MassRoots Archives - Green Market Report

MassRoots Inc. (OTC: MSRT) stock has risen from the dead and it’s truly a mystery. The stock was selling for less than one cent at the end of January and it is now worth two cents. While these are minuscule numbers, it begs the question of who is buying this stock?

The company owes more money than it’s worth and yet it continues to issue more convertible debt. Over the last nine months ending in September 2020, the company booked revenue of $2,316. MassRoots had to declare that it had $71 in bank overdrafts but still has managed to announce the acquisition of a platform business called Herbfluence. Keep in mind, for the nine months ending in September 2020 and 2019, MassRoots had net losses of $142,405,892 and $94,457,638, respectively, an increase of $47,948,254. Let that sink in – $142 million net loss. 

Isaac Dietrich, CEO of MassRoots said, “The overwhelming majority of these losses are attributable to derivative liabilities, which are non-cash items we are required to book due to our authorized share shortfall. MassRoots has 498,174,656 shares outstanding out of 500,000,000 authorized shares – which means we are currently only able to issue 1,825,344 more shares.”

Outstanding Debts

If the net losses weren’t eye-popping enough, the amount of money the company owes is equally staggering. Total liabilities are $83.9 million, more than what the company is worth. Dietrich didn’t disagree and said, “MassRoots’ liabilities currently exceed its assets. Like a Phoenix rising from the ashes, we have been working to rebuild MassRoots with the goal of making it one of the greatest comeback stories in the cannabis industry.”

In the company’s SEC filing, MassRoots said, “As of September 30, 2020, and December 31, 2019, the company owed accounts payable and accrued expenses of $8,169,332 and $5,455,063, respectively. These are primarily comprised of payments to vendors, accrued interest on debt, and accrued legal bills.” 

The company says it has a plan to reduce expenses. The last three months ending in September showed operating expenses to be a whopping $208,238. Revenue for the quarter was only $2,316. 

 Taxman Cometh

 The company also said it is “Delinquent in filing its payroll taxes, primarily related to stock compensation awards in 2016 and 2017, but also including payroll for 2018, 2019, and 2020. As of September 30, 2020 and December 31, 2019, the company owed payroll tax liabilities, including penalties, of $3,818,230 and $3,724,050, respectively, to federal and state taxing authorities. The actual liability may be higher or lower due to interest or penalties assessed by federal and state taxing authorities. “ On a positive note, MassRoots said it expects to settle these liabilities by March 31, 2021.

Dietrich responded by saying, “The majority of these tax liabilities are related to payroll taxes owed on stock-based compensation issued in 2016 and 2017.” He went on to say, “At the time, the company was not aware it had to withhold taxes for the value of stock-based, non-cash compensation. We expect to settle these liabilities this year, potentially for far less than the liability recorded on our balance sheet, as this value is calculated using the maximum penalties and interest that could be assessed.”

Lawsuits

The company is also being sued for defaulting on notes. On October 11, 2019, Power Up Lending Group, Ltd. filed a complaint against the Company and Isaac Dietrich, an officer and director of the Company, in the Supreme Court of the State of New York, County of Nassau. The complaint alleges, among other things, 

(i) the occurrence of events of default in certain notes issued by the Company to Power Up 

(ii) misrepresentations by the Company including, but not limited to, with respect to the Company’s obligation to timely file its required reports with the SEC and 

(iii) lost profits as a result of the Company’s failure to convert the Power Up Notes in accordance with the terms thereof. 

In addition, the complaint alleges, among other things, that Mr. Dietrich took affirmative steps to deliberately cause the company to breach its financial obligations. As a result of the foregoing, Power Up has requested: 

(i) the greater of $312,000 and the “parity value” as such term is defined in the Power Up Notes together with $2,000 per day until the Company issues shares upon conversion of the Power Up Notes together with applicable interest thereon; 

(ii) $165,000 as a result of the misrepresentations; 

(iii) an amount of lost profits to be determined by the court, but in no event less than $312,000; (iv) $312,000 as against Mr. Dietrich; 

(v) an award for reasonable legal fees and costs of litigation; 

(vi) a judgment awarding specific performance under the Power Up Notes; and 

(vii) the costs and disbursement of the action, pre-judgment interest, default interest and such other further relief as the court deems proper.

As of September 30, 2020, the company said it has recorded $131,174 in principal and $233,124 of accrued interest and penalties for the Power Up Notes as current liabilities. On September 14, 2020, Power-Up filed a motion for leave to enter a default judgment against the company and Isaac Dietrich, an officer, and director of the company, in connection with the Power Up Notes, alleging that the defendants failed to appear and did not establish a meritorious defense to the claims made or a reasonable excuse for the delay in interposing their answer. On November 19, 2020, Power Up’s motion to enter a default judgment was granted. Dietrich said his new lenders are aware of the lawsuit.

New Shares

On November 25, 2020, MassRoots said it entered into a securities purchase agreement with an accredited investor for the sale of 3.3 shares of the company’s newly-created Series X Convertible Preferred Stock, par value $0.0001 per share, resulting in aggregate proceeds of $66,000. That deal closed on December 1, 2020.

From January to September 2020, MassRoots issued convertible promissory notes in the aggregate principal amount of $700,700, resulting in cash proceeds of $637,000. The notes mature from July 2020 to March 2021 and accrue interest at a rate of 12% per annum. The company though stated it had only $650 in cash as of September 2020. 

MassRoots has entered into a Letter of Intent to purchase the influencer marketing platform of Herbfluence for consideration of $250,000 in preferred stock. The company was founded by a former founder of MassRoots. 

Going Concern

With all of these issues, it’s no surprise that the company’s filing said, “These conditions raise substantial doubt about the Company’s ability to continue as a going concern for one year from the issuance of the unaudited condensed consolidated financial statements. The Company does not have sufficient cash to fund operations for the next fiscal year.”

 Instead of earning real revenue, the company relies on selling stock and debt. 

Dietrich said, “MassRoots closed $312,000 in equity financing in November and December 2020. MassRoots raised over $1 million from its financing activities in fiscal year 2020.” How does a company that only made $2,000 in revenue manage to raise over a million?

 Management’s plans are the following actions: “1) obtain funding from new and current investors to alleviate the Company’s working capital deficiency; and 2) implement a plan to increase revenues. The Company’s continued existence is dependent upon its ability to translate its audience into revenues.  However, the outcome of management’s plans cannot be determined with any degree of certainty.”

MassRoots has managed to convince investors to keep believing in the company. However, it begs the question as to what end? Certainly, there are many cannabis companies with real earnings and real revenue that could have used that investor money. 

It may be that the MassRoots Investor deck is what sells the promise of a comeback. It states that it is publishing fresh content on a weekly basis, but that just isn’t true. Dietrich said, “We publish fresh content on our YouTube on a regular basis. We planned to release content weekly; however, due to budgetary constraints, schedules of our talent and production teams, and restrictions caused by the pandemic, we have not been able to release content on our YouTube every single week. We are working on a revamped website that we expect to release in the near future. We publish fresh content to our social channels on a near-daily basis.” The Instagram account is active, but not necessarily all original content (TikTok reposts) and other social media accounts are certainly not daily. 

MassRoots also claims in its investor deck that its videos are “ranked in top searches for many key cannabis-related terms,” but when a user enters either cannabis or marijuana, MassRoots doesn’t show up on the first page for either of these. Dietrich responded by saying, “We rank in the top search results for several cannabis-related search terms such as, “How to roll a blunt,” and “How to Twax a joint. We never claimed that we ranked in the top search results for “marijuana,” or, “cannabis.” 

Maybe MassRoots will rise like the Phoenix. It certainly is trying and it is without a doubt that Dietrich fights for the survival of his company. 

While numerous small businesses across the country struggle during an unforeseen lockdown, MassRoots (OTC:MSRT) the poorly run cannabis tech company managed to snag $50,000 in the Payroll Protection Program. This despite one of the company’s main shareholders being sued for stock fraud by the SEC.

“I’m pleased to report MassRoots has raised significant capital to fund our operations and, later this month, launch our rewards program – MassRoots Rewards – aimed at driving cannabis demand from our community to client dispensaries,” stated Isaac Dietrich, MassRoots’ Chief Executive Officer. “We’ve slashed our monthly expenses to less than $75,000 per month, negotiated far better rates and terms with our vendors, and built a rewards model we believe can gain widespread adoption while generating positive cash-flows. We’ve learned many important lessons in the five years since MassRoots became a public company – and we’re now positioned to combine that knowledge with an unparalleled work-ethic to deliver results for all our shareholders.”

The PPP loan matures in May 2022 and bears an interest rate of 1.0% per annum. Payments of principal and interest of any unforgiven balance commence in December 2020.

$300,000 Bridge Financing

This loan supplements the $300,000 in bridge financing recently closed by MassRoots. Although there is no press release detailing the terms of this loan, the SEC filing noted that on April 17, 2020, the company issued and sold convertible notes in the aggregate principal amount of $330,000 (including an aggregate of $30,000 original issuance discount) to accredited investors. The April Notes mature on October 17, 2020.

The April Notes accrue interest at a rate of 12% per annum and are convertible into shares of the Company’s common stock at $0.01 per share, subject to adjustment; provided, however, upon the occurrence of an Event of Default, the conversion price shall be 60% of the average of the three lowest closing bid prices of the Company’s common stock during the twenty days prior to the date of conversion; provided, further, however, upon the occurrence of an Event of Default, the conversion price shall not be less than $0.001 per share.

MassRoots stock sells at less than one penny.

Once called the “Facebook” of cannabis, MassRoots burned through millions of dollars raised with little to show for it. When the advertising dollars for the social media platform never came through, MassRoots then pivoted to becoming a seed-to-sale tech platform. However, the competition was already well-entrenched and this endeavor never seemed to get off the ground. The company is now pursuing a review, mapping, and news website style entity not unlike Weedmaps or Leafly.

Stock Fraud

The SEC posted a filing that it is going after the lead investor group in Massroots for stock price manipulation and organizing coordinated buying and selling movements. Dietrich is not a part of the lawsuit. Instead, the defendant is mainly Douglas Leighton.

Leighton is specifically called out for promoting the stock, causing a rise in the share prices so that he could sell at a profit. A scheme often referred to as “pump and dump.” Leighton and his trading group, which was comprised of the above-listed individuals and companies owned roughly 90% of MassRoots shares prior to the company going public. He assisted in bringing the company public in 2015.

The SEC lawsuit alleges, “Leighton directed the trading group members how to slow the sales of their privately-purchased MassRoots stock, imposing a limit on how many shares he wanted them to sell at a time. He criticized trading group members who did not follow his “rule” about selling their MassRoots stock.” The intent of this manipulation was to keep MassRoots stock prices high so that Leighton and the trading group members could sell at a large profit.

Leighton is currently listed as an advisor to BudTrader.com, which is also planning to go public through a reverse takeover.

MassRoots (OTC:MSRT) was once the darling of the cannabis industry. CEO Isaac Dietrich was able to raise millions of dollars as he built the “Facebook” of cannabis. The premise was that cannabis consumers would want a friendly social media site to connect with each other and then the ad dollars would be tremendous. That never happened.

Now, the SEC has posted a filing that it is going after the lead investor group in Massroots for stock price manipulation and organizing coordinated buying and selling movements. Dietrich is not a part of the lawsuit. Instead, the defendants are DOUGLAS LEIGHTON, BASS POINT CAPITAL, LLC, AZURE CAPITAL CORP., MICHAEL SULLIVAN, DAVID HALL, ZACHARY HARVEY, PAUL DUTRA, JASON HARMAN, and JESSICA GERAN.

Leighton is specifically called out for promoting the stock, causing a rise in the share prices so that he could sell at a profit. A scheme often referred to as “pump and dump.” Leighton and his trading group, which was comprised of the above-listed individuals and companies owned roughly 90% of MassRoots shares prior to the company going public. He assisted in bringing the company public in 2015.

The SEC lawsuit alleges, “Leighton directed the trading group members how to slow the sales of their privately-purchased MassRoots stock, imposing a limit on how many shares he wanted them to sell at a time. He criticized trading group members who did not follow his “rule” about selling their MassRoots stock.” The intent of this manipulation was to keep MassRoots stock prices high so that Leighton and the trading group members could sell at a large profit.

Help From The Inside

The filing references a MassRoots executive, but the executive is not named. “Before and after MassRoots stock began publicly trading in April 2015, Leighton made efforts to publicize the stock by instructing a MassRoots executive about various ways he should promote MassRoots stock. Even before the trading began, between December 2014 and April 2015, Leighton both took steps to help MassRoots promote the stock and promoted it himself.” Leighton also needed help from the inside in order to learn who was buying and selling stock within his trading group in order to keep manipulating the price.

Leighton told a MassRoots executive that he needed the NOBO “Non-Objecting Beneficial Owner,” list in order to monitor the shares sold and owned in the market. The MassRoots executive, more than once, provided Leighton with the list.

Hiding Ownership

Leighton is alleged to have gone to great efforts to hide his ownership percentage in order to avoid reporting his trading activities.  The case says that had the Defendants filed the forms, the public would have seen that (1) there was a single group that owned more than 10% of MassRoots stock, (2) that group was steadily selling the stock. The case states that “Between April 2015 and March 2016, the Defendants made approximately $3.2 million from their scheme. The Defendants continued to profit from their sales of MassRoots stock through 2018.”

Sullivan used multiple accounts at multiple brokerage firms in order to avoid detection of his trading habits that were directed by Leighton. Sullivan’s purchases in May 2015 manipulated the stock’s share price, which rose from $1.21 per share to $1.26.

Leighton is also accused of threatening other MassRoots insiders to not sell or he would pull his entire holdings.

Reported Demise

Cannabis.net had recently reported that MassRoots was likely to go out of business. The site wrote, “It appears now that Massroots has called it a day and closed up shop, which may be a problem since they are a publicly-traded company with stock symbol MSRT.  While their social media channels have remained active the website has now been down for over 3 weeks and Google has begun to remove all listings that lead to an error or non-connected page.”

Dietrich responded to the story by telling MJ Biz Daily, “Our website will be back online shortly. We recently encountered server issues that are in the process of being resolved.” The stock though is essentially worthless and trading at less than one cent.

Dietrich Ousted Then Returned

In 2017, Dietrich was ousted by the board, but he managed to swing shareholders back to his side. At the time interim CEO Scott Kveton led the coup, but once Dietrich rallied shareholders to his side, Kveton resigned along with board members Tripp Keber, Ean Seeb and Terry Fitch. Leighton’s group of shareholders was undoubtedly the group that rescued Dietrich.

On March 30, Dietrich filed an 8-K with the SEC suggesting that COVID 19 was the reason why “The Company has been unable to identify and raise capital necessary for it to, among other things, pay accounting and audit fees as are necessary for the preparation and filing of the Company’s Annual Report. As a result of the foregoing, the Company is unable to complete its 2019 audit to timely file its Annual Report.” Not perhaps because the company had been run into the ground?

Cannabis social media, blockchain, seed-to-sale company MassRoots (MSRT) had an unarguably tumultuous year in 2017. The founder Issac Dietrich lost control of the company he created, only to wrestle it back and replace the board with friendlier members. Dietrich immediately embarked on a strategy to get the company righted and in doing so awarded himself a hefty bonus even as the company reported extreme losses.

MassRoots filed its annual report on Tuesday but didn’t get around to the company’s financials in the filing until page 24. Gross revenue for the year fell 54% to $319,242, while the net losses ballooned 146% to $44 million. The net loss per share for 2017 was 46 cents. The company said in its filing that the “Decline is primarily related to prior management’s decision to make MassRoots’ dispensary finder, its main source of revenue, free for dispensaries to use with the goal of getting them to upgrade to premium features, which did not materialize.”

Payroll and related expenses increased $991,528 to $3,104,407 during fiscal year 2017 from $2,112,879 during fiscal year 2016. MassRoots said that the increase was mainly a result of added personnel in 2017. However, the company actually slashed personnel and currently only has five full-time employees, two part-time and one full-time independent contractor. MassRoots also hasn’t paid its taxes. The company has payroll tax liabilities of approximately $1,599,489. However, the company did settle with its previous landlord following an eviction. That settlement was $145,000 and the company is now using a WeWork space.

MassRoots is dependent on the sale of stock to fund its operations and the company said in its filing that it has does not have sufficient capital to become cash-flow positive from operations. “We expect to need to raise additional funds to continue to fund operations.”

The Bonus

In all of this mess, CEO Isaac Dietrich awarded himself a bonus of $190,659 on top of his salary of $96,971. While Mr. Dietrich’s monthly salary was decreased from 2016, his total compensation jumped from $107,917 in 2016 to $287,630 in 2017. Of course, every CEO is entitled to compensation for their hard work and numerous hours. The optics of a hefty bonus as the company’s revenues plunge don’t look good.

In addition to that, the company said it has been on a travel whirlwind attending over 50 conferences during 2017 and racking up expenses of $718,693 over 2016’s travel expenses of $188,723. That’s $14,373 per conference. That is outrageous. While there are certainly numerous cannabis and blockchain conferences to attend; 50 conferences in one year is almost one per week. Granted some of this travel could be related to meeting new investors, however, the filing states that it was conference attendance. Yes, conference booths can be expensive to set up and run, along with flights and hotels. Still, in light of the board struggles that occurred during the year how was MassRoots still managing to attend 50 conferences a year?

Stronger Competition

All of this spending is occurring as the company tries to figure out what it is. It is part social media, part dispensary finder, and part blockchain. MassRoots believes users will come to it for dispensary information versus WeedMaps or Leafly because of its social component. However, with consumers becoming more concerned about privacy issues that could be a disadvantage. Plus, Leafly and WeedMaps are well-funded established players in the space.

MassRoots also faces competition on its seed-to-sale retail plans from more entrenched companies like MJ Freeway and BioTrack THC. Both have greater resources from a financial and marketing standpoint. The filing didn’t mention Metrc as a competitor, which is probably gaining the most traction of all in this space. MassRoots is also trying to enter the point-of-sale retail space, where it too faces a competitive environment with much stronger players.

Shareholders

The stock was lately trading at 28 cents, down from its 52-week high of $8.25. Many investors have jumped ship, but some still remain and the stock has moved higher from trading at 22 cents in early April.