Via EDGAR and FedEx
June 13, 2014
Division of Corporation Finance
U.S. Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Attention: | | Mark
P. Shuman, Branch Chief – Legal |
Jan Woo, Attorney Adviser
Ryan Rohn, Staff Accountant
Stephen Krikorian, Accounting
Branch Chief
Draft Registration Statement
on Form S-1
Submitted April 23,
2014
CIK No. 0001589149
Ladies and Gentlemen:
On behalf of MassRoots,
Inc. (the “Company”), we are writing to respond to the comments raised in the letter, dated May 20, 2014, from the
staff of the Securities and Exchange Commission (the “Commission”) regarding the Company’s Registration Statement
on Form S-1 filed with the Commission, on a confidential basis, on April 23, 2014 (the “Registration Statement”).
The Company’s responses below correspond to the captions and numbers of those comments, which are reproduced below in italics.
In response to your comments, the Company has amended the Registration Statement, as appropriate, and publicly filed the Registration
Statement with the Commission. Capitalized terms used in this letter but not otherwise defined herein have the meanings assigned
to them in the Registration Statement. In response to certain comments, we are providing the requested materials to you supplementally.
General
Comment 1. | | Please
update your financial statements and related disclosures pursuant to Rule 8-08 of Regulation
S-X. |
Response: | | In
response to your comment, the Company has revised the Registration Statement to update
the financial statements to include unaudited financial statements as of March 31, 2014,
as well as updated disclosures throughout the Registration Statement pursuant to Rule
8-08 of Regulation S-X. |
Comment 2. | | Please
supplementally provide us with copies of all written communications, as defined in Rule
405 under the Securities Act, that you, or anyone authorized to do so on your behalf,
present to potential investors in reliance on Section 5(d) of the Securities Act, whether
or not they retain copies of the communications. Similarly, please supplementally provide
us with any research reports about you that are published or distributed in reliance
upon Section 2(a)(3) of the Securities Act of 1933 added by Section 105(a) of the Jumpstart
Our Business Startups Act by any broker or dealer that is participating or will participate
in your offering. |
Response: | | In
response to your comment, the Company states that it has not presented any written communications
to any potential investors in reliance on Section 5(d) of the Securities Act. In addition,
there have been no research reports about the Company that are published or distributed
in reliance upon Section 2(a)(3) of the Securities Act of 1933 added by Section 105(a)
of the Jumpstart Our Business Startups Act by any broker or dealer that is participating
or will participate in the offering. |
![](image_041.jpg)
Comment 3. | | With
respect to all third-party statements in your prospectus, such as from ArcView, IDC and
Gartner, please provide us with the relevant portion of the industry research reports
you cite. To expedite our review, please clearly mark each source to highlight the applicable
portion of the section containing the statistic, and cross-reference it to the appropriate
location in your prospectus. Also, please tell us whether any of the reports were prepared
for you or in connection with the offering. |
Response: | | In
response to your comment, the Company is supplementally providing you with copies of
the relevant portion of the industry research reports (“Cited Reports”),
with the applicable portion highlighted per your request, which are cited throughout
the Registration Statement. Per your instruction, the Company is supplementally providing
an excel spreadsheet entitled “MassRoots S-1 Citations” which specifies the
applicable page/paragraph of the Registration Statement, the corresponding fact asserted
in the Registration Statement and cross reference to the applicable Cited Report to support
such asserted fact. The statement “Moreover, of 78% participants aged 35 and below
voted in support of recreational adult-use, setting the trend for years to come”
on page 20 of the Registration Statement has been revised to state as follows “Moreover,
of 67% participants under the age of 30 voted in support of recreational adult-use, setting
the trend for years to come”, and is supported by the applicable Cited Report.
No reports were prepared for the Company or in connection with the offering. |
Comment 4. | | We
note that you are offering 100% of the outstanding common stock in addition to the common
stock underlying the debentures and warrants that were issued in March 2014. Please provide
an analysis as to why you believe this is not a primary offering by the company. |
Response: | | The
Compliance and Disclosure Interpretations (“CD&I”) published by the Commission
outlines a six factor test to determine whether a secondary offering is a disguised primary
offering by an issuer of securities; these factors include (i) the length of time that
each of the selling security holders has held their respective shares of common stock
of the Company, (ii) the circumstances surrounding the acquisition by the selling security
holders of their respective shares of common stock of the Company, (iii) the relationship
between the selling security holders and the Company, (iv) whether the selling security
holders are in the business of underwriting securities, (v) the amount of shares being
registered, and (vi) whether under all the circumstances it appears that the seller is
acting as a conduit for the Company. |
| | Although the Registration
Statement covers 100% of the outstanding common stock of the Company, these securities
were acquired by investors for the purpose of investment and not with an intent to distribute
as represented by such investors in the applicable subscription documents. Additionally
we point to the following factors which support the fact that any offering pursuant to
the Registration Statement is a secondary offering and not a disguised primary offering: |
• | | The length
of time the selling security holders have held or will hold the securities before being
able to resell. Approximately 71% of the shares held by the selling security holders
were purchased prior to January 2, 2014 and approximately 98% prior to March 31, 2014.
Assuming the Registration Statement is declared effective in July 2014 and the Company
is able to achieve a listing of its common stock on the OTC Bulletin Board within the
next three months, six and nine months will have passed before 71% and 98%, respectively,
of the offered shares will be eligible for public resale. This period is approaching
the Commission’s Rule 144 one-year holding period for presumptively excluding non-affiliates
from “underwriter” status. During this period, the selling security holders
have held an illiquid stock with no provision for re-pricing their investment based on
future events. This indicates that the selling security holders have clearly acquired
their shares with investment intent and borne the risk of their investment. |
| | Further, 59% of the
selling security holders are prohibited by the Plan of Reorganization in offering their
shares for public resale until the earlier of (1) March 24, 2015 or (2) the date that
the full outstanding balance of the Debentures has been satisfied. In addition, each
of the Debentures, the Debenture Warrants, the Common Stock Warrants, and Consulting
Warrants contain a provision which prevent 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. These provisions
will only serve to increase the length of time which many of the selling security holders
will hold their respective shares of common stock. |
• | | The relationship
of the selling security holders to the Company. The Company will not receive any
proceeds received in the offering by the selling security holders. The holders of approximately
40% of the shares registered for resale (of which approximately 22% are currently issued
shares of common stock) have no currently relationship to the Company. These holders
conducted their purchases with the Company in arm’s length transactions. |
• | | The nature
of the selling security holders and whether they are generally in the business of underwriting
securities. The selling security holders are retail oriented investors or individuals
and, to the Company’s knowledge, none of the investors are broker/dealers or in
the business of underwriting securities. |
• | | Whether it
appears the selling security holder is acting as a conduit for the Company. The Company
has no agreement, arrangement or understanding with any of the selling security holders
to act as a conduit for the Company. |
| | Based on details outlined
above in accordance with CD&I, we respectively believe that the Company is not conducting
a primary offering but rather a secondary offering to be made on a resale basis by the
bonafide security holders who bear the full economic burden and risk of their investment. |
Prospectus Cover Page
Comment 5. | | Please
revise the prospectus cover page to disclose the number of shares of common stock that
being offered which are currently outstanding and the number of shares of common stock
that issuable upon the exercise of warrants or the conversion of debentures. |
| | In response to your
comment, the Company has revised the cover page of the prospectus included in the Registration
Statement to disclose the number of shares of common stock that are being offered which
are currently outstanding and the number of shares of common stock that are issuable
upon the exercise or conversion of the Debentures, and Warrants. Please refer to the
prospectus cover page. |
Comment 6. | | You
state that the selling shareholders must sell their shares at the fixed price “[u]ntil
a decision to seek a quotation if made. Please revise to state that the selling shareholders
must sell at the fixed price until the shares are “quoted” on the OTCBB. |
| | In response to your
comment, the Company has revised the disclosure in the Registration Statement to state
that the selling security holders must sell at the fixed price of $0.10 per share until
the shares are “quoted” on the OTCBB. |
Prospectus Summary, page 1
Comment 7. | | Revise
the prospectus to provide a description of the material terms of the reorganization that
occurred on March 18, 2014. We note your brief description on page 29 but it is unclear
what the purpose of the reorganization was or the effect on the company. Specifically,
it is unclear whether the company undertook a stock split as part of this reorganization.
If so, it appears that the share amounts throughout the prospectus need to be retroactively
restated to give effect to any stock splits or other recapitalizations so that all share
amounts in the filing are presented in the same manner. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement in respect of the Reorganization. Specifically, the Company added additional
details regarding the reorganization within the section which has been retitled “THE
REORGANIZATION AND PREVIOUS OFFERINGS.” Please see page 7 of the Registration Statement.
The Company undertook the transactions contemplated by the Reorganization in preparation
for the March 2014 Offering and to prepare for its future growth as a publicly traded
entity. |
Comment 8. | | Please
disclose in the first section of the prospectus summary that you have generated minimal
revenues, that you have a net loss of $919,123 for the period from inception to December
31, 2013, that your auditors have issued a going concern opinion, and that you do not
plan to implement monetization strategies until the MassRoots Inc.’s network grows
into the millions. |
Response: | | In
response to your comment, the Company has revised the disclosure in the prospectus summary
of the Registration Statement. Specifically, the Company inserted the following text
into the prospectus summary, "From the inception of MassRoots to December 31, 2013,
we have incurred a net loss of $919,123 and our auditors have issued a going concern
opinion. We do not plan on monetizing our network until we reach at least one million
users and, as such, will have to raise additional capital to continue operations."
Please see page 2 of the Registration Statement. |
Comment 9. | | Please
provide support for your statement that “MassRoots is the Mobile Network for the
Cannabis Community” suggesting that it is the only mobile network available for
cannabis users. Define the term “Cannabis Community” and explain the basis
for your claim that “MassRoots has created an essential component of cannabis consumers’
regular habits.” |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company changed the text, "MassRoots is the Mobile
Network for the Cannabis Community," to "MassRoots is a mobile network for
the cannabis community," in all occurrences in the Registration Statement. Additionally,
the Company has removed the claim, "MassRoots has created an essential component
of cannabis consumers' regular habits” and defined “cannabis community”
to be the “individuals who engage in the use of cannabis which is permissible under
state law.” |
Comment 10. | | Please
provide supplemental support for your statement that the “rate at which MassRoots
users connect and interact with each other is rare, significant, and will make for an
extraordinarily difficult barrier to entry for competitors.” Provide any third
party reports or research that may support your claims or revise the statement. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has removed the statement, "rate at which MassRoots
users connect and interact with each other is rare, significant, and will make for an
extraordinarily difficult barrier to entry for competitors." Please see pages 4
and 5 of the Registration Statement. |
Comment 11. | | Please
provide quantitative context regarding your claim that MassRoots is “growing exponentially.”
In this regard, disclose the parameters of the growth, the period during which you measured
the growth rate and how the growth rate was computed. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement to remove the statement, “MassRoots is growing exponentially,”
and replaced it with, "continues to grow." Please see page 3 of the Registration
Statement. |
Comment 12. | | Please
discuss briefly why you believe how your network provides a “semi-anonymous”
experience to your users. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, on page 3 of the Registration Statement, the Company has inserted
the following text into the "Semi-Anonymous" subsection of our section entitled
“MassRoots’ Value Proposition to Users”: |
“The MassRoots network
is semi-anonymous in that it does not require a user's real name, email address or phone number to join; however, many users voluntarily
provide this information so the network is not entirely anonymous.”
Comment 13. | | Please
revise your statements throughout the prospectus that the cannabis industry is “legal.”
As you note on page 7, cannabis use and possession is illegal on a national level in
the United States and permissible only under certain states with no guarantee that the
federal government will not enforce its laws. Given the uncertain legal nature of the
cannabis industry, revise your statements accordingly. We will not object if you describe
your industry and business as permissible under certain state laws rather than stating
that it is legal. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has made clear that its business is permissible
only under the laws of certain states. Please see the disclosure beginning on page 4
and throughout the Registration Statement. |
Comment 14. | | Please
use concise, self-explanatory descriptive terms rather than specialized vocabulary such
as “emoji-support” and “activity feed.” The summary is subject
to the plain English requirements of Rule 421(d) of Regulation C and should be readily
understood by persons not already familiar your business. |
Response: | | In
response to your comment, the Company has revised the disclosure throughout the Registration
Statement to use concise, self-explanatory, descriptive terms rather than specialized
vocabulary. For example, specialized vocabulary terms such as “emoji-support”
and “activity feed” have been replaced by “symbol support (such as
smiley faces)” and “a news feed to show their friends' activity on the network”,
respectively, to ensure understanding by persons not familiar with the Company’s
business. |
Emerging Growth Company, page 3
Comment 15. | | Please
state your election under Section 107(b) of the Jumpstart Our Business Startups Act. |
• | | If
you have elected to opt out of the extended transition period for complying with new
or revised accounting standards pursuant to Section 107(b), include a statement that
the election is irrevocable; or |
• | | If
you have elected to use the extended transition period for complying with new or revised
accounting standards under Section 102(b)(1), provide a risk factor explaining that this
election allows you to delay the adoption of new or revised accounting standards that
have different effective dates for public and private companies until those standards
apply to private companies. Please state in your risk factor that, as a result of this
election, your financial statements may not be comparable to companies that comply with
public company effective dates. Include a similar statement in your critical accounting
policy disclosures. |
Response: | | In
response to your comment, the Company has revised the disclosure in the section entitled
“Emerging Growth Company“ to include the following statement: “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.” Please see page
5 of the Registration Statement. |
The Offering
The March 2014 Offering and Registration
Rights, page 4
Comment 16. | | Please
revise to provide a materially complete discussion of the transactions in which the selling
shareholders acquired the securities being offered in this prospectus. In this regard,
for each transaction, you should disclose the number of shares that were issued in addition
to the dollar amount paid and the number of shareholders who purchased shares. You should
also disclose the conversion terms of the debentures, the exercise terms of the warrants
and the number of common stock shares underlying those convertible securities. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has disclosed, for the Original Offering and March
2014 Offering, the number and type of securities that were issued, in addition to the
dollar amount paid for the securities, and the number of investors who purchased such
securities. The Company has also revised the Registration Statement to disclose the conversion
terms of the Debentures, the exercise terms of the Debenture Warrants, Common Stock Warrants,
and Consulting Warrants and the number of shares of common stock underlying such securities.
Please the revised disclosure on page 7 of the Registration Statement. |
Risk Factors, page 6
Comment 17. | | If
you intend to be a Section 15(d) issuer that provides periodic reports but is exempt
from many regulatory requirements that apply to fully reporting companies, please consider
adding a risk factor that alerts potential investors to the limited reporting status
for the company and the limitations on the information and regulatory oversight to which
you will be subject as a Section 15(d) issuer. In this regard, you will not be subject
to the proxy rules, Section 16 short-swing profit provisions, beneficial ownership reporting,
and the bulk of the tender offer rules. Further, revise your statement on page 42 that
you will be required to proxy statements with the SEC. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has deleted reference to the proxy statement requirement
noted by the Commission and added the following Risk Factor to page 19 of the Registration
Statement: |
We are not a fully reporting
company under the Securities Exchange Act of 1934, as amended, and thus subject only to the reporting requirements of Section
15(d).
Until our common stock is registered
under the Exchange Act, we will be subject only to the reporting obligations imposed by Section 15(d) of the Exchange Act. Section
15(d) of the Exchange Act requires issuers to file periodic reporting with the SEC when they have issued any class of securities
for which a registration statement was filed and became effective pursuant to the Securities Act of 1933, as amended. The purpose
of Section 15(d) is to ensure that investors who buy securities in registered offering are provided with the same information
on an ongoing basis that they would receive if the securities they purchased were listed on a securities exchange or the issuer
were otherwise subject to periodic reporting obligations. However, companies that are only required to report under Section 15(d),
are not subject to some of the Exchange Act reporting requirements. For example, companies that are only required to report under
Section 15(d) are not subject to the short-swing profit reporting requirements, the beneficial ownership reporting requirements,
the institutional investor reporting rules and the third-party tender offer rules. Additionally, shareholders in a company that
is only required to report under Section 15(d) are not entitled to the benefits of the Exchange Act’s proxy rules.
The reporting obligations under
Section 15(d) are automatically suspended when: (i) any class of securities of the issuer reporting under Section 15(d) is registered
under Section 12 of the Exchange Act; or (ii) at the beginning of the issuer’s fiscal year, other than the year in which
the registration statement became effective, the class of securities covered by the registration statement is held of record by
fewer than 300 persons. In the latter case, the Company would no longer be subject to periodic reporting obligations so long as
the number of holders remains below 300 unless we file a registration statement with the Securities and Exchange Commission under
Section 12 of the Securities Act. Management of the Company, however, fully intends to file on an ongoing basis all periodic reports
required under the Exchange Act, as well as all beneficial ownership reporting requirements under Section 16 of the Exchange Act.
Comment 18. | | Given
the number of shareholders in your company, it appears that you should inform investors
of the statutory provisions that may result in the automatic termination of any periodic
reporting responsibilities in the event that you have less than 300 shareholders after
the year that your registration statement becomes effective. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added the Risk Factor disclosed in the response
to Comment 17. Please see page 19 of the Registration Statement. |
Comment 19. | | Please
add a risk factor disclosing any potential conflicts of interest that may arise from
the business activities of your officers and directors and disclose the number of hours
that each of the officers will devote to the business. In this regard, you state that
Isaac Dietrich currently serves as the President of RoboCent, Inc. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added the following Risk Factor to page 11 of
the Registration Statement: |
Conflicts of interest may arise
from other business activities of our directors and officers.
Several of our officers and
directors are engaged in business activities outside of MassRoots that may cause conflicts of interest to arise. Our Chief Executive
Officer, Isaac Dietrich, is also the President of RoboCent, Inc. (“RoboCent”), a political technology company. Per
RoboCent's bylaws, it is party and cause-agnostic, meaning RoboCent is retained by candidates of both parties that may be supportive
or opposed to cannabis legalization. While RoboCent is not currently retained by any campaigns or political action committees
directly related to cannabis legalization, it is possible for it to be retained by committees seeking to pass or defeat cannabis
legalization initiatives. Mr. Dietrich is no longer involved in the day-to-day operations of RoboCent, nor is he involved RoboCent's
client relations. Mr. Dietrich spends less than one hour per week on RoboCent-related matters and spends 40+ hours per week on
MassRoots-related work.
Our Chief Financial Officer,
Jesus Quintero, is also the CFO of Brazil Interactive Media, Inc. We currently do not have any agreements with Brazil Interactive
Media, Inc. Mr. Quintero spends roughly 10 hours per week on MassRoots-related work.
Our independent director, Tripp
Keber, is the Managing Partner of Dixie Elixirs & Edibles (“Dixie”), a cannabis edibles brand in Colorado. Dixie
is one of MassRoots' partners in beta-testing advertising strategies; however, there is not currently a financial relationship
between the two companies.
Our other independent director,
Ean Seeb, is also a partner at Denver Relief Consulting LLC. In this capacity, he advises dispensaries and other cannabis-related
companies on regulatory compliance, dispensary operations and marketing. His seat on the MassRoots Board of Directors may cause
other cannabis-related consulting agencies and competitors to Denver Relief Consulting LLC's clients to be hesitant to advertise
with MassRoots. Potential conflicts of interest may arise from Ean Seeb's position as Chairman of the National Cannabis Industry
Association (“NCIA”), the leading trade group of the cannabis industry. While MassRoots has been in agreement with
the NCIA's decisions and actions to date, we cannot guarantee conflicts will not arise in the future.
Stewart Fortier, our director
and our Chief Technology Officer, Tyler Knight, our Chief Marketing Officer, and Hyler Fortier, our Chief Operating Officer, are
not currently involved in any business outside of MassRoots and devote 100% of their time towards MassRoots-related matters.
Comment 20. | | Add
a separate risk factor that discusses the legal implications and consequences of operating
a website that will be available to all internet users. Address whether your website
has the capability to exclude users of your site in jurisdictions where cannabis use
is not permitted or by classes of people, such as minors, gangs, cartels or criminal
enterprises. Discuss the problems with providing a vehicle for marketing a product in
states where it is illegal. Also discuss the risk of enforcement from federal law enforcement,
from states that do not permit cannabis use or possession, and from states that prohibit
marketing and promoting to minors and others. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added the following Risk Factor to page 12 of
the Registration Statement: |
Operating a network open to all
internet users may result in legal consequences.
Our Terms and Conditions clearly
state that our network and services are only to be used by users who are over 18 years old and located where the use of cannabis
is permissible under state law and only in a manner which would be permissible under the applicable state law. However, it is
impractical to independently verify that all activity occurring on our network fits into this description. As such, we run the
risk of federal and state law enforcement prosecution, especially if our network is used in states where cannabis is not permitted
under state law; by gangs, cartels, or criminal enterprises; and/or by minors.
We have taken several steps
which attempt to prevent the use of our network in manners which violate our Terms and Conditions. For example, we have an aggressive
content reporting review policy to remove any content which violates our Terms and Conditions. Any business seeking to advertise
on MassRoots will be required to provide a copy of their state license to operate. Further, Google Play Marketplace and the iOS
App Store, our primary distribution channels, only allow users that are 18 years of age and older to download our app. We will
be introducing a system that automatically flags any posts for review, removal, and possible account suspension that includes
certain words such as "gun" or "acid”, as well as temporarily suspending any profiles which include in their
description an age under that of the minimum legal age in the user’s respective state. We are also considering adding to
our verification process a step that requires a user to share their location so that it can be verified that they are in a legal
state. However, we cannot guarantee that our current or future systems will be sufficient to prevent illegal activity from being
posted on our network.
Although the Obama Administration
has effectively stated that it is not an efficient use of resources to direct Federal law enforcement agencies to prosecute those
following state laws allowing for the use and distribution of medical and recreational cannabis, there can be no assurance that
the administration will not change its stated policy and begin enforcement of the Federal laws against us or our users. Additionally,
there can be no assurance that we will not face criminal prosecution from states where the use of cannabis is permitted for the
use of cannabis in ways which do not fall under the state law. Finally, even if we attempt to prevent the use of our product in
states where cannabis use is not permitted under state law, use of our app by those in such states may still occur and state authorities
may still bring an action against us for the promotion of cannabis related material by those residing in such states.
We may require additional capital
to support business growth..., page 6
Comment 21. | | It
appears that you will need to raise additional capital within 12 months in order to continue
your business operations. Please disclose the minimum dollar amount of funding you require
to conduct operations for a minimum period of one year in this risk factor and in the
Management’s Discussion and Analysis section. Quantitative information regarding
your financial requirements is necessary to enable investors to assess the company’s
financial condition and the likelihood it will be able to pursue its business plan. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added the following Risk Factor to page 12 of
the Registration Statement: |
We will need to raise additional
capital to continue its operations over the coming year.
We anticipate the need to raise
an additional $500,000 to fund our operations through the end of the second quarter of 2015. We expect to use these cash proceeds,
in addition to the capital on hand, primarily to accelerate our user growth, implement consumer-facing features to boost engagement,
develop and market a self-service advertising portal for cannabis-related businesses, and remain in full legal and accounting
compliance with the SEC. We cannot guarantee that we will be able to raise these required funds or generate sufficient revenue
to remain operational. In connection with the March 2014 Offering, we issued the $0.40 Warrants and the $0.001 Consulting Warrants.
The exercise of the $0.40 Warrants and the $0.001 Consulting Warrants would result in approximately $1,904,050 to be provided
to MassRoots for general corporate expenditures. However, we cannot guarantee that the $0.40 Warrants and the $0.001 Consulting
Warrants will be exercised before MassRoots runs out of operational capital.
Comment 22. | | Consider
adding a separate risk factor discussing the uncertainties regarding your intention not
to pursue monetization strategies until the MassRoots, Inc.’s network grows into
the millions. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added the following Risk Factor to page 12 of
the Registration Statement: |
Our Monetization Strategy is Dependent on Many Factors Outside
our Control.
We do not plan to aggressively
pursue a monetization strategy until we reach one million users. There is no guarantee we will reach one million users nor is
there any guarantee that businesses will want to advertise on our platform. Furthermore, our competitors may introduce more advanced
advertising portals that deliver a greater value proposition to cannabis related businesses over the coming months. For example,
Google, Facebook and Twitter may decide to allow cannabis-related advertising on their platforms, significantly increasing the
competitive environment. Users may stop using our products for many reasons, including the addition of advertising, preventing
any monetization from occurring. The development of our advertising platform may take longer than expected and cost more money
than projected. Dispensaries may not have credit or bank cards due to banking regulations, which could significantly increase
the cost and time required for us to generate revenue. All these factors individually or collectively may preclude us from effectively
monetizing our business.
New platform features or changes to
existing platform features..., page 6
Comment 23. | | Please
explain in the filing the products and services that are currently being beta tested
by 10-20 companies and that you intend to release to the business community. Focus on
the products and services that you reasonably anticipate will have the most significant
impact on you. More fully describe the steps that must be taken to finalize the development
of the proposed products or services and to initiate any manufacturing and commercialization
activities with respect thereto. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added a subsection entitled "Development
of Products and Services for the Business Community" to the "Description of
Business" section. Please see page 32 of the Registration Statement. |
We are classified as an “emerging
growth company” as well as a “smaller reporting company”..., page 11
Comment 24. | | You
state that in the even that you cease being an emerging growth company but are still
considered a smaller reporting company, the disclosure requirements applicable to you
will increase. Please explain the increased disclosure requirements to which you believe
you will be subject. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has disclosed the following under the Risk Factor
entitled “We are classified as an ‘emerging growth company’ as well
as a ‘smaller reporting company’ and we cannot be certain if the reduced
disclosure requirements applicable to emerging growth companies and smaller reporting
companies will make our common stock less attractive to investors.”: |
Should we cease to be an “emerging
growth company” but remain a “smaller reporting company”, we would be required to: (1) comply with new or revised
US GAAP accounting standards applicable to public companies, (2) comply with new Public Company Accounting Oversight Board requirements
applicable to the audits of public companies, and (3) to make additional disclosures with respect to related party transactions,
namely Item 404(d).
Please see
page 20 of the Registration Statement.
Note Concerning Forward-Looking Statements,
page 12
Comment 25. | | We
note your reference to Section 27A of the Securities Act and the statement that your
filing contains forward-looking statements within the meaning of the statute. Because
you are a new registrant that is not yet subject to the reporting requirements of Section
13(a) or 15(d) of the Exchange Act, MassRoots, Inc. is not eligible to rely on the statutory
safe harbor for forward-looking statements. Please revise. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has removed reference to Section 27A of the Securities
Act and any statement that the filing contains forward-looking statements within the
meaning of the Securities Act. Please see page 21 of the Registration Statement. |
Description of Business
Definitions of Key Metrics, page 18
Comment 26. | | Please
disclose whether Monthly Active Users reflects unique users who access the company’s
apps and websites at least once a month. Also, explain how you avoid double-counting
users who access the website using different electronic devices. |
Response: | | 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 a 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. |
We
are still in the process of implementing Parse's analytics platform and as Parse's methods to determine usage are compiled in
a different manner than MassRoots' previously-used methods, there would be a small, but still material, discrepancy in usage statistics.
As such, we can only guarantee the accuracy of our total users, interactions, picture views and app opens at this time. We believe
this still adequately discloses usage and growth to potential investors.
We anticipate having
Parse's analytics platform fully implemented by the end of the second quarter and will be released with our second quarter financial
results.
In response to your
comment, we have updated the "Definition of Key Metrics" section in the Registration Statement with this information
and all applicable references to our metrics. In response to the second part of your comment regarding double-counting users,
"Users" is defined as every user who currently has an account with MassRoots and does not include users who have deleted
their account. As such, users using different devices would sign in using the same account, preventing the double counting of
users. Please see page 30 of the Registration Statement.
Sales and Distribution Channels, page
19
Comment 27. | | Please
explain whether the MassRoots app distributed though the iOS App Store and Google Play
Marketplace is free to users or whether there is a charge. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has clarified in the section entitled “Sales
and Distribution Channels” that MassRoots is distributed at no charge in the iOS
App Store and Google Play Marketplace. Please see page 33 of the Registration Statement. |
Market Conditions, page 20
Comment 28. | | We
note that your disclosure focuses on the laws that permit certain activity related to
cannabis. Please revise to provide a balanced discussion of your market conditions by
addressing the laws or conditions that could limit your business. For example, describe
the impact of the government’s position that federal employees may not legally
participate and the restrictions and prohibitions against cannabis use imposed by many
private employers. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added a section entitled “Market Conditions
that Could Limit Our Business” which is intended to provide a balanced discussion
of our market conditions by discussing the laws or conditions that could limit our business.
Please see page 34 of the Registration Statement. |
Comment 29. | | Please
revise your description of The Cole Memo to accurately reflect the guidance regarding
marijuana related financial crimes by the U.S. Department of Justice. In this regard,
the memo does not appear to instruct U.S. Attorneys to “respect the will of voters
in Colorado, Washington, and any future states that legalize the adult-use and medical-use
of cannabis.” Rather, the memo clearly states that the guidance does not alter
in any way the Department of Justice’s “authority to enforce federal law,
including federal laws relating to marijuana, regardless of state law.” |
Response: | | In
response to your comment, the Company has updated the description of the Cole Memo to
accurately reflect its guidance by making clear that the guidance does not alter in any
way the Department of Justice’s “authority to enforce federal law, including
federal laws relating to marijuana, regardless of state law.” Please see page 37
of the Registration Statement. |
Government Regulation, page 21
Comment 30. | | We
note your disclosure that you have implemented a content and account review program to
ensure compliance with your terms and conditions, but it appears that you should alert
investors that there is no assurance that you will be able to comply with the guidance
in the Cole Memo or other laws and regulations. In this regard, we note that you rely
on user reports to detect violations or illegal activity and the company does not appear
to independently verify the legality of activities facilitated by or conducted on the
website. |
Response: | | In
response to your comment, the Company has updated the section entitled “Government
Regulation” to state, "we cannot provide assurance that our actions are in
full compliance with the, 'Cole Memo,' or any other applicable laws or regulations.”
Please see page 37 of the Registration Statement. |
Market Conditions, page 20
Comment 31. | | Please
provide support for your statement on page 20 that Dr. Sanjay Gupta “fully endors[es]”
the medical benefits of marijuana reversing his previous opposition. |
Alternatively,
revise the statement so that the claim more precisely describes Dr. Gupta’s position. Provide supplemental support for the
disclosure.
Response: | | In
response to your comment, the Company is supplementally providing you Cited Report 2.1,
which discussed Dr. Sanjay Gupta’s reversal of his previous opposition to medicinal
cannabis, and Cited Report 2.2 which highlights the airing of the Dr. Sanjay Gupta special,
“Weed 2: Cannabis Madness: Dr. Sanjay Gupta Reports.” During the airing of
the special, Dr. Sanjay Gupta expressly endorsed the medical benefits of marijuana and
reversed his prior opinion on marijuana. In addition, the Company has revised the disclosure
to state “Dr. Sanjay Gupta, CNN’s Chief Medical Correspondent, released a
high-profile documentary supporting the medical benefits of cannabis, in certain cases
reversing his previous opposition.” Please see page 34 of the Registration Statement. |
Comment 32. | | Please
provide support for your statement that the “Legal Marijuana Markets” are
one of the two fastest growing industries in the world. Discuss the basis of this conclusion
and any related assumptions or limitations. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has removed any claim that the legal marijuana market
is one of the two fastest growing industries in the world; the Company has instead disclosed
that the legal marijuana market is a “rapidly growing industry” which the
Company believes is supported by the evidence cited in the Registration Statement. |
Directors, Executive Officers, Promoters
and Control Persons, page 23
Comment 33. | | According
to the signature page of the registration statement, Issac Dietrich, the Chairman of
the Board and Chief Executive Officer, also serves as the principal financial officer.
Please revise to include all positions in which Mr. Dietrich serves. Also, it appears
that Mr. Dietrich does not have an accounting background. Consider adding a risk factor
in this regard. |
Response: | | Effective
May 1, 2014, the Company retained Jesus Quintero as its Chief Financial Officer. The
Company has added the necessary disclosure to the Registration Statement by adding him
to the section entitled “DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL
PERSONS” and “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT”,
as well as disclosing his potential conflicts of interest in the Risk Factor added in
response to your comment 19 above. Mr. Jesus Quintero has also signed the Registration
Statement in his capacity as Chief Financial Officer. |
Description of Securities, page 28
Comment 34. | | Please
revise to provide a reasonably detailed description of the rights and preferences of
the Series A preferred stock, including but not limited to, the right to dividend accrual,
liquidation preference, and conversion rights. Disclose the amount of the securities
that were issued and are currently outstanding. Also, consider whether a risk factor
should be added discussing the impact of the rights of the preferred stockholder(s) and
the resultant risk for common stockholders. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement. Specifically, the Company has added a description of the rights and preferences
of the Series A preferred stock, including but not limited to, the right to dividend
accrual, liquidation preference, and conversion rights and disclose the amount of the
securities that were issued and are currently outstanding. Please see page 49 of the
Registration Statement. |
Security Ownership of Certain Beneficial
Owners and Management, page 27
Comment 35. | | It
appears that the executive officers were granted option awards for the fiscal year ended
December 31, 2013 but these options are not reflected in the beneficial ownership table
on page 27. Please advise or revise accordingly. |
Response: | | On
January 1, 2014, each executive officer exercised all of their outstanding options held
at that time. As such, no options were outstanding as of the date of the beneficial ownership
table. |
Management’s Discussion and
Analysis of Financial Condition and Results of Operation
Results of Operations, page 29
Comment 36. | | Please
provide more detail regarding your expenses for the period ended December 31, 2013. Disclose
who provided the services and what services were received for preferred stock valued
at $24,998, common stock valued at $195,412 and options valued at $612,387. |
Response: | | In
response to your comment, the Company has revised the disclosure in the Registration
Statement within the “Results of Operations” section to provide detail on
who provided the services and what services were received for preferred stock valued
at $24,998, common stock valued at $195,412 and options valued at $612,387. |
Financial Statements, page 34
Comment 37. | | Your
disclosure on page 29 indicates that you entered into a Plan of Reorganization on March
18, 2014. Please tell us your consideration of reflecting the components of this reorganization
in your current financial statements. Refer to SAB Topic 4.C. |
Response: | | In
response to your comment, the Company has reflected the components of the Plan of Reorganization
in our current financial statements. The Company has also updated the Notes to Financial
Statements accordingly. |
Comment 38. | | We
note in your prospectus you disclose that you are in the development stage. Please label
each of your financial statements as such. Refer to FASB ASC 915-205-45-4. In addition,
please include the caption, “deficit accumulated during the development stage”
within your Stockholders’ Equity section of your balance sheet on page 34. Refer
to FASB ASC 915-205-45-2. |
Response: | | In
response to your comment, the Company has labeled each of the financial statements as
“A Development Stage Company”. The Company has included the caption “deficit
accumulated during the development stage” with the stockholders’ equity section
and added a “Development Stage Company” footnote as Note 7 in the Notes to
the Financial Statements. |
Statement of Operations, page 35
Comment 39. | | Tell
us your consideration of presenting your operating expenses line items by function. |
Response: | | The
Company has presented its operating expenses by function as there was no other types
of expense (e.g. selling expense or research and development expense) for the year-ended
December 31, 2013. Therefore, operating expense consisted was split up by function to
provide greater detail of each type of expenses. |
Comment 40. | | Please
disclose the date through which subsequent events have been evaluated and the nature
of this date. Refer to FASB ASC 855-10-50-1. |
Response: | | The
Company has evaluated subsequent events through the date its financial statements were
issued on March 18, 2014 and disclosed as such in the Notes to the Financial Statements
accordingly. |
Signatures
Comment 41. | | Please
indicate the officer who is signing as the company’s principal accounting officer
or controller. Note that any person who occupies more than one of the specified positions
needs to indicate each capacity in which signatures are provided. See Instructions 1
and 2 to the Signatures on Form S-1. |
Response: | | Effective
May 1, 2014, the Company retained Jesus Quintero as its Chief Financial Officer. As such,
Jesus Quintero has executed the Form S-1 in his official capacity as Chief Financial
Officer. |
Exhibits
Comment 42. | | Please
tell us whether you intend to file the Leak-Out Agreement with Dutchess, one of your
principal shareholders, as an exhibit pursuant to Item 601(b)(10) of Regulation S-K.
If you do not intend to file the agreement, please provide the agreement to the staff
supplementally. |
Response: | | In
response to your comment, the Company has filed the Dutchess Leak-Out Agreement as Exhibit
10.13 pursuant to Item 601(b)(5) of Regulation S-K. |
Exhibit 5.1
Comment 43. | | Please
revise the legality opinion to state the number of shares of common stock being registered
that are currently outstanding, underlying the debentures, and underlying the warrants. |
Response: | | In
response to your comment, the legality opinion has been reissued to include the number
of shares of common stock being registered that are currently outstanding, underlying
the debentures, and underlying the warrants, and the Company will re-file as an exhibit
pursuant to Item 601(b)(5) of Regulation S-K. |
If you have any questions
relating to any of the foregoing, please contact Peter J. Gennuso of Thompson Hine LLP at (212) 908-3958.
Respectfully,
/s/ Peter J. Gennuso
Peter J. Gennuso
Isaac Dietrich