Monster Products, Inc. has been losing money for years, but a $300 million initial coin offering (ICO) may be what it takes to turn the company around.
Founded in 1978, Monster, which makes electronic accessories such as headphones and Bluetooth speakers, has primarily relied on retailers to distribute its goods up to now. Business issues aside, though, Monster doesn't appear to be cutting back on its ambitions for making a change.
According to a filing with the U.S. Securities and Exchange Commission, Monster is planning to run one of the biggest ICOs of all time by selling "monster money tokens" to build the "Monster Money Network," a new e-commerce site for selling its products (and potentially those of other companies) online.
If it succeeds in raising its target amount, Monster will use the funds to make the Monster Money Network a platform for purchasing its products using ethereum tokens.
The ICO fits into a larger trend in the token space of existing companies that have struggled with their revenue model pivoting to blockchain in an attempt to attain profitability. In the past, pre-existing tech companies with venture backing have launched ICOs (Listia and YouNow), but this is the first longstanding consumer product to do so.
As part of the plan, Monster will create 500 million tokens and sell as many as 300 million in its offering. The offering will run for one year, unless it sells out sooner or it decides to cancel the sale early. The company is also issuing 75 million shares of common stock so that, if the network fails to launch, it can exchange every four tokens for one share of stock (in lieu of returning the money).
Notably, the token does not come with equity or voting rights. Instead, it's designed as a payment method for the e-commerce website (under construction), one with faster settlement and lower fees than existing payments rails. (Still, the filing acknowledges that this might not be enough to prevent it from running afoul of securities law.)
Nonetheless, Monster is also filing to take advantage of the "emerging growth company" designation under the Jobs Act, which provides for certain lighter disclosure requirements and broader investor solicitation rights.
Money for something
As for the network launch, Monster's filing offers a surprising amount of detail as far as such disclosures go.
For example, the filing states that the Monster Money Network will be used for "for payment processing, market analysis, accounting, audit and payroll services, inventory management and shipping operation" relating to Monster products sold online. From there, it hopes it can recruit other e-commerce platforms onto the network.
There will be a three-stage process for the product. In the first, it will simply be a payments system, using an ERC-20 token. In the next stage, it will lower or eliminate transaction costs by enabling micro-transactions off-chain.
In the final stage, it will transition to its own blockchain (Kik skipped straight to that last step recently).
As the filing explains:"In the future, Monster intends to leverage its global connections and brand visibility along with blockchain technology to bring more and more other e-commerce platforms onto Monster Money Network and expand the user base of MMNY Tokens. We hope to set up the blockchain standard for e-commerce platforms."
The company has evolved a lot since its earliest days. According to its website, it began as Monster Cable because its founder, Noel Lee, had discovered that different kinds of cables produced different levels of audio fidelity. Capitalizing on this discovery, he launched a company that later expanded into other related products.
"We primarily design, engineer, market and sell headphones, cables, docks, speakers, power products and mobile accessories," according to its filing, which argues that it has several advantages over its competitors in the industry, including brand recognition, a network of ambassadors and culture of innovation.
More than half the funds are designated for technical development of the network, but roughly one-third is earmarked for marketing (both the protocol and monster products) and developing relationships with partners who will sell Monster products.
Dire straits
In other words, it doesn't sound like the new tokens will ever be the only way to acquire Monster's headphones and cables, and it seems clear that the ICO is in no small part a strategy to give a multimillion-dollar boost to the product line's visibility.
So far, there hasn't been an example of a non-blockchain company moving into decentralized software from a position of strength, and Monster appears (at first glance) to be no different. Monster has been losing money for at least the last several years.
As its filing states:
"The amount of future losses and when, if ever, we will achieve profitability are uncertain."
At the end of last year, it had a net loss of $26.7 million, but it has already lost another $19.6 million in the first quarter of 2018, so the pace of losses appears to be accelerating.
The ICO is not the first measure the company has taken to turn it around. It has let go of staff, dropped products, cut its marketing budget and even closed a factory in Mexico. Nevertheless, the filing admits, "Our independent auditors have indicated ... that there is substantial doubt about our ability to continue as a going concern."
Rather than give up, it has decided to raise $300 million to take on some of the most successful companies in history.
As its filing states:
"We consider Amazon, Ebay and Alibaba as examples of our main competitors with respect to the new Monster Money Network and our existing e-commerce platform."