a stock award, will become available for future grant under our Plans.
Administration. Our Board of Directors, or a duly authorized committee thereof (collectively, the “Committee”), has the authority to administer our Plans. Our Board may also delegate to one or more of our officers the authority to designate employees other than Directors and officers to receive specified stock, which, in respect to those awards, said officer or officers shall then have all that the Committee would have.
Subject to the terms of our Plans, the Committee has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, compensationthe number of shares subject to each stock award, the fair market value of a share of our common stock, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and conditions of the award agreements for their serviceuse under the Plans. The Committee has the power to modify outstanding awards under the Plans, subject to the terms of the Plans and applicable law. Subject to the terms of our Plans, the Committee has the authority to reprice any outstanding option or stock appreciation right, cancel and re-grant any outstanding option or stock appreciation right in exchange for new stock awards, cash or other consideration, or take any other action that is treated as a directorrepricing under generally accepted accounting principles, with the consent of any adversely affected participant.
Stock Options.Stock options may be granted under the Plans. The exercise price of options granted under our Plans must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not exceed 5 years and the exercise price must equal at least 110% of the fair market value on the grant date. The Committee will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the Committee, as well as other types of consideration permitted by applicable law. No single participant may receive more than 25% of the total options awarded in any single year. Subject to the provisions of our Plans, the Committee determines the other terms of options.
Performance Shares. Performance shares may be granted under our Plans. Performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The Committee will establish organizational or individual performance goals or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance shares to be paid out to participants. After the grant of a performance share, the Committee, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance shares. The Committee, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination thereof, per the terms of the agreement approved by the Committee and delivered to the participant. This agreement will state all terms and condition of the agreements.
Restricted Stock. The terms and conditions of any restricted stock awards granted to a participant will be set forth in an award agreement and, subject to the provisions in the Plans, will be determined by the Committee. Under a restricted stock award, we issue shares of our common stock to the recipient of the award, subject to vesting conditions and transfer restrictions that lapse over time or upon achievement of performance conditions. The Committee will determine the vesting schedule and performance objectives, if any, applicable to each restricted stock award. Unless the Committee determines otherwise, the recipient may vote and receive dividends on shares of restricted stock issued under our Plans.
Other Share-Based Awards and Cash Awards.The Committee may make other forms of equity-based awards under our Plans, including, for example, deferred shares, stock bonus awards and dividend equivalent awards. In addition, our Plans authorizes us to make annual and other cash incentive awards based on achieving performance goals that are pre-established by our compensation committee.
Change in Control. If the Company is merged or consolidated with another entity or sells or otherwise disposes of substantially all of its assets to another company while awards or options remain outstanding under the Plans, unless provisions are made in connection with such transaction for the year-ended December 31, 2013.continuance of the Plans and/or the assumption or substitution of such awards or options with new options or stock awards covering the stock of the successor company, or parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, then all outstanding options and stock awards which have not been continued, assumed or for which a substituted award has not been granted shall, whether or not vested or then exercisable, unless otherwise specified in the relevant agreements, terminate immediately as of the effective date of any such merger, consolidation or sale.
Change in Capitalization.If the Company shall effect a subdivision or consolidation of shares or other capital readjustment, the payment of a stock dividend, or other increase or reduction of the number of shares of the common stock outstanding, without receiving consideration therefore in money, services or property, then awards amounts, type, limitations, and other relevant consideration shall be appropriately and proportionately adjusted. The Committee shall make such adjustments, and its determinations shall be final, binding and conclusive.
Plan Amendment or Termination. Our Board has the authority to amend, suspend, or terminate our Plans, provided that such action does not materially impair the existing rights of any participant without such participant's written consent. The Plans will terminate ten (10) years after the earlier of (i) the date the each Plan is adopted by the Board, or (ii) the date a Plan is approved by the stockholders, except that awards that are granted under the applicable Plan prior to its termination will continue to be administered under the terms of the that Plan until the awards terminate, expire or are exercised.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information with respect to the beneficial ownership of common stock by: (i) each director, (ii) each of the executive officers of the Company, (iii) all current directors and executive officers as a group, and (iv) each stockholder known to the Company to be the beneficial owner of more than 5% of the outstanding shares of Common Stock.common stock.
Each of the Company’s outstanding debentures convertible into common stock and warrants to purchase common stock include a provision which prevents the Company from effecting the conversion or exercise of the respective debenture or warrant, to the extent that, as a result of such conversion or exercise, the holder beneficially owns more than 4.99%, in the aggregate, of the issued and outstanding shares of the Company's common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion or exercise (collectively, the “4.99% Blocker”).
Unless otherwise indicated in the footnotes to the table, all information set forth in the table is as of March 10, 2015,4, 2016, and the address for each director and executive officer of the Company is: c/o MassRoots, Inc., 2247 Federal Blvd.,1624 Market Street, Suite 201, Denver, CO 80211.80202. The addresses for the greater than 5% stockholders are set forth in the footnotes to this table.
Common Stock | ||||||||||||||||
Number of Shares Beneficially Owned (1) | Percentage Outstanding (2) | Number of Shares Beneficially Owned (1) | Percentage Outstanding (2) | |||||||||||||
Directors and Officers | ||||||||||||||||
Isaac Dietrich | 17,703,831 | (14) | 42.99% | 17,703,831 | (3) | 37.24 | %(3) | |||||||||
Hyler Fortier | 4,569,970 | 11.10% | ||||||||||||||
Stewart Fortier | 3,685,976 | (15) | 8.95% | 3,685,976 | (4) | 7.75 | %(4) | |||||||||
Tyler Knight | 3,655,976 | 8.88% | ||||||||||||||
Ean Seeb (11) | 416,666 | (12) | 0.99% | |||||||||||||
Tripp Keber (3) | 416,666 | (13) | 0.99% | |||||||||||||
Ean Seeb | 545,000 | (12) | 1.14 | % | ||||||||||||
Tripp Keber | 500,000 | (13) | 1.05 | % | ||||||||||||
Daniel Hunt | 467,500 | (15) | 0.98 | % | ||||||||||||
Terence Fitch (17) | 141,665 | (18) | 0.30 | % | ||||||||||||
Jesus Quintero | 100,000 | 0.24% | 100,000 | (19) | 0.21 | % | ||||||||||
All directors and named executive officers as a group (6 persons) | 30,549,085 | 74.14% | ||||||||||||||
All directors and executive officers as a group (7 persons) | 23,143,972 | 48.67 | % | |||||||||||||
5% Stockholders | ||||||||||||||||
Douglas Leighton | 11,581,269 | (5) | 24.89% | (6) | 10,664,411 | (6) | 19.00 | %(7) | ||||||||
Michael Novielli | 8,811,500 | (8) | 18.16% | (6) | 7,930,469 | (9) | 14.38 | %(7) | ||||||||
Dutchess Opportunity Fund II, LP (9) | 8,061,500 | (10) | 16.37% | |||||||||||||
Dutchess Opportunity Fund II, LP (10) | 7,180,469 | (11) | 15.10 | %(7) | ||||||||||||
Hyler Fortier (14) | 4,551,670 | 9.57 | % | |||||||||||||
Tyler Knight (16) | 3,655,976 | 7.69 | % |
(1) | The Company believes that each stockholder has sole voting and investment power with respect to the shares of common stock listed, except as otherwise noted. The number of shares beneficially owned by each stockholder is determined under rules of the SEC, and the information is not necessarily indicative of ownership for any other purpose. Under these rules, beneficial ownership includes (i) any shares as to which the person has sole or shared voting power or investment power and (ii) any shares which the individual has the right to acquire within 60 days after March |
(2) | Based on |
(3) |
(4) | The 3,685,976 shares of common stock include (i) 3,675,976 shares of common stock; and (ii) 10,000 shares of common stock issuable upon exercise of our $1 warrants. These are aggregated without regard to the 4.99% Blocker and the percentage outstanding calculated without regard to the 4.99% blocker. With regard to the 4.99% blocker, the amount beneficially owned would be 3,765,976 shares, which would be equal to 7.73% of the Company’s outstanding shares |
(5) | Douglas Leighton resigned from the Company’s Board of Directors as of March 25, 2014. His address is as follows: 50 Commonwealth Ave., Suite 2 Boston, MA 02116. |
The |
Each of the |
Michael Novelli’s address is as follows: c/o Dutchess Global LLC, 1110 Rt. 55, Suite 206, LaGrangeville, NY 12540. |
37 |
(9) | The |
Dutchess’ address is as follows: Dutchess Opportunity Fund, II, LP 50 Commonwealth Ave., Suite 2 Boston, MA 02116. |
Each of Mr. Michael Novielli and Mr. Douglas Leighton, as Managing Partners of Dutchess, has voting power and dispositive control over these shares. The |
(12) |
(13) |
(14) |
(15) | Mr. Hunt’s 467,500 shares of |
(16) | Mr. Knight is the Company’s Senior Content Strategist, a non-executive position for the purposes of Item 401 of Regulation S-K, and, until December 2015, was the Company’s Director and Chief Marketing Officer. His address is: c/o MassRoots, Inc., 1624 Market Street, Suite 201, Denver, CO 80202. |
(17) | Mr. Fitch joined the Company’s Board of Directors on December 9, 2015. |
(18) | Mr. Fitch’s 141,665 shares of common stock consists of (i) 100,000 shares common stock held by Mr. Fitch and (ii) options held by Mr. Fitch to purchase 41,665 shares of our common stock which had vested on March 4, 2016 or were exercisable within 60 days of such date. These |
(19) | These amounts do not include the |
Changes in Control
We are unaware of any contract, or other arrangement or provision, the operation of which may at any subsequent date result in a change in control of our Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except as described herein, none of the following parties (each a “Related Party”) has, in our fiscal years ended 2013December 31, 2015 and 2014, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
us (except those described in Item 11, above):
On March 24, 2014, as part of Agreement and Plan of Reorganization, each of the Company’s shareholders surrendered their shares of the Company’s common stock in exchange for the pro-rata distribution of 36,000,000 newly issued shares of Company’s common stock, based on the percentage of the total shares of common stock held by the shareholder immediately prior to the exchange (the “Exchange”). Each of the below transactions reference such share amounts before and after such Exchange, where applicable.
On April 24,26, 2013, the Company approved the issuance of 15.25 shares of common stock (4,569,970 shares post-Exchange) to Isaac Dietrich, our Chief Executive Officer and Chairman, to repay $17,053 short term borrowing related to Mr. Dietrich’s payment of general Company expenses during the Company’s first months since inception and to compensate him for his services. Service expense of $112,505 was recognized due to the fair value of the shares in excess of the value of the short term borrowing. These shares were recorded as common stock to be issued and subsequently issued on the closing date of January 1, 2014.
On April 24,26, 2013, the Company approved the issuance of 3.75 shares of common stock (1,142,493 shares post-Exchange) to Hyler Fortier, our former Chief Operations Officer, in exchange for her services. The market value of the issued shares is $31,870 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.
On April 24,26, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Stewart Fortier, our Chief Technology Officer, in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.
On April 24,26, 2013, the Company approved the issuance of 3.00 shares of common stock (913,994 shares post-Exchange) to Tyler Knight, our then Chief Marketing Officer, in exchange for his services. The market value of the issued shares is $25,496 and is approximated to be the fair market value of the services received. These shares were recorded as Common Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.
During the year ended December 31, 2013, the Company issued 72.06 stock options (21,954,137 shares post-Exchange) to directors and officers of the Company. In addition, options to purchase 42.81, 11.25, 9.0, and 9.0 shares (13,042,695, 3,427,478, 2,741,982 and 2,741,982 shares post-Exchange) of the Company’s common stock at $1.00 per share were issued to Mr. Dietrich, Ms. Fortier, Mr. Fortier, and Mr. Knight, respectively. The options vested through January 1, 2017 and contained an acceleration clause which was triggered on January 1, 2014 that caused all options to vest immediately. On January 1, 2014, each officer exercised all options held at that time.
On October 7, 2013, the Company entered into an agreement to issue as compensation for services provided a total of 2.94 Series A Preferred shares (895,715 common shares post-exchange)post-Exchange) with a market value of $24,998 to Douglas Leighton, the Company’s former director, for financial consulting services. The market value of the shares approximated the fair market value of services received. These shares were recorded as Series A Preferred Stock to be issued and subsequently issued on the Original Offering’s closing date of January 1, 2014.
2014 and exchanged for 895,715 common shares post-Exchange.
As payment for consulting services provided in relation to the March 2014 Offering, we issued Dutchess a warrant exercisable into 4,050,000 shares of our common stock at $0.001 per share, and a warrant exercisable into 2,375,000 shares of our common stock at $0.40 per share on March 24, 2014. Dutchess is controlled by our former director, Douglas Leighton, and Michael Novielli. These warrants may be exercised any time after their issuance date through and including the third anniversary of their issuance date. The Company also granted registration rights to Dutchess covering all shares of common stock issuable upon the excise of the warrants.
On May 1, 2014, the Company issued 100,000 shares of common stock to Jesus Quintero at $0.01 per share in exchange for his services as the Company’s Chief Financial Officer for one year. These shares have a fair market value of $10,000.
On June 4,October 28, 2014, each of Ean SeebIsaac Dietrich and Tripp Keber,Stewart Fortier, our independent directors, receivedChief Executive Officer and Chief Technology Officer, respectively, each participated in the following pursuant to ourCompany’s private offering that took place beginning September 15, 2014 Employee Incentive Plan for their service as a director: (i) a Stock Awardand continued until March 11, 2015, whereby Mr. Dietrich purchased $5,000 of 250,000the Company’s securities consisting of 10,000 shares of our Common Stock valued at $25,000 and (ii) Options to purchase up to 750,000 shares of ourthe Company’s common stock at $0.10 per share, valued at $73,863.
On June 4, 2014, the Company issued 250,000 shares of common stock to Sebastian Stant at $0.01 per share in exchange for his services as the Company’s Lead Web Developer for 1 year. These shares have a fair market value of $25,000 at grant date. The Company also issuedand warrants to purchase 550,0005,000 shares at $0.10$1 per share, to Sebastian Stant for his services aswhile Mr. Fortier purchased $10,000 of the Company’s Lead Web Developer for 1 year. Thesecurities consisting of 20,000 shares of the Company’s common stock and warrants may be exercised any time afterto purchase 5,000 shares at $1 per share. On March 11, 2015, E3 Events, LLC, which is controlled by our Director, Ean Seeb, purchased $15,000 of the issuance throughCompany’s securities consisting of 30,000 shares of the Company’s common stock and includingwarrants to purchase 15,000 shares at $1 per share. On March 10, 2015, Michael and Shelly Seeb, Mr. Seeb’s parents, as well as JEAP Partners, owned by Mr. Seeb’s father in law, participated in the tenth (10th) anniversaryCompany’s private offering, purchasing $5,000 and $20,000 of its original issuance. The warrants have a fair market valuethe Company’s securities respectively. Each of $54,146.
these purchases were made on the same terms as other, non-affiliated investors.
Director Independence
We areOur Common Stock is not currentlyquoted or listed on any national exchange or interdealer quotation system with a requirement that a majority of our board of directors be independent and therefore, the Company is not subject to any director independence requirements. Our Board considers a director to be independent when the director is not an officer or employee of the Company or its subsidiaries, does not have any relationship which would, or could reasonably appear to, materially interfere with the independent judgment of such director, and the director otherwise meets the independence requirements under the listing standards of any national exchange. However, were we to apply the standardsNASDAQ Stock Market and the rules and regulations of the New York Stock Exchange,SEC. Under this standard, Messrs. Dietrich, and Fortier, andalong with our former director, Mr. Knight, would not be considered “independent” under such standards.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The Company's Board of Directors does not haveapproved formation of an Audit Committee.Committee on in December 2016 which is comprised of three members of the Board of Directors.
As disclosed in our Form 8-K filed on January 21, 2016, pursuant to the recommendation of our Audit Committee, we dismissed N.K.A. L&L CPAs, PA (formerly known as Bongiovanni & Associates, PA), (“L&L”) as our independent accountant on January 15, 2016, and engaged Liggett, Vogt & Webb P.A. (“Liggett Webb”) to serve as our new independent accountant. The following table sets forth the aggregate fees billed to us by L&L for the yearsfiscal year ended December 31, 2014 and a portion of the fiscal year ended December 31, 20132015, and by Bongiovanni & Associates, PA and our independent auditors:Liggett Webb for a portion of the fiscal year ended December 31, 2015:
L&L | Liggett Webb | |||||||||||
2014 | 2015 | 2015 | ||||||||||
Audit Fees | $ | 31,300 | $ | 26,500 | $ | 47,558 | ||||||
Audit-Related Fees | — | — | — | |||||||||
Tax Fees | — | — | — | |||||||||
Other Fees | 3,000 | 3,000 | — | |||||||||
Totals | $ | 34,300 | $ | 29,500 | $ | 47,558 |
2014 | 2013 | |||||||
Audit Fees | $ | 17,500 | $ | 12,000 | ||||
Audit-Related Fees | 13,800 | |||||||
Tax Fees | 7,000 | |||||||
Other Fees | 3,000 | |||||||
Totals | $ | 41,300 | $ | 12,000 |
Audit fees represent amounts billed for professional services rendered for the audit of our annual financial statements. Audit-Related Fees include amounts billed for professional services rendered in connectionstatements and fees associated with reviewing our SEC filings and discussionsquarterly filings.
Other fees represent the fees associated with the SEC that occurred during fiscal 2014 for us to become a fully reporting public company. Our Board of Directors is of the opinion that the Audit-Related Fees charged byBongiovanni & Associates, PA were consistent withBongiovanni & Associates, PA maintaining its independence from us.
reviewing our Registration Statements on Form S-1..
The Board of Directors acts as the audit committee of the Company and approves all auditing services and the terms thereof and non-audit services (other than non-audit services published under Section 10A(g) of the Exchange Act or the applicable rules of the SEC or the Pubic Company Accounting Oversight Board) to be provided to us by the independent auditor; provided, however, the pre-approval requirement is waived with respect to the provisions of non-audit services for us if the "de minimus" provisions of Section 10A(i)(1)(B) of the Exchange Act are satisfied.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements
Report of Independent Registered Public Accounting Firm
Audited Balance Sheets as of December 31, 2014 and December 31, 2015
Audited Statements of Operations for the Year Ended December 31, 2014 and 2015
Audited Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 2014, and 2015
Audited Statements of Cash Flows for the Year Ended December 31, 2014 and 2015
Notes to Audited Financial Statements
(b) Exhibit Index
2.1 | ||||
|
| |||
Plan of Reorganization, dated March 18, | ||||
3.1 | Amended and Restated Certificate of Incorporation of the | |||
3.2 | Amendment to Amended and Restated Certificate of Incorporation of the | |||
3.3 | Bylaws of | |||
4.1 | Form of Common Stock | |||
10.1 | Amended Employment Agreement by and between the Company and Isaac Dietrich (incorporated by reference to Exhibit 10.4 to the Company’s Annual Report on Form 10-K filed on March 31, 2015) | |||
10.2 | Amended Employment Agreement between | |||
10.3 | Employment Agreement by and between the Company and Stewart Fortier, dated April 1, 2014 (incorporated by reference to Exhibit 10.3 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014.) | |||
10.4 | Lease by and between the Company and RVOF Market Center LLC (incorporated by reference to Exhibit 10.2 to the Company’s Annual Report on Form 10-K filed on March 31, 2015) | |||
10.5 | First Amendment to Lease by and between the Company and RVOF Market Center LLC, dated 12/11/2015+ | |||
10.6 | Subscription Agreement dated May 26, 2015, between MassRoots and Flowhub (incorporated by reference to Exhibit 10.1 to the Company’s Current Report Form 8-K filed on May 28, 2015) | |||
10.7 | 2014 Stock Incentive Plan and forms of stock option agreement and stock award agreement thereunder (incorporated by reference to Exhibit 10.12 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.8 | Consulting Agreement, dated May 1, 2015, by and between Jesus Quintero and the Company (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed on May 15, 2015) | |||
10.9 | Consulting Agreement between MassRoots and Demeter Capital, dated June 15, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on July 22, 2015) | |||
10.10 | Investment Banking Agreement between Chardan and the Company, dated September 24, 2015 (incorporated by reference to Exhibit 10.16 filed together with the Company’s Amendment No. 1 to its Registration Statement on Form S-1 on October 7, 2015) | |||
10.11 | Employment Agreement | |||
2015 Stock Incentive Plan and forms of stock option agreement and stock award agreement thereunder+ | ||||
10.13 | Form of Security Agreement Related to Convertible Debentures from the March 2014 Offering (incorporated by reference to Exhibit 10.9 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.14 | Form of Subscription Agreement from the March 2014 Offering (incorporated by reference to Exhibit 10.10 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014.) | |||
10.15 | Form of Warrant issued for consulting services from March 2014 Offering at $0.40 per share (incorporated by reference to Exhibit 4.5 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.16 | Form of Warrant issued for consulting services from March 2014 Offering at $0.001 per share (incorporated by reference to Exhibit 4.6 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.17 | Form of Warrant issued together with Convertible Debentures from March 2014 Offering at $0.40 per share (incorporated by reference to Exhibit 4.4 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.18 | Form of Convertible Debenture Agreement Issued in March 2014 Offering (incorporated by reference to Exhibit 4.4 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.19 | Form of Debenture Registration Rights Agreement related to March 2014 Offering (incorporated by reference to Exhibit 10.11 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.20 | Form of Warrant issued with Subscription Agreement from March 2014 Offering at $0.40 per share (incorporated by reference to Exhibit 4.2 filed together with the Company’s Registration Statement on Form S-1 on June 13, 2014) | |||
10.21 | Form of Subscription Agreement from September 15, 2014 to March 11, 2015 Private Placement+ | |||
10.22 | Form of Warrant issued with Subscription Agreement in September 15, 2014 to March 11, 2015 Private Placement at $1.00 per share+ | |||
10.23 | Form of Subscription Agreement from April 1, 2015 through April 17, 2015 Private Placement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 17, 2015) | |||
10.24 | Form of Subscription Agreement from June 10, 2015 through July 13, 2015 Private Placement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 14, 2015) | |||
10.25 | Form of Warrant Utilized by Service Providers+ | |||
10.26 | Form of Subscription Agreement for the Registered Offering Occurring in November 2015 (incorporated by reference to Exhibit 4.2 filed together with the Company’s Amendment No. 1 to the Registration Statement on Form S-1 on October 7, 2015) | |||
10.27 | Form of Warrant for the Registered Offering Occurring in November 2015(incorporated by reference to Exhibit 4.3 filed together with the Company’s Amendment No. 1 to the Registration Statement on Form S-1 on October 7, 2015) | |||
10.28 | Form of Note in March 2016 Note Offering (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on March 18, 2016) | |||
10.29 | Form of Warrant in March 2016 Note Offering (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed on March 18, 2016) | |||
10.30 | Form of Security Agreement in March 2016 Note Offering (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 18, 2016) | |||
10.31 | Form of Securities Purchase Agreement utilized in March 2016 Note Offering (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 18, 2016) | |||
14.1 | Code of Ethics of the Company (incorporated by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K filed on March 31, 2015) | |||
16.1 | Letter of L&L CPAS, PA dated January 29, 2016 (incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K/A filed on February 1, 2016) | |||
31.1 | Certification of | |||
31.2 | Certification of | |||
32.1 | Certification of | |||
32.2 | Certification of | |||
Charter of the Audit Committee (incorporated by reference to Exhibit 99.1 to the Company’s | ||||
* Incorporated by reference to the Company’s Amendment to the Registration Statement on Form S-1 filed with the SEC on June 13, 2014.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
March | By: | /s/ Isaac Dietrich Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signatures | Title | Date | ||
/s/ Isaac Dietrich | Principal Executive Officer and Chairman of the Board of Directors | March | ||
Isaac Dietrich | ||||
/s/ Tripp Keber | Director | March | ||
Tripp Keber | ||||
/s/ | Director | March | ||
/s/ Stewart Fortier | Director, Chief Technology Officer | March | ||
Stewart Fortier | ||||
/s/ Ean Seeb | Director | March 30, 2016 | ||
Ean Seeb | ||||
/s/ Jesus Quintero | Chief Financial Officer and Chief Accounting Officer | March | ||
Jesus Quintero | ||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Massroots, Inc.
We have audited the accompanying balance sheet of Massroots, Inc. (“the Company”) as of December 31, 2015 and the related statements of operations, stockholders’ equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Massroots, Inc as of December 31, 2015, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses from operations since its inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Liggett & Webb, P.A. | |
Liggett & Webb, P.A. |
March 30, 2016
New York, New York
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of
Massroots, Inc.
We have audited the accompanying balance sheetssheet of Massroots, Inc. (the “Company”) as of December 31, 2014, and 2013, and the related statements of operations, stockholders’ equity (deficit) and cash flows for the year ended December 31, 2014 and for the period from inception (April 24, 2013) through December 31, 2013.2014. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
audit.
We conducted our auditsaudit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our auditsaudit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provideaudit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2014, and 2013, and the results of its operations, changes in stockholders’ equity (Deficit) and cash flows for the period for the year ended December 31, 2014 and for the period from inception (April 24, 2013) through December 31, 2013 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 92 to the financial statements, the Company has a net loss a stockholders’ deficit and negative cash flows from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 9.2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Bongiovanni & Associates, PA
Bongiovanni & Associates, PA
N.K.A. L&L CPAS, PA
Certified Public Accountants
Plantation, Florida
The United States of America
March 31, 2015
Table of Contents |
MASSROOTS, INC.
BALANCE SHEETS
AS OF DECEMBER 31, 2015 AND DECEMBER 31, 2014
2015 | 2014 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 386,316 | $ | 141,928 | ||||
Other receivables | 39,500 | 11,201 | ||||||
Prepaid expense | 12,938 | 130,797 | ||||||
Total Current assets | 438,754 | 283,926 | ||||||
Property and equipment - net | 73,023 | 14,162 | ||||||
OTHER ASSETS | ||||||||
Investment in Flowhub | 175,000 | 0 | ||||||
Deposits | 33,502 | 68,441 | ||||||
Total Other Assets | 208,502 | 68,441 | ||||||
TOTAL ASSETS | 720,279 | 366,529 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | 110,087 | 25,842 | ||||||
Accrued expenses | 84,355 | 25,695 | ||||||
Derivative liabilities | 0 | 1,099,707 | ||||||
Total Current liabilities | 194,442 | 1,151,244 | ||||||
LONG-TERM LIABILITY | ||||||||
Convertible debentures, net of $0 and $107,016 discount, respectively | 209,100 | 162,084 | ||||||
Total Liabilities | 403,542 | 1,313,328 | ||||||
STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Common stock, $0.001 par value, 200,000,000 shares authorized; 46,939,966 and 38,909,000 shares issued and outstanding | 46,940 | 38,909 | ||||||
Common stock to be issued, 624,000 and 1,048,000 shares, respectively | 5,574 | 1,048 | ||||||
Additional paid in capital | 12,096,744 | 2,372,867 | ||||||
Accumulated deficit | (11,832,521 | ) | (3,359,623 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | 316,737 | (946,799 | ) | |||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 720,279 | $ | 366,529 |
The accompanying notes are an integral part of these financial statements.
MASSROOTS, INC.
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
2015 | 2014 | |||||||
REVENUES | $ | 213,963 | $ | 9,030 | ||||
OPERTING EXPENSES | ||||||||
Advertising | 717,773 | 180,776 | ||||||
Cost of revenues | 57,611 | 690 | ||||||
Payroll and related expense | 1,381,071 | 262,653 | ||||||
Common stock issued for services | 1,219,904 | 30,658 | ||||||
Options issued for services | 1,273,393 | 59,473 | ||||||
Warrants issued for services | 229,365 | 555,598 | ||||||
Other general and administrative expenses | 1,459,946 | 526,405 | ||||||
Total Operating expenses | 6,339,063 | 1,616,253 | ||||||
(LOSS) FROM OPERATIONS | (6,125,100 | ) | (1,607,223 | ) | ||||
OTHER (EXPENSE) | ||||||||
Change in derivative liabilities | (2,236,401 | ) | (753,240 | ) | ||||
Interest expense | (4,381 | ) | (8,316 | ) | ||||
Amortization of discount on notes payable | (107,016 | ) | (67,363 | ) | ||||
Total Other (Expense) | (2,347,798 | ) | (828,919 | ) | ||||
(LOSS) BEFORE INCOME TAXES | (8,472,898 | ) | (2,436,142 | ) | ||||
PROVISION FOR INCOME TAXES | 0 | 0 | ||||||
NET (LOSS) | $ | (8,472,898 | ) | $ | (2,436,142 | ) | ||
Basic and fully diluted net (loss) per common share: | $ | (0.19 | ) | $ | (0.17 | ) | ||
Weighted average common shares outstanding | 43,834,157 | 14,375,222 |
The accompanying notes are an integral part of these financial statements.
MASSROOTS, INC.
STATEMENT OF CASHFLOWS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) | $ | (8,472,898 | ) | $ | (2,436,142 | ) | ||
Adjustments to reconcile net (loss ) to net cash (used in ) | ||||||||
operating activities: | ||||||||
Amortization of discounts on notes payable | 107,016 | 67,363 | ||||||
Depreciation | 10,174 | 1,799 | ||||||
Common stock issued for services | 1,219,904 | 30,658 | ||||||
Options issued for services | 1,273,393 | 59,473 | ||||||
Warrants issued for services | 229,365 | 555,598 | ||||||
Change in derivative liabilities | 2,236,401 | 753,240 | ||||||
Inputed Interest expense | 4,381 | 8,316 | ||||||
Changes in operating assets and liabilities | ||||||||
Other receivables | (28,299 | ) | (11,201 | ) | ||||
Prepaid expense | 209,370 | — | ||||||
Deposit | (30,953 | ) | (2,550 | ) | ||||
Accounts payable and other liabilities | 112,906 | 50,490 | ||||||
Net Cash (Used in) Operating Activities | (3,129,240 | ) | (922,956 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments for equipment | (69,035 | ) | (14,667 | ) | ||||
Investment in Flowhub | (175,000 | ) | — | |||||
Net Cash (Used in) Investing Activities | (244,035 | ) | (14,667 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Issuance of convertible debentures for cash | — | 269,100 | ||||||
Issuance of common stock for cash, net of offering costs | 3,075,577 | 729,900 | ||||||
Proceeds from exercise of options and warrants | 542,086 | 72 | ||||||
Net Cash Provided by Financing Activities | 3,617,663 | 999,072 | ||||||
NET INCREASE IN CASH | 244,388 | 61,449 | ||||||
CASH AT BEGINNING OF PERIOD | 141,928 | 80,479 | ||||||
CASH AT END OF YEAR | $ | 386,316 | $ | 141,928 | ||||
�� | ||||||||
NON-CASH FINANCING ACTIVITIES | ||||||||
Common stock issued upon conversion of debentures | $ | 60,000 | $ | 0 | ||||
Reclassification of derivative liabilities to equity | $ | 3,336,109 | $ | 0 | ||||
Common stock issued for services | $ | 0 | $ | 54,342 | ||||
Options issued for services | $ | 0 | $ | 142,345 | ||||
Preferred stock dividend | $ | 0 | $ | 4,538 | ||||
Inputed interest - apic | $ | 4,381 | $ | 8,316 |
The accompanying notes are an integral part of these financial statements.
MASSROOTS, INC.
STATEMENT OF STOCKHOLDERS EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2015 and 2014
Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | Total Stockholders' | ||||||||||||||||||||||||
Balance as of December 31, 2013 | 13,889,677 | 13,890 | 985,960 | (919,123 | ) | $ | 80,727 | |||||||||||||||||||||
Accrued dividend on preferred stock | (4,358 | ) | (4,358 | ) | ||||||||||||||||||||||||
Conversion of dividend into common stock | 156,293 | $ | 156 | 4,202 | 4,358 | |||||||||||||||||||||||
Exercise of options | 21,954,030 | $ | 21,954 | (21,882 | ) | 72 | ||||||||||||||||||||||
Intrinsic value of beneficial conversion feature | 87,189 | 87,189 | ||||||||||||||||||||||||||
Common stock issued for cash | 2,059,000 | $ | 2,059 | 1,048,000 | 1,048 | 467,515 | 470,622 | |||||||||||||||||||||
Common stock issued for services | 850,000 | $ | 850 | 84,150 | 85,000 | |||||||||||||||||||||||
Issuance of common stock | 13,889,677 | $ | 13,890 | (13,889,677 | ) | (13,890 | ) | 0 | ||||||||||||||||||||
Options issued for services | 201,818 | 201,818 | ||||||||||||||||||||||||||
Warrants issued for services | 555,598 | 555,598 | ||||||||||||||||||||||||||
Imputed interest | 8,316 | 8,316 | ||||||||||||||||||||||||||
Net loss for 12 months ended December 31, 2014 | (2,436,142 | ) | ($ | 2,436,142 | ) | |||||||||||||||||||||||
Balance as of December 31, 2014 | 38,909,000 | $ | 38,909 | 1,048,000 | $ | 1,048 | $ | 2,372,867 | ($ | 3,359,623 | ) | ($ | 946,799 | ) | ||||||||||||||
Common stock issued | 1,048,000 | $ | 1,048 | (1,048,000 | ) | ($ | 1,048 | ) | 0 | |||||||||||||||||||
Common stock cancelled in consideration for warrants | (1,000,000 | ) | ($ | 1,000 | ) | $ | 1,000 | 0 | ||||||||||||||||||||
Common stock issued for cash | 3,966,509 | $ | 3,967 | 34,000 | $ | 34 | $ | 3,071,576 | 3,075,577 | |||||||||||||||||||
Common stock issued upon exercise of warrants for cash | 2,426,341 | $ | 2,426 | — | $ | 534,660 | 537,086 | |||||||||||||||||||||
Common shares issued upon cashless exercise of warrants | 41,995 | $ | 42 | ($ | 42 | ) | 0 | |||||||||||||||||||||
Common stock issued for services | 948,120 | $ | 948 | 540,000 | $ | 540 | $ | 1,218,416 | 1,219,904 | |||||||||||||||||||
Stock based commensation related to stock options | $ | 1,273,393 | 1,273,393 | |||||||||||||||||||||||||
Common stock to be issued from exercise of options | 50,000 | $ | 5,000 | 5,000 | ||||||||||||||||||||||||
The accompanying notes are an integral part of these financial statements.
Common Stock | Common Stock to be Issued | Additional Paid | Accumulated | Total Stockholders' | ||||||||||||||||||||||||
Fair value of warrants issued for services | $ | 229,365 | 229,365 | |||||||||||||||||||||||||
Common stock issued upon conversion of debentures | 600,000 | $ | 600 | $ | 59,400 | 60,000 | ||||||||||||||||||||||
Reclassification of derivative liabilities to equity | $ | 3,336,109 | 3,336,109 | |||||||||||||||||||||||||
Net loss for 12 months ended December 31, 2015 | ($ | 8,472,898 | ) | ($ | 8,472,898 | ) | ||||||||||||||||||||||
Balance as of December 31, 2015 | 46,939,965 | $ | 46,940 | 624,000 | $ | 5,574 | $ | 12,096,744 | ($ | 11,832,521 | ) | $ | 316,737 |
MASSROOTS, INC. | ||||||||
BALANCE SHEETS | ||||||||
AS OF DECEMBER 31, 2014 AND DECEMBER 31, 2013 | ||||||||
December 31, 2014 | December 31, 2013 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash | $ | 141,928 | $ | 80,479 | ||||
Other receivables | 11,201 | 0 | ||||||
Prepaid expense | 130,797 | 800 | ||||||
TOTAL CURRENT ASSETS | 283,926 | 81,279 | ||||||
FIXED ASSETS | ||||||||
Computer and office equipment | 16,189 | 1,522 | ||||||
Accumulated depreciation | (2,027 | ) | (228 | ) | ||||
NET FIXED ASSETS | 14,162 | 1,294 | ||||||
OTHER LONG-TERM ASSETS | ||||||||
Deposits | 2,550 | 0 | ||||||
Prepaid Expense | 65,891 | 0 | ||||||
Total Other Long-Term Assets | 68,841 | 0 | ||||||
TOTAL ASSETS | $ | 366,528 | 82,573 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts Payable | 25,842 | 0 | ||||||
Accrued expenses | 23,917 | 0 | ||||||
Accrued payroll tax | 1,778 | 1,846 | ||||||
Derivative liabilities | 1,099,707 | 0 | ||||||
TOTAL CURRENT LIABILITIES | 1,151,244 | 1,846 | ||||||
LONG-TERM LIABILITY | ||||||||
Convertible debentures, net of $107,016 discount | 162,084 | 0 | ||||||
TOTAL LIABILITIES | 1,313,328 | 1,846 | ||||||
STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
Preferred series A Stock, $1 par value, 21 shares authorized; 0 shares issued and outstanding | 0 | 0 | ||||||
Common stock, $0.001 par value, 200,000,000 shares authorized; 38,909,000 and 0 shares issued and outstanding | 38,909 | 0 | ||||||
Common stock to be issued | 1,048 | 13,890 | ||||||
Additional paid in capital | 2,372,867 | 985,960 | ||||||
Retained Deficit | (3,359,623 | ) | (919,123 | ) | ||||
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | (946,799) | 80,727 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 366,528 | $ | 82,573 | ||||
The accompanying notes are an integral part of these financial statements. |
The accompanying notes are an integral part of these financial statements.
Table of Contents |
MASSROOTS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2014 | FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2013 | |||||||
ADVERTISING REVENUE | $ | 9,030 | $ | 470 | ||||
COST OF GOODS SOLD | (690 | ) | 0 | |||||
GROSS PROFIT | 8,340 | 470 | ||||||
GENERAL AND ADMINISTRATIVE EXPENSES: | ||||||||
Depreciation | 1,799 | 228 | ||||||
Independent contractor expense | 182,198 | 33,863 | ||||||
Legal expenses | 179,504 | 4,675 | ||||||
Payroll and related expense | 262,653 | 28,503 | ||||||
Preferred stock issued for services | 0 | 24,998 | ||||||
Common stock issued for services | 30,658 | 195,412 | ||||||
Options issued for services | 59,473 | 612,387 | ||||||
Warrants issued for services | 555,598 | 0 | ||||||
Other general and administrative expenses | 343,680 | 19,527 | ||||||
Total General and Administrative Expenses | 1,615,563 | 919,593 | ||||||
(LOSS) FROM OPERATIONS | (1,607,223 | ) | (919,123 | ) | ||||
OTHER INCOME (EXPENSE) | ||||||||
Change in derivative liabilities | (753,240 | ) | 0 | |||||
Interest income | 0 | 0 | ||||||
Interest expense | (8,316 | ) | 0 | |||||
Amortization of discount on convertible debentures | (67,363 | ) | 0 | |||||
Total Other Income (Expense) | (828,919 | ) | 0 | |||||
INCOME (LOSS) BEFORE INCOME TAXES | (2,436,142 | ) | (919,123 | ) | ||||
PROVISION FOR INCOME TAXES | — | |||||||
NET (LOSS) | $ | (2,436,142 | ) | $ | (919,123 | ) | ||
Basic and fully diluted net income (loss) per common share: | $ | (0.17 | ) | N/A | ||||
Weighted average common shares outstanding | 14,375,222 | N/A | ||||||
The accompanying notes are an integral part of these financial statements. |
MASSROOTS, INC. | ||||||||||||||||||||||||||||||||||||||||||||
STATEMENT OF STOCKHOLDERS' DEFICIT | ||||||||||||||||||||||||||||||||||||||||||||
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Preferred Stock to be Issued | Common Stock to be Issued | Additional Paid-in | Retained Deficit | Total stockholders' equity | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | (deficit) | |||||||||||||||||||||||||||||||||||
Balances as of April 24, 2013 | — | $ | — | — | $ | — | — | $ | — | — | $ | — | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||
Preferred stock issued for cash | — | — | — | 18 | 18 | — | — | 149,982 | — | 150,000 | ||||||||||||||||||||||||||||||||||
Preferred stock issued for services | — | — | — | — | 3 | 3 | 24,995 | — | 24,998 | |||||||||||||||||||||||||||||||||||
Retroactive adjustment for subsequent conversion | (21 | ) | (21 | ) | 6,273,052 | 6,273 | (6,252 | ) | — | |||||||||||||||||||||||||||||||||||
Common stock issued for repayment of short term borrowing and services | — | — | — | — | — | — | 7,616,625 | 7,617 | 204,848 | — | 212,465 | |||||||||||||||||||||||||||||||||
Option issued for services | — | — | — | — | — | — | — | — | 612,387 | — | 612,387 | |||||||||||||||||||||||||||||||||
Net Loss for the period ended December 31, 2013 | —�� | — | — | — | — | — | — | — | — | (919,123 | ) | (919,123 | ) | |||||||||||||||||||||||||||||||
Balances as of December 31, 2013 | — | — | — | — | — | — | 13,889,677 | 13,890 | 985,960 | (919,123 | ) | 80,727 | ||||||||||||||||||||||||||||||||
Accrued dividend on preferred stock | (4,358 | ) | (4,358 | ) | ||||||||||||||||||||||||||||||||||||||||
Conversion of dividend into common stock | 156,293 | 156 | 4,202 | 4,358 | ||||||||||||||||||||||||||||||||||||||||
Exercise of options | 21,954,030 | 21,954 | (21,882 | ) | 72 | |||||||||||||||||||||||||||||||||||||||
Intrinsic value from beneficial conversion feature | 87,189 | 87,189 |
MASSROOTS, INC. | ||||||||||||||||||||||||||||||||||||||||||||
STATEMENT OF STOCKHOLDERS' DEFICIT (continued) | ||||||||||||||||||||||||||||||||||||||||||||
FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2014 | ||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Preferred Stock to be Issued | Common Stock to be Issued | Additional Paid-in | Retained Deficit | Total stockholders' equity | ||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | capital | (deficit) | |||||||||||||||||||||||||||||||||||
Common stock issued for cash | 2,059,000 | 2,059 | 1,048,000 | 1,048 | 467,515 | 470,622 | ||||||||||||||||||||||||||||||||||||||
Common stock issued for services | 850,000 | 850 | 84,150 | 85,000 | ||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock | 13,889,677 | 13,890 | (13,889,677 | ) | (13,890 | ) | — | |||||||||||||||||||||||||||||||||||||
options issued for services | 201,818 | 201,818 | ||||||||||||||||||||||||||||||||||||||||||
Issuance of warrants for services | 555,598 | 555,598 | ||||||||||||||||||||||||||||||||||||||||||
Imputed interest | 8,316 | 8,316 | ||||||||||||||||||||||||||||||||||||||||||
Accumulated Deficit | (2,436,142 | ) | (2,436,142 | ) | ||||||||||||||||||||||||||||||||||||||||
Balances as of December 31, 2014 | — | — | 38,909,000 | 38,909 | — | — | 1,048,000 | 1,048 | 2,372,867 | (3,359,623 | ) | (946,799 | ) | |||||||||||||||||||||||||||||||
The report on the financial statements and accompanying notes are an integral part of these financial statements. |
MASSROOTS, INC.
STATEMENT OF CASHFLOWS
FOR THE YEAR ENDED DECEMBER 31, 2014 AND FROM INCEPTION (APRIL 24, 2013)
THROUGH DECEMBER 31, 2013
FOR THE YEAR ENDED DECEMBER 31, 2014 | FOR THE PERIOD FROM INCEPTION (APRIL 24, 2013) THROUGH DECEMBER 31, 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net (loss) | $ | (2,436,142 | ) | $ | (919,123 | ) | ||
Adjustments to reconcile net (loss ) to net cash (used in ) | ||||||||
operating activities: | ||||||||
Depreciation | 1,799 | 228 | ||||||
Preferred stock issued for services | — | 24,998 | ||||||
Common stock issued for services | 30,658 | 195,412 | ||||||
Options issued for services | 59,473 | 612,387 | ||||||
Warrants issued for services | 555,598 | |||||||
Amortization of discount | 67,363 | |||||||
Imputed Interest expense | 8,316 | |||||||
Change in Derivative Liabilities | 753,240 | — | ||||||
Changes in operating assets and liabilities | — | — | ||||||
Other receivables | (11,201 | ) | — | |||||
Prepaid expense | — | (800 | ) | |||||
Deposit | (2,550 | ) | — | |||||
Accounts payable and other liabilities | 50,557 | |||||||
Accrued payroll tax | (68 | ) | 1,846 | |||||
Net Cash (Used in) Operating Activities | (922,956 | ) | (85,052 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Payments for equipment | (14,667 | ) | (1,522 | ) | ||||
Net Cash (Used in) Investing Activities | (14,667 | ) | (1,522 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Issuance of preferred stock for cash | — | 150,000 | ||||||
Issuance of convertible Debentures for cash | 269,100 | — | ||||||
Issuance of common stock for cash | 729,900 | — | ||||||
Proceeds from exercise of options | 72 | — | ||||||
Proceeds from short term borrowing - related party | — | 17,053 | ||||||
Net Cash Provided by Financing Activities | 999,072 | 167,053 | ||||||
NET INCREASE IN CASH | 61,449 | 80,479 | ||||||
CASH AT BEGINNING OF PERIOD | 80,479 | — | ||||||
CASH AT END OF YEAR | $ | 141,928 | $ | 80,479 | ||||
NON-CASH FINANCING ACTIVITIES | ||||||||
Repayment of short term borrowing - related party through issuance of preferred stock | 17,053 | |||||||
Common stock issued for services | 54,342 | — | ||||||
Options issued for services | 142,345 | — | ||||||
Preferred Stock dividend | 4,538 | — | ||||||
Imputed Interest- apic | (8,316 | ) | — | |||||
Total Non-Cash Financing Activities | 192,909 | 17,053 | ||||||
The report on the financial statements and accompanying notes are an integral part of these financial statements. |
MassRoots, Inc.
Notes to Financial StatementsStatement
For the year ended December 31, 20142015 and 20132014
NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MassRoots, Inc. (the “Company”) is a social networktechnology platform for the cannabis community. Through its mobile applications, systems and websites, MassRoots enables peopleindustry focused on enabling users to share their cannabis-relatedcannabis content, follow their favorite dispensaries, and for businesses to connectstay connected with those consumers.the legalization movement. The Company was incorporated in the State of Delaware on April 24,26, 2013.
The Company’s primary focus during fiscal year 2014 was increasing ourDuring 2015, the Company increased its userbase from under 20,000approximately 200,000 to 720,000 users, In August 2015, the Company began monetizing its platform through advertising sales to over 200,000dispensaries and developing additional features to expand the reach and utility of its network.
The Company has not focused on generating revenue to date. However, the primary source of revenue generated to date is advertising from businesses, brands and non-profits.cannabis brands. Its secondary source of income is merchandise sales.sales which primarily includes MassRoot’s t-shirts, jars and stickers.
Basis of Presentation
The financial statements include the accounts of MassRoots, Inc. under the accrual basis of accounting.
Management’s Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include revenue recognition, fair value of the Company’s stock, stock-based compensation, fair values relating to warrant and other derivative liabilities and the valuation allowance related to deferred tax assets. Actual results couldmay differ from thosethese estimates. The financial statements above reflect all of the costs of doing business.
Deferred Taxes
The Company accounts for income taxes under Section 740-10-30 of the FASB Accounting Standards Codification. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers highly liquid investments with an original maturity of three months or less to be cash equivalents.
Revenue RecognitionAccounts Receivable and Allowance for Doubtful Accounts
The Company applies paragraph 605-10-S99-1monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The allowance for doubtful accounts is estimated based on an assessment of the FASB Accounting Standards CodificationCompany’s ability to collect on customer accounts receivable. There is judgment involved with estimating the allowance for revenue recognition. doubtful accounts and if the financial condition of the Company’s customers were to deteriorate, resulting in their inability to make the required payments, the Company may be required to record additional allowances or charges against revenues. The Company writes-off accounts receivable against the allowance when it determines a balance is uncollectible and no longer actively pursues its collection. As of December 31, 2015 and 2014, based upon the review of the outstanding accounts receivable, the Company has determined that an allowance for doubtful accounts is not required
Property and Equipment
Property and equipment are stated at cost and depreciated using the straight-line method over their
estimated useful lives of 3 to 5 years. When retired or otherwise disposed, the related carrying value and accumulated depreciation are removed from the respective accounts and the net difference less any amount realized from disposition, is reflected in earnings.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
Revenue Recognition
The Company recognizes revenue when services are realized or realizable and earned less estimated future doubtful accounts. The Company considers revenue realized or realizable and earned when all of the following criteria are met:
(i) | persuasive evidence of an arrangement exists, |
(ii) | the services have been rendered and all required milestones achieved, |
(iii) | the sales price is fixed or determinable, and |
(iv) | Collectability is reasonably assured. |
MassRoots primarily generates revenue by charging businesses to advertise on the network. MassRoots has the ability to target advertisements directly to a clients’ target audience, based on their location, on their mobile devices. All advertising services take between a few hours to up to one month to complete, unless otherwise noted.
MassRoots’ secondary source of income is merchandise sales. The objective with the sales is not to generate large profit margins, but to help offset the cost of marketing. Each t-shirt, sticker and jar MassRoots sells will likely lead to more downloads and active users.
Cost of Sales Revenue
The Company’s policy is to recognizemain cost of sales inrevenue originates from its merchandise store, where often times the same manner in conjunction with revenue recognition, whenCompany realizes low profit margins and is not the costs are incurred. Costmain focus of sales includes the costs directly attributable to revenue recognition. Selling, general and administrative expenses are charged to expense as incurred.Company.
Comprehensive Income (Loss)
The Company reports comprehensive income and its components following guidance set forth by section 220-10 of the FASB Accounting Standards Codification which establishes standards for the reporting and display of comprehensive income and its components in the financial statements. There were no items of comprehensive income (loss) applicable to the Company during the periods covered in the financial statements.
Loss Per Share
Net loss per common share is computed pursuant to section 260-10-45 of the FASB Accounting Standards Codification. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period.
Risk and Uncertainties
The Company is subject to risks common to companies in the service industry, including, but not limited to, litigation, development of new technological innovations and dependence on key personnel.
Convertible Debentures
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt using the effective interest method.debt.
Stock-Based Compensation
The Company accounts for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measuremeasures the cost of employee services received in exchange for an award of equity instruments based on the grant-datefair value of the award. For employees and directors, the fair value of the award (with limited exceptions). That cost will beis measured on the grant date and for non-employees, the fair value of the award is generally re-measured on vesting dates and interim financial reporting dates until the service period is complete. The fair value amount is then recognized over the period during which an employee isservices are required to provide servicebe provided in exchange for the award- the requisite service period (usuallyaward, usually the vesting period). No compensation cost is recognized for equity instruments for which employees do not render the requisite service.period.
Fair Value for Financial Assets and Financial Liabilities
The Company follows paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments and paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The three levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
Table of Contents |
MASSROOTS, INC.
Notes to Financial Statement
The carrying amounts of the Company’s financial assets and liabilities, such as cash, other receivables, accounts payable, prepaid expense and other assets and liabilities approximate their fair values because of the short maturity of these instruments.
The Company does not have any assets or liabilities measured at fair value on a recurring or a non-recurring basis, consequently, the Company did not have any fair value adjustments for assets and liabilities measured at fair value on December 31, 2014, nor gains or losses are reported in the statements of operations that are attributable to the change in unrealized gains or losses relating to those assets and liabilities still held at the reporting date forFor the year ended December 31, 2014.2015 and 2014
Embedded Conversion FeaturesFair Value of Financial Instruments
Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”) requires disclosure of the fair value of certain financial instruments. The carrying value of cash and cash equivalents, accounts payable and accrued liabilities as reflected in the balance sheets, approximate fair value because of the short-term maturity of these instruments. All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the financial statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk. Where practicable the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise only available information pertinent to fair value has been disclosed.
The Company evaluates embedded conversion features within convertible debt under follows Accounting Standards Codification subtopic 820-10, Fair Value Measurements and Disclosures (“ASC 815 “Derivatives820-10”) and Hedging”Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”), which permits entities to determine whether the embedded conversion feature(s) should be bifurcated from the host instrumentchoose to measure many financial instruments and accounted for as a derivativecertain other items at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.value.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.
For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Recent Accounting PronouncementsAdvertising, Marketing and Public Relations
In June 2014, the FASB issued ASU 2014-10, Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. ASU 2014-10 eliminates the distinction of a development stage entity and certain related disclosure requirements, including the elimination of inception-to-date information on the statements of operations, cash flows and stockholders' equity. The amendments in ASU 2014-10 will be effective prospectively for annual reporting periods beginning after December 15, 2014, and interim periods within those annual periods, however early adoption is permitted for financial statements not yet issued. The Company adopted ASU 2014-10 duringfollows the fourth quarterpolicy of charging the costs of advertising, marketing, and public relations to expense as incurred. Such costs were $717,733 and $180,776 for the years ended December 31, 2015 and 2014, thereby no longer presenting or disclosing any information required by Topic 915. respectively.
Research and development costs
The Company accounts for research and development costs in accordance with the Accounting Standards Codification subtopic 730-10, Research and Development (“ASC 730-10”). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and developments costs are expensed when the contracted work has reviewed all recently issued, but not yet effective, accounting pronouncements upbeen performed or as milestone results have been achieved. Company-sponsored research and development costs related to ASU 2014-05,both present and does not believefuture products are expensed in the future adoptionperiod incurred. The Company incurred research and development expenses of any such pronouncements may be expected to cause a material impact on its financial condition or$0 and $0 for the results of its operations.years ended December 31, 2015 and 2014, respectively.
Table of Contents |
NOTE 2FIXED ASSETSMASSROOTS, INC.
Notes to Financial Statement
Fixed assets were comprised of the following as of December 31, 2014 and December 31, 2013, respectively. Depreciation is calculated using the straight-line method over a 5 year period.
December 31, 2014 | December 31, 2013 | |||||||
Cost: | ||||||||
Computers | 12,134 | 1,522 | ||||||
Office equipment | 4,055 | 0 | ||||||
Total | 16,189 | 1,522 | ||||||
Less: Accumulated depreciation | 2,027 | 228 | ||||||
Property and equipment, net | 14,162 | 1,294 |
NOTE 3 – PREPAID EXPENSE
On June 4, 2014, the Company issued a total of 850,000 shares of its common stock and 2,050,000 options in exchange for consulting services, valued at $286,818. The $286,818 is being charged to operations over the three-year term.
Consulting fees charged to operations duringFor the year ended December 31, 2015 and 2014 relating
Income Taxes
The Company follows Accounting Standards Codification subtopic 740-10, Income Taxes (“ASC 740-10”) for recording the provision for income taxes. Deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to this transaction amountedbe realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability during each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to $90,131. reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change. Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse and are considered immaterial.
Net Income (loss) Per Common Share
The unamortized balance atCompany computes earnings (loss) per share under Accounting Standards Codification subtopic 260-10, Earnings Per Share (“ASC 260-10”). Net loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share, if presented, would include the dilution that would occur upon the exercise or conversion of all potentially dilutive securities into common stock using the “treasury stock” and/or “if converted” methods as applicable.
The computation of basic and diluted loss per share as of December 31, 2015 and 2014 was $196,687. Amortization expense overexcludes potentially dilutive securities when their inclusion would be anti-dilutive, or if their exercise prices were greater than the remaining termsaverage market price of the respective consulting agreement iscommon stock during the period.
Potentially dilutive securities excluded from the computation of basic and diluted net income (loss) per share are as follows:
December 31, | ||||||
2014 | $ | 90,131 | ||||
2015 | 130,797 | |||||
2016 | 65,891 | |||||
$ | 286,818 |
2015 | 2014 | |||||||
Common stock issuable upon conversion of convertible debentures | 2,091,000 | 2,691,000 | ||||||
Options to purchase common stock | 5,425,000 | 2,050,000 | ||||||
Warrants to purchase common stock | 9,018,609 | 9,324,000 | ||||||
Totals | 16,534,609 | 13,975,000 |
NOTE 4DERIVATIVE LIABILITIES
The Company identified conversion features embedded within convertible debt and warrants issued in 2014, andCost Method Investment
During the year ended December 31, 2015, the Company also identified derivative liabilities embedded within warrants detachable with subscription agreement. The Companymade and investment in a private company, Flowhub, and has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, asthis investment under the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.cost method.
As a result ofReclassification
Certain reclassifications have been made to the application of ASC No. 815,prior years’ data to conform to the fair value of the warrant related to convertible debt and subscription agreement is summarized as follow:current year presentation. These reclassifications had no effect on reported income (losses).
Warrants with convertible Debt | Warrants with subscription agreement | Total | ||||||||||
Fair value at the commitment date | 87,189 | 259,278 | 346,467 | |||||||||
Fair value mark to market adjustment | 429,948 | 323,293 | 753,241 | |||||||||
Balances as of December 31, 2014 | 517,137 | 582,571 | 1,099,708 |
Table of Contents |
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as of December 31, 2014:MASSROOTS, INC.
Notes to Financial Statement
Commitment Date | Remeasurement Date | |||||||
Expected dividends | 0% | 0% | ||||||
Expected volatility | 150% | 150% | ||||||
Expected term | 3 years | 2.23 – 2.96 years | ||||||
Risk free interest rate | 0.75% - 1.1% | 1.1% |
NOTE 5DEBT DISCOUNT
The Company recorded the $174,378 debt discount due to beneficial conversion feature of $87,189 for the detachable warrants issued with convertible debt, and $87,189 in derivative liabilities related to the ratchet feature warrants.
The debt discount recorded in 2014 pertains to convertible debt and warrants issued that contain ratchet features that are required to bifurcated and reported at fair value.
Debt discount is summarized as follows:
Debt discount | 174,378 | |||
Accumulated amortization - 2014 | (67,363 | ) | ||
Debt discount - net - December 31, 2014 | $ | 107,016 |
NOTE 6 –CONVERTIBLE DEBENTURES
On March 24, 2014, the Company issued several convertible debentures to certain accredited investors. The total amount of the debentures is $269,100 and matures on March 24, 2016 with zero percent interest rate. The debentures are convertible into shares of the Company’s common stock at $0.1 per share. In addition, the Company granted to the same investors three−year warrants to purchase an aggregate of 1,345,500 shares of the Company’s common stock at $0.4 per share.
The debentures were discounted in the amount of $174,389 due to the intrinsic value of the beneficial conversion option and relative derivative liabilities of the warrants. As of December 31, 2014, the aggregate carrying value of the debentures was $162,084 net of debt discounts of $107,016. The Company recorded amortization of debt discount in amount of $162,084 duringFor the year ended December 31, 2014.2015 and 2014
NOTE 7CAPITAL STOCKRecently Issued Accounting Pronouncements
On March 18,In May 2014, the Company enteredFASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606). This ASU provides guidance for revenue recognition and affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets and supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition,” and most industry specific guidance. The standard’s core principle is the recognition of revenue when a Plan of Reorganization with its shareholderscompany transfers promised goods or services to customers in an amount that reflects the consideration to which the following was effected: (i) on March 21, 2014, the Company’s Certificate of Incorporation was amendedcompany expects to allow for the issuance of 200,000,000 shares of the Company’s common stock; (ii) on March 24, 2014, each of the Company’s preferred shareholders converted their shares into common stock on a one for one basis, and (iii) on March 24, 2014, each of the Company’s shareholders surrendered their shares of the Company’s common stockbe entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the pro-rata distributioncurrent guidance. These may include identifying performance obligations in the contract, estimating the amount of 36,000,000 newlyvariable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued shares of Company’s common stock, based on the percentageASU 2015-14, "Revenue from Contracts with Customers" (Topic 606): Deferral of the total sharesEffective Date, which deferred the effective date of common stock held by the shareholder immediately priorASU 2014-09 to the exchange (the “Exchange”).
fiscal years beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for fiscal years beginning after December 15, 2016. The Company is currently authorized to issue 21 Series A preferred shares at $1.00 par value per share with 1:1 conversionevaluating the method and voting rights. Asimpact the adoption of December 31, 2014ASU 2014-09 will have on the Company’s consolidated financial statements and 2013, there were zero shares of Series A preferred share issued and outstanding.disclosures.
In August 2014, FASB issued ASU 2014-15, “Presentation of Financial Statements Going Concern (Subtopic 205-40) – Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern”. Currently, there is no guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or to provide related footnote disclosures. The amendments in this ASU provide that guidance. In doing so, the amendments are intended to reduce diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for public and nonpublic entities for annual periods ending after December 15, 2016. Early adoption is permitted. The Company is currently authorized to issue 200,000,000 common shares at $0.001 par value per share. Asevaluating the impact of December 31, 2014, there were 38,909,000 sharesthe adoption of common stock issued and outstanding and 1,048,000 shares of common stock to be issued, all of which were subsequently issued on January 4, 2015.
On January 1, 2014, the directors and officers exercised all of then outstanding 72.06 stock options and acquired 72.06 shares of common stock at $1 per share. These 72.06 shares of common stock were exchanged for 21,954,160 shares of common stock during the Exchange.
On March 18, 2014, immediately prior to the exchange, the Company converted $4,358 accrued dividend from Series A preferred shares into 0.513 share of common stock, which was exchanged for 156,293 shares of common stock during the Exchange.
On March 24, 2014, the Company issued 2,059,000 shares of common stock in exchange for $205,900 cash.
On June 4, 2014, the Company issued 250,000 shares of common stock to Vincent “Tripp” Keber valued at $0.10 per share in exchange for his servicesASU 2014-15 on the Company’s Boardfinancial statements.
There were various other updates recently issued, most of Directors for three years. These shareswhich represented technical corrections to the accounting literature or application to specific industries and are not expected to a have a fair market value of $25,000, of which $4,795 was amortized during the year ended December 31, 2014.
On June 4, 2014, the Company issued 250,000 shares of common stock to Ean Seeb valued at $0.10 per share in exchange for his servicesmaterial impact on the Company’s Boardfinancial position, results of Directors for three years. These shares have a fair market value of $25,000, of which $4,795 was amortized during the year ended December 31, 2014.
On June 4, 2014, the Company issued 250,000 shares of common stock to Sebastian Stant valued at $0.10 per share in exchange for his services as the Company’s Lead Web Developer for one year. These shares have a fair market value of $25,000, of which $14,384 was amortized during the year ended December 31, 2014.
On May 1, 2014, the Company issued 100,000 shares of common stock to Jesus Quintero valued at $0.10 per share in exchange for his services as the Company’s Chief Financial Officer for one year. These shares have a fair market value of $10,000, of which $6,685 was amortized during the year to date period ended December 31, 2014.
From September 15 to December 31, 2014, we completed an offering of $524,000 of our securities to certain accredited and non-accredited investors consisting of 1,048,000 shares of our common stock at $0.50 per share. As of December 31, 2014, the full $524,000 had been received. These shares have not been issued as of December 31, 2014 and was recorded as common stock to be issued.
NOTE 8 –STOCK WARRANTS
On March 24, 2014, the Company issued warrants to a third party for the purchase of 4,050,000 and 2,375,000 shares of common stock, at an exercise price of $0.001 and $0.4 per share, respectively. The warrants may be exercised any time after issuance through and including the third (3rd) anniversary of its original issuance. The Company recorded an expense of $555,598 equal to the estimated fair value of the warrants at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 0.75% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years
On March 24, 2014, in connection to the issuance of convertible debentures of $269,100 to certain investors, which are convertible into shares of the Company’s common stock at $0.1 per share, the Company granted to the same investors three−year warrants to purchase an aggregate of 1,345,500 shares of the Company’s common stock at $0.4 per share. The warrants may be exercised any time after the issuance through and including the third (3rd) anniversary of its original issuance. See Note 4 for further discussion.
On March 24, 2014, in connection to the issuance of 2,059,000 shares of common stock, the Company granted to the same investors three−year warrants to purchase an aggregate of 1,029,500 shares of the Company’s common stock at $0.4 per share. The warrants may be exercised any time after the issuance through and including the third (3rd) anniversary of its original issuance. The warrants have a fair market value of $66,712. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 0.75% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years. See Note 4 for further discussion.
On June 4, 2014, the Company issued warrants to purchase 750,000 shares at $0.10 per share to Vincent “Tripp” Keber for his services on the Company’s Board of Directors for 3 years. Under the terms of the agreement, 250,000 shares shall begin vesting on October 1, 2014 such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall begin vesting the later of: October 1, 2015operations or the Company reaching 830,000 users such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall vest immediately upon the later of: October 1, 2016 or the Company reaching 1,080,000 users. These warrants were issued in exchange for his services on the Company’s Board of Directors for 3 years. The warrants may be exercised any time after the issuance through and including the tenth (10th) anniversary of its original issuance. The warrants have a fair market value of $73,836. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.61% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 10 years. During year ended December 31, 2014, $14,160 was amortized.cash flows.
On June 4, 2014, the Company issued warrants to purchase 750,000 shares at $0.10 per share to Ean Seeb for his services on the Company’s Board of Directors for 3 years. Under the terms of the agreement, 250,000 shares shall begin vesting on October 1, 2014 such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall begin vesting the later of: October 1, 2015 or the Company reaching 830,000 users such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall vest immediately upon the later of: October 1, 2016 or the Company reaching 1,080,000 users. These warrants were issued in exchange for his services on the Company’s Board of Directors for 3 years. The warrants may be exercised any time after the issuance through and including the tenth (10th) anniversary of its original issuance. The warrants have a fair market value of $73,836. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.61% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 10 years. During year period ended December 31, 2014, $14,160 was amortized.
On June 4, 2014, the Company issued warrants to purchase 550,000 shares at $0.10 per share to Sebastian Stant for his services as the Company’s Lead Web Developer for 1 year. Under the terms of the agreement, 250,000 shares shall vest immediately upon the company reaching 250,000 users. An additional 150,000 shares shall vest immediately upon the company reaching 500,000 users. An additional 150,000 shares shall vest immediately upon the company reaching 750,000 users. The warrants were issued in exchange for his services as the Company’s Lead Web Developer for 1 year. The warrants may be exercised any time after the issuance through and including the tenth (10th) anniversary of its original issuance. The warrants have a fair market value of $54,146. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.61% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 10 years. During year period ended December 31, 2014, $31,153 was amortized.
During the four months ended December 31, 2014, in connection to the sale of 1,048,000 shares of common stock, the Company granted to the same investors three−year warrants to purchase an aggregate of 524,000 shares of the Company’s common stock at $1.00 per share. The warrants may be exercised any time after the issuance through and including the third (3rd) anniversary of its original issuance. The warrants have a fair market value of$42,650. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 1% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years. See Note 4 for further discussion.
Stock warrants outstanding and exercisable on December 31, 2014 are as follows:
Exercise Price per Share | Shares Under Warrants | Remaining Life in Years | ||||||||||
Outstanding | ||||||||||||
$ | 0.001 | 4,050,000 | 3 | |||||||||
$ | 0.10 | 2,050,000 | 10 | |||||||||
$ | 0.4 | 4,750,000 | 3 | |||||||||
$ | 1 | 524,000 | 3 | |||||||||
Exercisable | ||||||||||||
$ | 0.001 | 4,050,000 | 3 | |||||||||
$ | 0.10 | 125,000 | 10 | |||||||||
$ | 0.4 | 4,750,000 | 3 | |||||||||
$ | 1 | 524,000 | 3 |
No other stock warrants have been issued or exercised during the twelve months ended December 31, 2014.
NOTE 92GOING CONCERN AND UNCERTAINTY
The Company has suffered losses from operations since inception. In addition, the Company has yet to generate an internalsignificant cash flow from its business operations. These factors raise substantial doubt as to the ability of the Company to continue as a going concern.concern for a reasonable period of time.
Management’s plans with regard to these matters encompass the following actions: 1) obtain funding from new and potentially current investors to alleviate the Company’s working deficiency, and 2) implement a plan to generate sales. The Company’s continued existence is dependent upon its ability to translate its vast user base into sales. However, the outcome of management’s plans cannot be ascertained with any degree of certainty. The accompanying financial statements do not include any adjustments that might result from the outcome of these risks and uncertainties.
NOTE 10SIGNIFICANT EVENTS
On July 24, 2014, MassRoots entered into a lease for a new company headquarters located at 2247 Federal Blvd, Denver. This location is co-leased byshould the Company along with CannaBuild, LLC, from 2247 Federal Boulevard, LLC pursuantbe unable to continue as a written lease which expires on July 22, 2015 and contains an option for a one year renewal at the same monthly rate. This location is shared with CannaBuild, LLC, which pays a portion of the monthly rent. The lease is for a total of $3,450 per month, which, pursuant to an expense sharing agreement between the Company and CannaBuild, LLC, the Company is responsible for paying $2,250 per month.going concern.
The Company had previously rented virtual office space from Opus Virtual Offices which provides conference rooms, mail forwarding and call answering for $99 per month ($1,188 on an annual basis). The Opus Virtual Office lease has been cancelled by the Company and expired on September 14, 2014.
On September 1, 2014, MassRoots entered into an employment contract with Sebastian Stant. For his services as Lead Developer, Mr. Stant shall be compensated five thousand dollars ($5,000) per month. Upon the successful execution of all of our outstanding forty-cent ($0.40) warrants, Mr. Stant's salary will increase to seven thousand five hundred dollars ($7,500) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Stant and he serves at the discretion of the Board of Directors.
Table of Contents |
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
NOTE 3PROPERTY AND EQUIPMENT
Fixed assets were comprised of the following as of December 31, 2015 and 2014:
2015 | 2014 | |||||||
Computers | $ | 58,121 | $ | 12,134 | ||||
Office equipment | 27,083 | 4,055 | ||||||
Total | 85,224 | 16,189 | ||||||
Less: Accumulated depreciation | 12,201 | 2,027 | ||||||
Property and equipment, net | $ | 73,023 | $ | 14,162 |
Depreciation expense for the years ended December 31, 2015 and 2014 were $10,174 and $1,799, respectively.
NOTE 4CONVERTIBLE DEBENTURES
On March 24, 2014, the Company issued convertible debentures to certain accredited investors. The total principal amount of the debentures is $269,100 and originally matured on March 24, 2016 with a zero percent interest rate. The debentures are convertible into shares of the Company’s common stock at $0.10 per share. Subsequent to the close of the year, the debentures were amended to extend the maturity date to March 24, 2018.
The Company recorded the $174,378 debt discount due to beneficial conversion feature of $87,189 for the detachable warrants issued with convertible debt, and $87,189 in derivative liabilities related to the ratchet feature warrants.
On January 7, 2015, one holder of a convertible debenture converted $40,000 of principal into 400,000 shares of common stock. On April 4, 2015, one holder of a convertible debenture converted $20,000 of principal into 200,000 shares of common stock.
During the years ended December 31, 2015 and 2014, the Company recorded amortization expense related to debt discount of $107,016 and 67,363, respectively. As of December 31, 2015, the aggregate carrying value of the debentures was $209,100 net of debt discounts of $0, while as of December 31, 2014, the aggregate carrying value of the debentures was $162,084 net of debt discounts of $107,016.
The Company’s convertible debentures is summarized as follows:
2015 | 2014 | |||||||
Principal balance | $ | 209,100 | $ | 269,100 | ||||
Accumulated amortization | (-) | (107,016 | ) | |||||
Convertible debentures, net | $ | 209,100 | $ | 162,084 |
NOTE 5DERIVATIVE LIABILITIES AND FAIR VALUE MEASUREMENTS
The Company identified conversion features embedded within convertible debt and warrants outstanding for the year ending December 31, 2015. The Company has determined that the features associated with the embedded conversion option and exercise prices, in the form a ratchet provisions, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
During the third quarter of 2015, the Company and the convertible debt note and warrant holders agreed to amend terms of the agreements to remove the ratchet provisions. Accordingly, the Company reclassified the derivative liability to equity classification resulting in an increase to additional paid in capital by $3,336,109.
During the fourth quarter of 2015, the Company and the holders of warrants previously issued as part of our offering from September 15,2014 to March 2015 MassRootswith an exercise price of $1.00 per share and all other warrants agreed to amend the warrants to remove the ratchet provision in exchange for a warrant for an additional 20% of their original warrant shares at $1.06 per share. This reduced the Company’s derivative liability by $1,155,199 and increased additional paid in capital by $761,426.
The Company adopted the provisions of Accounting Standards Codification subtopic 825-10, Financial Instruments (“ASC 825-10”). ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 825-10 establishes three levels of inputs that may be used to measure fair value:
All items required to be recorded or measured on a recurring basis are based upon level 3 inputs.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement
The Company recognizes its derivative liabilities as level 3 and values its derivatives using the methods discussed below. While the Company believes that its valuation methods are appropriate and consistent with other market participants, it recognizes that the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. The primary assumptions that would significantly affect the fair values using the methods discussed are that of volatility and market price of the underlying common stock of the Company.
As of December 31, 2015 and 2014, the Company did not have any derivative instruments that were designated as hedges.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
The derivative liability as of December 31, 2014, in the amount of $1,099,708 has a level 3 classification. At December 31, 2015, the Company did not have any level 3 classifications.
The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of two years ended December 31, 2015:
Balance, December 31, 2013 | $ | — | ||
Transfers in of Level 3 | 346,467 | |||
Mark-to-market – loss on change in fair value of derivative liability - 2014 | 753,241 | |||
Balance, December 31, 2014 | $ | 1,099,708 | ||
Mark-to-market – loss on change in fair value of derivative liability -2015 | 2,236,401 | |||
Transfers out of Level 3 | (3,336,109 | ) | ||
Balance, December 31, 2015 | $ | — |
Fluctuations in the Company’s stock price are a primary driver for the changes in the derivative valuations during each reporting period. As the stock price decreases for each of the related derivative instruments, the value to the holder of the instrument generally decreases, therefore decreasing the liability on the Company’s consolidated balance sheet. Additionally, stock price volatility is one of the significant unobservable inputs used in the fair value measurement of each of the Company’s derivative instruments. The simulated fair value of these liabilities is sensitive to changes in the Company’s expected volatility. Increases in expected volatility would generally result in higher fair value measurement. A 10% change in pricing inputs and changes in volatilities and correlation factors would not result in a material change in our Level 3 fair value.
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions during the two years ended December 31, 2015:
Commitment Date | Premeasurement Dates | |||||||
Expected dividends | 0% | 0% | ||||||
Expected volatility | 150% | 75% - 150% | ||||||
Expected term | 3-5 years | 1.83 – 4.70 years | ||||||
Risk free interest rate | 0.75% - 1.1% | 0.89% - 1.37% |
NOTE 6CAPITAL STOCK
The following is a summary of the capital stock transactions incurred during the years ended December 31, 2015 and 2014:
On March 18, 2014, the Company entered into a contractPlan of Reorganization with Direct Media Advertisingits shareholders in which the following was effected: (i) on March 21, 2014, the Company’s Certificate of Incorporation was amended to allow for the authorization of 200,000,000 shares of the Company’s common stock; (ii) on March 24, 2014, each of the Company’s preferred shareholders converted their shares into common stock on a sponsorshipone for one basis; and (iii) on March 24, 2014, each of B-Real’s “Smokers Club Tour.”the Company’s shareholders surrendered their shares of the Company’s common stock in exchange for the pro-rata distribution of 36,000,000 newly issued shares of Company’s common stock, based on the percentage of the total shares of common stock held by the shareholder immediately prior to the exchange (the “Exchange”).
On January 1, 2014, the Company’s directors and officers exercised all of the then outstanding 72.06 stock options and acquired 72.06 shares of common stock at $1 per share. These 72.06 shares of common stock were exchanged for 21,954,160 shares of common stock during the Exchange.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
On March 18, 2014, immediately prior to the Exchange, the Company converted $4,358 accrued dividends from Series A preferred shares into 0.513 shares of common stock, which was exchanged for 156,293 shares of common stock during the Exchange.
On March 24, 2014, the Company issued 2,059,000 shares of common stock in exchange for $205,900 cash.
On June 4, 2014, the Company issued 250,000 shares of common stock to Vincent “Tripp” Keber valued at $0.10 per share in exchange for his services on the Company’s Board of Directors for three years under the 2014 Equity Incentive Plan (“2014 Plan”). These shares had a fair market value of $25,000, of which $8,220 was amortized for the 12 months ended December 31, 2015.
On June 4, 2014, the Company issued 250,000 shares of common stock under the 2014 Plan to Ean Seeb valued at $0.10 per share in exchange for his services on the Company’s Board of Directors for three years. These shares had a fair market value of $25,000, of which $8,220 was amortized for the 12 months ended December 31, 2015.
On June 4, 2014, the Company issued 250,000 shares of common stock under the 2014 Plan to Sebastian Stant valued at $0.10 per share in exchange for his services as the Company’s Lead Web Developer for one year. These shares had a fair market value of $25,000, of which $21,232 was amortized for the 12 months ended December 31, 2015.
On May 1, 2014, the Company issued 100,000 shares of common stock under the 2014 Plan to Jesus Quintero valued at $0.10 per share in exchange for his services as the Company’s Chief Financial Officer for one year. These shares had a fair market value of $10,000, of which $6,630 was amortized for the 12 months ended December 31, 2015.
From September 15, 2014 to March 11, 2015, we completed an offering of $861,000 of our securities to certain accredited and non-accredited investors consisting of 1,722,000 shares of our common stock at $0.50 per share. As of December 31, 2015, 1,732,000 shares of common stock had been issued, of which 10,000 shares were improperly issued and were booked as shares to be rescinded.
In April 2015, MassRoots, Inc. issued 960,337 shares of the Company’s common stock to certain accredited and unaccredited investors, pursuant to which, the Company received gross proceeds of $576,200. The Company terminated this offering as of April 17, 2015. The Company compensated Chardan Capital Markets, LLC $20,000 cash and 262,560 shares of common stock as commission for this placement.
On April 28, 2015, the Company entered into a consulting agreement with Torrey Hills Capital. Under the terms of the agreement, B-Real has promotedTorrey Hills Capital was issued 75,000 shares of common stock for setting-up non-deal roadshows for the Company.
On May 12, 2015, the Company entered into a consulting agreement with Caro Capital. Under the terms of the agreement, Caro was issued 200,000 shares of common stock for setting-up non-deal roadshows for the Company for a period of one year.
On June 15, 2015, the Company entered into a consulting agreement with Demeter Capital. Under the terms of the agreement, Demeter Capital was issued 100,000 shares of common stock for consulting services.
From June to July 2015, MassRoots issued 1,540,672 shares of unregistered common stock to certain accredited investors for gross proceeds of $1,140,502. In connection with this offering, Chardan Capital received $27,200 in cash and 80,560 shares of the Company’s common stock as commission for this placement.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
On November 9, 2015, MassRoots sold 815,500 shares of common stock, with warrants to purchase 407,475 shares of common stock, in a registered offering to certain unaccredited and accredited investors for gross proceeds of $1,019,375 to the Company. MassRoots did not utilize a placement agent in this transaction. As of December 31, 2015, 781,500 shares had been issued and 34,000 shares were recorded as to be issued.
During the year ended December 31, 2015, the Company issued 1,340,000 shares of common stock for the exercise of $0.40 warrants; 1,086,341 shares of common stock for the exercise of $0.001 warrants; and 41,995 shares of common stock for the cashless exercise of $1.00 warrants.
During the year ended December 31, 2015, the Company issued 230,000 shares to 6 employees and consultants under the Company’s 2014 Employee Stock Option Program. During the same time period, the Company granted 540,000 shares to 10 employees and consultants under the Company’s 2015 Employee Stock Option Program. As of December 31, 2015, none of the share issuances under the Company’s 2015 Employee Stock Option Program had been made and 540,000 shares were recorded as to be issued.
In October 2015, the holder of 50,000 options at $0.10 per share exercised their right to purchase for $5,000. These shares were recorded as to be issued as of December 31, 2015.
The Company is currently authorized to issue 21 Series A preferred shares at $1.00 par value per share with 1:1 conversion and voting rights. As of December 31, 2015, there were no shares of Series A preferred shares issued and outstanding.
The Company is currently authorized to issue 200,000,000 shares of its common stock at $0.001 par value per share. As of December 31, 2015 and 2014, there were 46,939,965 and 38,909,000 shares of common stock issued and outstanding and 624,000 and 1,048,000 shares of common stock to be issued, respectively.
NOTE 7STOCK WARRANTS
On March 24, 2014, the Company issued warrants to a third party for the purchase of 4,050,000 and 2,375,000 shares of common stock, at an exercise price of $0.001 and $0.40 per share, respectively. The warrants may be exercised any time after issuance through and including the third (3rd) anniversary of its original issuance. The Company recorded an expense of $555,598 equal to the estimated fair value of the warrants at the date of grants. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 0.75% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years
On March 24, 2014, in connection to the issuance of convertible debentures of $269,100 to certain investors, which are convertible into shares of the Company’s common stock at $0.10 per share, the Company granted to the same investors three−year warrants to purchase an aggregate of up to 1,345,500 shares of the Company’s common stock at $0.4 per share. The warrants may be exercised any time after the issuance through and including the third (3rd) anniversary of its original issuance.
On March 24, 2014, in connection to the issuance of 2,059,000 shares of common stock, the Company granted to the same investor three−year warrants to purchase an aggregate of 1,029,500 shares of the Company’s common stock at $0.40 per share. The warrants may be exercised any time after the issuance through and including the third (3rd) anniversary of its original issuance. The warrants have a fair market value of $66,712. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 0.75% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years. See Note 4 for further discussion.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
From September 2014 to March 31, 2015, in connection to the sale of 1,722,000 shares of common stock, the Company granted to the same investors three−year warrants to purchase an aggregate of 861,000 shares of the Company’s common stock at $1.00 per share. The warrants may be exercised any time after the issuance through and including the third (3rd) anniversary of its original issuance. The warrants have a fair market value of$168,358. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 1% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 3 years. See Note 4 for further discussion.
On February 27, 2015, the Company issued warrants for a nominal amount to purchase 100,000 shares of common stock at $0.50 per share to certain service providers, valued at $43,704.
On April 8, 2015, the Company issued warrants to purchase 50,000 shares of common stock at $0.60 per share to certain service providers, valued at $51,378.
In July 2015, a shareholder retired 1,000,000 shares of registered common stock in exchange for 1,000,000 warrants exercisable at $0.001 per share for a period of three (3) years.
On July 30, 2015, the Company issued warrants to purchase 175,000 shares of common stock at $0.90 per share to certain service providers, valued at $100,340
On November 9, 2015, in connection to the sale of 815,500 shares of our common stock, the Company granted to the same investors three−year warrants to purchase an aggregate of 407,475 shares of the Company’s common stock at $3.00 per share. The warrants may be exercised any time after the issuance through and including the third (3rd) anniversary of its original issuance.
In December 2015, MassRoots issued 146,200 three year warrants with an exercise price of $1.06 to our holders of outstanding warrants issued in conjunction with our September 15, 2014 to March 11, 2015 offering. These warrants were issued in exchange for the holder agreeing to waive certain provisions providing price protection of the warrant received in the September 15, 2014 to March 11, 2015 offering.
During the year ended December 31, 2015, warrants to purchase 1,340,000 shares of common stock at $0.40 per share were exercised for gross proceeds to the Company of $536,000. Over the same time period, warrants to purchase 1,086,341 shares of common stock at $0.001 per share were exercised for gross proceeds to the Company of $1,086. In October 2015, a shareholder exercised 100,000 warrants to purchase shares of common stock at $1 per share through the warrant’s cashless provision pursuant to which he was issued 41,995 shares of common stock at $1.00 per share for no gross proceeds to the Company.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
Stock warrants outstanding and exercisable on December 31, 2015 are as follows:
Warrants Outstanding | Warrants Exercisable | |||||||||||||
Weighted | ||||||||||||||
Average | Exercisable | |||||||||||||
Exercise | Number of | Remaining Life | Number of | |||||||||||
Price | Warrants | In Years | Warrants | |||||||||||
$ | 0.001 | 3,963,659 | 1.6 | 3,963,659 | ||||||||||
0.40 | 3,415,275 | 1.3 | 3,415,275 | |||||||||||
0.50 | 100,000 | 4.2 | 100,000 | |||||||||||
0.60 | 50,000 | 4.4 | 50,000 | |||||||||||
0.90 | 175,000 | 4.6 | 175,000 | |||||||||||
1.00 | 761,000 | 2.0 | 761,000 | |||||||||||
1.06 | 146,200 | 3.0 | 146,200 | |||||||||||
3.00 | 407,475 | 2.8 | 407,475 | |||||||||||
9,018,609 | 1.70 | 9,018,609 |
A summary of the warrant activity for the years ended December 31, 2015 and 2014 is as follows:
Weighted-Average | ||||||||||||||
Weighted-Average | Remaining | |||||||||||||
Shares | Exercise Price | Contractual Term | ||||||||||||
Outstanding at January 1, 2014 | 0 | $ | — | — | ||||||||||
Grants | 9,324,000 | $ | 0.26 | 5.0 | ||||||||||
Exercised | — | — | — | |||||||||||
Canceled | — | — | — | |||||||||||
Outstanding at December 31, 2014 | 9,324,000 | $ | 0.26 | 4.26 | ||||||||||
Grants | 2,220,950 | 0.11 | 5.0 | |||||||||||
Exercised | (2,526,341 | ) | 0.25 | 1.3 | ||||||||||
Canceled | — | — | — | |||||||||||
Outstanding at December 31, 2015 | 9,018,609 | $ | 0.42 | 2.26 | ||||||||||
Exercisable at December 31, 2015 | 9,018,609 | $ | 0.42 | 2.26 |
The aggregate intrinsic value outstanding stock warrants was $6,857,509 the total pretax intrinsic value, based on warrants with an exercise price less than the Company’s stock price of $1.10 as of December 31, 2015, which would have been received by the warrant holders had those warrant holders exercised their warrants as of that date.
NOTE 8EMPLOYEE EQUITY INCENTIVE PLANS
In June 2014, our shareholders approved our 2014 Equity Incentive Plan (“2014 Plan”), which provides for the grant of incentive stock options to our employees and our parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. A total of 4 million shares of common stock are reserved for issuance under our 2014 Plan.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
On June 4, 2014, the Company granted options to purchase 750,000 shares at $0.10 per share to Vincent “Tripp” Keber for his social media accounts, featured MassRootsservices on B-Real's "Smoke Box" and produced a promotional videothe Company’s Board of Directors for MassRoots. MassRoots compensated Direct Media Advertising a one-time fee3 years. Under the terms of twenty thousand dollars ($20,000). The tour lasted fromthe grant, 250,000 shares shall begin vesting on October 1, 2014 such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall begin vesting the later of: October 1, 2015 or the Company reaching 830,000 users such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall vest immediately upon the later of: October 1, 2016 or the Company reaching 1,080,000 users. These options were issued in exchange for his services on the Company’s Board of Directors for 3 years. The options may be exercised any time after the issuance through and including the tenth (10th) anniversary of its original issuance. The options have a fair market value of $73,836. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.61% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 10 years. As of December 31, 2015 the unamortized balance was $35,064.
On June 4, 2014, the Company granted options to purchase 750,000 shares at $0.10 per share to Ean Seeb for his services on the Company’s Board of Directors for 3 years. Under the terms of the grant, 250,000 shares shall begin vesting on October 1, 2014 such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall begin vesting the later of: October 1, 2015 or the Company reaching 830,000 users such that 20,833 shares shall vest on the first of every month except for every three months, when 20,834 shares shall vest. An additional 250,000 shares shall vest immediately upon the later of: October 1, 2016 or the Company reaching 1,080,000 users. These options were issued in exchange for his services on the Company’s Board of Directors for 3 years. The options may be exercised any time after the issuance through and including the tenth (10th) anniversary of its original issuance. The options have a fair market value of $73,836. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.61% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 10 years. As of December 31, 2015 the unamortized balance was $35,064.
On June 4, 2014, the Company granted options to purchase 550,000 shares at $0.10 per share to Sebastian Stant for his services as the Company’s Lead Web Developer for 1 year. Under the terms of the grant, 250,000 shares shall vest immediately upon the Company reaching 250,000 users. An additional 150,000 shares shall vest immediately upon the Company reaching 500,000 users. An additional 150,000 shares shall vest immediately upon the Company reaching 750,000 users. The options were issued in exchange for his services as the Company’s Lead Web Developer for 1 year. The options may be exercised any time after the issuance through and including the tenth (10th) anniversary of its original issuance. The options have a fair market value of $54,146. The fair market value was calculated using the Black-Scholes options pricing model, assuming approximately 2.61% risk-free interest, 0% dividend yield, 150% volatility, and expected life of 10 years. As of December 31, 2015 the balance was $0.
On March 9, 2015, Sebastian Stant resigned his position as Lead Developer of MassRoots and surrendered 350,000 options with a strike price of $0.10 per share back to the 2014 Plan.
From January 1 to March 31, 2015, the Company granted 230,000 shares and options to purchase 1,065,000 shares at $0.50 per share to 20 employees and consultants of the Company, with most vesting monthly over the course of one year. The fair market value of the options are $523,991.
On April 8, 2015, the Company granted options to purchase 105,000 shares at $0.60 per share to 3 employees and consultants of the Company, with most vesting monthly over the course of one year. The fair market value of the options are $114,143.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
In December 2015, our shareholders approved our 2015 Equity Incentive Plan (“2015 Plan”), which provides for the grant of incentive stock options to our employees and our parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, stock bonus awards, restricted stock awards, performance stock awards and other forms of stock compensation to our employees, including officers, consultants and directors. A total of 4.5 million shares of common stock are reserved for issuance under our 2015 Plan.
On December 10, 2015, the Company granted options to purchase 1,955,000 shares at $0.90 per share to 28 employees and consultants of the Company under the 2015 Plan, with most vesting monthly over the course of one year. The fair market value of the options is $1,759,500.
On December 14, 2015, the Company granted options to purchase 800,000 shares at $1.00 per share to Daniel Hunt, our Chief Operating Officer, under the 2015 Plan, with 200,000 shares vesting upon the completion of each milestone: the Company reaching 1,000,000 registered users, the Company reaching 2,500,000 registered users, the Company reaching $1,000,000 in revenue since inception, and the Company reaching $2,500,000 in revenue since inception. The fair market value of the options is $800,00.
In October 2015, a holder of 50,000 options at $0.10 per share exercised their right to purchase for $5,000. These shares were recorded as to be issued as of December 31, 2015.
No other stock options have been issued or exercised during the year ended December 31, 2015.
The following table presents information related to stock options at December 31, 2015:
Options Outstanding | Options Exercisable | |||||||||||||
Weighted | ||||||||||||||
Average | Exercisable | |||||||||||||
Exercise | Number of | Remaining Life | Number of | |||||||||||
Price | Options | In Years | Options | |||||||||||
$ | 0.10 | 1,500,000 | 8.6 | 500,000 | ||||||||||
0.50 | 1,065,000 | 9.0 | 964,981 | |||||||||||
0.60 | 105,000 | 9.3 | 67,940 | |||||||||||
0.90 | 1,955,000 | 9.9 | 585,000 | |||||||||||
1.00 | 800,000 | 9.9 | 0 | |||||||||||
5,425,000 | 9.3 | 2,117,921 |
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
A summary of the stock option activity and related information for the 2015 Plan for the years ended December 31, 2015 and 2014 is as follows:
Weighted-Average | ||||||||||||||
Weighted-Average | Remaining | |||||||||||||
Shares | Exercise Price | Contractual Term | ||||||||||||
Outstanding at January 1, 2014 | 0 | $ | — | — | ||||||||||
Grants | 2,050,000 | 0.1 | 9.6 | |||||||||||
Exercised | — | — | — | |||||||||||
Canceled | — | $ | — | |||||||||||
Outstanding at December 31, 2014 | 2,050,000 | $ | 0.1 | 9.6 | ||||||||||
Grants | 3,925,000 | 0.80 | 9.9 | |||||||||||
Exercised | (250,000 | ) | 0.1 | 9.3 | ||||||||||
Canceled | (300,000 | ) | 0.1 | 8.6 | ||||||||||
Outstanding at December 31, 2015 | 5,425,000 | $ | 0.59 | 9.3 | ||||||||||
Exercisable at December 31, 2015 | 2,117,921 | $ | 0.52 | 9.1 |
The aggregate intrinsic value of outstanding stock options was $6,044,500, based on options with an exercise price less than the Company’s stock price of $1.10 as of December 31, 2015, which would have been received by the option holders had those option holders exercised their options as of that date.
Option valuation models require the input of highly subjective assumptions. The fair value of stock-based payment awards was estimated using the Black-Scholes option model with a volatility figure derived from an index of historical stock prices of comparable entities until sufficient data exists to estimate the volatility using the Company’s own historical stock prices. Management determined this assumption to be a more accurate indicator of value. The Company accounts for the expected life of options based on the contractual life of options for non-employees.
The fair value of the granted options for the year ended December 31, 2015 was determined using the Black Scholes option pricing model with the following assumptions:
Dividend yield: | 0 | % | |||
Volatility | 119.43% to 129.88 | % | |||
Risk free rate: | 0.48% to 2.53 | % | |||
Expected life: | 7 to 10 years | ||||
Estimated fair value of the Company’s common stock | $ | 2.21 to $2.50 | |||
Estimated forfeiture rate | 0 | % |
NOTE 9COMMITMENTS AND CONTINGENCIES
Operating leases
On April 14, 2015, the Company completed the relocation of its headquarters to 1624 Market Street, Suite 201, Denver, CO 80202 which we leased on March 20, 2015 pursuant to a lease agreement with RVOF Market Center, LLC (“201 Lease”). Under the 201 Lease, we agreed to rent 3,552 square feet of office space at that location for a term of 37 months, under which the Company will pay a base rate of $0 for the first month, $8,288 for months two through 13, $8,584 for the months 14 through 25, and $8,880 for the months 26 through 37. We did not incur a significant cost related to the move to this location.
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
The Company amended this lease in January 2016 to include Suite 203, also located at 1624 Market Street in Denver, CO 80202, which allows us to expand our headquarters by an additional 1,508 square feet of office space. For this expansion (and in addition to the rent paid under the 201 Lease), we will pay $0 until May 30, 2016, $3,644 for each month from June 1, 2016 to May 30, 2017, $3,770 for each month from June 1, 2017 to May 30, 2018, and $3,896 for each month from June 1, 2018 to November 30, 2014.2018.
Future minimum lease payments under these two agreements are as follows:
Year Ending December 31, | ||||||
2016 | $ | 127,032 | ||||
2017 | 149,395 | |||||
2018 | 139,904 | |||||
$ | 416,338 |
Rent expense charged to operations, which differs from rent paid due to rent credits and to increasing amounts of base rent, is calculated by allocating total rental payments on a straight-line basis over the term of the lease. During the years ended December 31, 2015 and 2014, rent expense was $64,438 and $14,699, respectively and as of December 31, 2015 and 2014
NOTE 10INCOME TAXES
At December 31, 2015, the Company has available for federal income tax purposes a net operating loss carry forward of approximately $6 million, expiring in the year 2035, that may be used to offset future taxable income. The Company has provided a valuation reserve against the full amount of the net operating loss benefit, since in the opinion of management based upon the earnings history of the Company; it is more likely than not that the benefits will not be realized. Due to possible significant changes in the Company's ownership, the future use of its existing net operating losses may be limited. All or portion of the remaining valuation allowance may be reduced in future years based on an assessment of earnings sufficient to fully utilize these potential tax benefits. During the year ended December 31, 2015, the Company has increased the valuation allowance from $1,024,000 to $2,374,000.
We have adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities.
Tax position that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered to be uncertain.
The Company’s deferred taxes as of December 31, 2015 and 2014 consist of the following:
2015 | 2014 | |||||||
Non-Current deferred tax asset: | ||||||||
Net operating loss carry-forwards | $ | 2,374,000 | $ | 1,024,000 | ||||
Valuation allowance | (2,374,000 | ) | (1,024,000 | ) | ||||
Net non-current deferred tax asset | $ | — | $ | — |
MASSROOTS, INC.
Notes to Financial Statement
For the year ended December 31, 2015 and 2014
NOTE 11SUBSEQUENT EVENTS
On January 1, 2015, MassRoots amended its employment contract with Tyler Knight. For his services as Chief Marketing Officer, Mr. Knight shall be five thousand dollars ($5,000) per month. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Knight and he serves at the direction of the Chief Executive Officer and Board of Directors.
On March 3, 2015, MassRoots entered into an investment banking relationship with Chardan Capital Markets, LLC. Under the terms of the agreement, MassRoots shall pay Chardan a non-refundable retainer of 200,000 common shares and pay a commission equal to: (a) an aggregate cash fee equal to four percent (4%) of the gross proceeds received from the sale of the Stock; and (b) an aggregate restricted stock fee equal to eight percent (8.0%) of the aggregate number of shares of Stock sold in the offering.
On March 9, 2015, Sebastian Stant resigned his position as Lead Developer of MassRoots and surrendered 350,000 options with a strike price of $0.10 back to the 2014 Employee Incentive Plan.
On March 9, 2015 MassRoots entered into an employment contract with Alan Janis. For his services as Director of Technology, Mr. Janis shall be compensated one hundred thirty thousand dollars ($130,000) per year. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Janis and he serves at the discretion of the Board of Directors.
On March 31, 2015, MassRoots amended its employment contract with Isaac Dietrich. For his services as Chief Executive Officer, Mr. Dietrich shall be compensated seven thousand five hundred dollars ($7,500) per month, effective April 1, 2015. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Mr. Dietrich and he serves at the direction of the Board of Directors.
On March 31, 2015, MassRoots amended its employment contract with Hyler Fortier. For her services as Chief Operating Officer, Ms. Fortier shall be compensated five thousand dollars ($5,000) per month, effective April 1, 2015. The employment contract is “at-will” and may be terminated by either party with or without cause with one (1) month’s written notice. No retirement plan, health insurance or employee benefits program was awarded to Ms. Fortier and she serves at the direction of the Board of Directors.
From January 1 2015 to March 11, 2015, we sold $448,00030, 2016, the Company issued 574,000 of our securitiesthe 624,000 shares to certain accreditedbe issued as of December 31, 2015. Over the same time period, the Company issued 135,000 shares for services to be rendered in 2016, 7,500 shares for warrant exercises in 2016, and non-accredited investors consisting10,000 shares for option exercises in 2016.
In February 2016, MassRoots issued to a service provider a 12 month convertible debentures at 15% interest with a principal amount of 896,000$35,000 along with 35,000 3-year warrants to purchase shares of our common stock at $0.50$1.00 per share The convertible debentures are payable at maturity, and convertible at the investor’s determination at a price equal to 90% of the price of a subsequent public underwritten offering if one occurs over $5 million, or, if no subsequent offering occurs, at $0.75 per share.
On March 24, 2016, the Company entered into an agreement with Santino Walter Productions, LLC ("SWP") in which the Company purchased a Senior Secured Promissory Note ("Note”) with a warrant, exercisableprinciple amount of $156,000 for a purchase price of $130,000. The funds are solely to be used by SWP for costs related to the Denver Annual 420 Rally ("420 Rally"). The Note matures in 60 days and is secured against all assets of SWP. The Company also entered into License and Letter Agreements with SWP pursuant to which MassRoots will earn a 50% licensing fee on all ticket sales and sponsorship sales, along with 15% of all booth sales, of the 420 Rally. MassRoots is obligated to provide the ticketing system and cover all activation costs related to the tickets. The first $130,000 in revenue received related to the 420 Rally will to be used to cover the remaining costs of talent for the event; the next $156,000 in revenue will be used to repay the Note. All proceeds from ticket sales and sponsorships will be held by MassRoots initially; after payment of the Note, and all fees earned by MassRoots under the agreement, the remaining proceeds will then be distributed to SWP. All talent booked by SWP for the 420 Rally will be required to create a MassRoots profile, which can be waived at the Company's sole discretion. The Company also retains the right to participate in a materially similar transaction related to the 420 Rally every year through 2020.
On March 17, 2016, the Company sold to investors six (6) month secured convertible original issue discount notes with principal amount in the aggregate of $1,514,667, together with five year warrants to purchase an amount of ourshares of the Company’s common stock equal to fifty percent (50%)the number of the common stock purchased, at $1.00 per share. On March 11, this offering was terminated per the Company’s Board of Trustees.
On January 12, 2015, debentures with a face value of $40,000 were converted into 400,000 shares of common stock.
On January 14, 2015, the Company issued 1,508,000 shares of common stock issuable upon the conversion of the notes in full and having an exercise price of $1.00 per share. If the Company exercises its right to investors who had purchasedprepay the note, the Company shall make payment to the investor of an amount in cash equal to the sum of the then outstanding principal amount of the note that it desires to prepay, multiplied by (a) 1.2, during the first ninety (90) days after the execution of this Note, or (b) 1.35, at any point thereafter. The notes are convertible into shares of the Company’s common stock at $0.50a price per share from September 15,equal to the lower of (i) one dollar ($1.00), and (ii) a 25% discount to the price at which the Company next conducts an offering after the issuance date of the note; provided, however, if any part of the principal amount of the note remains unpaid at its maturity date , the conversion price will be equal to 65% of the average of the three trading days with the lowest daily weighted average prices of the Company’s common stock occurring during the fifteen days prior to the notes’ maturity date. The notes require that any net proceeds received subsequent offerings made by the Company first be used to repay the notes’ outstanding principal amount. If the note is not repaid by the maturity date, the investors will receive, in aggregate, but calculated pro rata to the principal amounts remaining outstanding at the time of maturity, up to five hundred thousand (500,000) shares of the Company’s common stock. Gross proceeds received by the Company for the notes and warrants in this Offering was $1,420,000, while net proceeds were $1,271,600 (excluding any legal fees).
On March 7, 2016, the Company entered into an agreement with all holders of the Company’s debentures issued in its March 2014 Offering to January 9, 2015.extend the maturity date to March 24, 2018.
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