Money-losing company Monster Products Inc. is planning a $300 million “monster ICO” to create an e-commerce platform, the Money Monster Network, as seen in a filing to the SEC.
The SEC filing, which was dated May 25, detailed Monster’s ICO prospectus as well as the company’s financial statements in the past two years. Monster plans to sell its own Monster Money Tokens (MMNY) at $1 per token during the ICO, which is planned to last for a year from a currently unannounced date.
These tokens can then be used as currency on its Monster Money Network, which is a yet-to-be-constructed e-commerce platform that will sell its products and, potentially, that of other companies as well. However, unlike most ICOs, the MMNY tokens will not hold any equity or voting rights.
The proceeds from the ICO will be used to develop the Monster Money Network in three stages:
Stage 1: Establishment of the network with basic functions such as wallets and transaction processing.
Stage 2: Building a private off-chain platform for micro-transactions.
Stage 3: Completion of Monster’s own blockchain and integration into its operating systems.
Loss-Making Companies Holding ICOs: Not a New Phenomenon
Monster isn’t the first loss-making company to pivot to blockchain; KodakCoin may be the most prominent. Although founded all the way back in 1978, Monster’s financials took a turn for the worse after it lost the license to manufacture the immensely popular Beats by Dre headphones in 2012.
For the 2016 and 2017 fiscal year, Monster posted net losses of $29 million and $27 million, respectively. During the first quarter of 2018, it had net losses of $19.6 million, indicating that losses are increasing.
In addition, at the end of the 2017 fiscal year, the company had negative equity — meaning, liabilities exceed assets — of $105 million. Essentially, the company is only being kept alive by heavily borrowing from its owner and founder, Noel Lee.
The filing itself is candid about how dire Monster’s financial situation is. Under “Risk Factors,” it states:
“We have a history of operating losses, and expect to incur significant additional operating losses in the future if we fail to execute our strategy…The amount of future losses and when, if ever, we will achieve profitability are uncertain. We anticipate that we will incur operating losses for the foreseeable future. We may require additional funds for our anticipated operations and if we are not successful in securing additional financing, we may need to curtail our business operations.”
Monster is in such dire straits that its auditors have issued a “going concern” audit opinion. In other words, the auditors are doubtful that the company is going to be able to continue business operations in the future.
Questions Surround the Viability of Monster’s ICO
The total planned supply of MMNY tokens is 500 million, which means that the company intends to keep 40% of the tokens for itself. This is atypical and raises questions as to whether the whole thing is nothing but a ploy to raise funds to bail the company out of its financial hole.
Additionally, the fact that MMNY tokens can only be used to buy Monster products, at least in the beginning, is another head-scratcher. Given its financial condition, it doesn’t seem like its products are in high demand on the regular market so why would a cryptocurrency e-commerce platform be any different? Although if the ICO fails investors would be able to trade it for common stock in the company, given the company’s condition, that is a poor consolation.