An employee views trading screens at the offices of Panmure Gordon and Co on October 20, 2014 in London, England. (Carl Court,Getty Images)

MassRoots quarterly revenue tanks

MassRoots Inc. reported Tuesday that its third-quarter revenue had plunged precipitously and it would need to raise at least $2.5 million by year’s end to stay in business.

The Denver-based marijuana social network and business software company generated $11,516 in sales, all attributed to advertising revenue on the MassRoots network, according to the company’s quarterly earnings release made public Tuesday. The third-quarter revenue figure represents a nearly 100 percent free fall from one year ago when the company recorded quarterly revenue of $209,003.

The report comes less than a month after the ouster of its founder and CEO Isaac Dietrich.

“The Q3 financial results do not reflect what we believe to be MassRoots’ potential and reaffirms the board’s decision last month to make a leadership change,” MassRoots board member Vincent “Tripp” Keber said in the earnings press release that outlined the roughly 95 percent sales drop. “In this regard, we have asked our interim CEO Scott Kveton to refocus efforts with the plans he has put in motion for a direct-to-consumer and (business-to-business) play by leveraging our installed base of users and recent acquisitions.”

Those acquisitions included Whaxy, an online ordering platform and Odava, a point-of-sale and compliance software developer.

“Moving forward, we intend to focus our efforts to push the business to cash-flow positive as quickly as possible by maximizing revenue streams from the investments made over the last three years and continuing our cost-cutting efforts,” said Scott Kveton, the former Odava CEO who took the helm at MassRoots in October.

However, MassRoots officials don’t believe the company will get to cash-flow positive from existing operations alone.

“We expect to need to raise at least $2.5 million over the next quarter to continue to fund operations,” company officials disclosed in a regulatory filing made Tuesday with the U.S. Securities and Exchange Commission.

Potential actions to continue operations and eventually become profitable include raising money from new or existing investors as well as implementing a plan to generate sales, company officials said in the regulatory filing.

MassRoots officials have scheduled a call with investors for Thursday to discuss the results and future operations.

During the quarter that ended on Sept. 30, MassRoots reported operating expenses ballooned to $7.53 million, up from $2.09 million in the third quarter last year. Officials attributed the increase to stock-based compensation for employees and “key consultants,” according SEC filings.

The stock-based compensation figures are estimates determined using the Black-Scholes option pricing model, and the true value of compensation could vary significantly over time. The values applied to stock-based compensation during the third quarter was $5.51 million as compared to $676,617 during the same period last year, according to SEC filings.

MassRoots officials did not immediately respond to The Cannabist’s query seeking further details about stock-based compensation awarded during the third quarter.

An initial review of MassRoots’ SEC filings show that its three directors received grants totaling 1.75 million shares between them on July 26. As part of the company’s 2017 Equity Incentive Plan, Terence Fitch received 750,000 shares, and Ean Seeb and Keber each received 500,000 shares, according to SEC filings.

Former CEO Dietrich also acquired stock during the third quarter — on July 21 he bought 20,000 shares of common stock at a price of 50 cents and a warrant for 20,000 shares at an exercise price equal to 65 cents per share, according to SEC filings.

Director Keber on Sept. 6 acquired an additional 394,858 shares of common stock through a cashless exercise of 443,214 options pursuant to a June 4, 2014, option agreement, according to the filings.

Including the value of stock-based compensation, MassRoots posted a net loss of $7.08 million, or 7 cents per diluted share, during the third quarter. During the same quarter last year, the company reported a $3.45 million net loss, according to SEC filings.

The company also paid out $300,000 in the third quarter for an investment in CannaRegs, the Denver-based cannabis policy and regulations database developer that MassRoots had agreed to buy in August for $12 million in stock.

CannaRegs’ officials nixed the acquisition in October around the same time MassRoots announced Dietrich’s resignation.