MassRoots has managed to convince investors to keep believing in the company. However, it begs the question: to what end?
If the net losses weren’t eye-popping enough, the amount of money the company owes is equally staggering.
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.”
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.
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.”
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.
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.
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: 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.