Financial Firestorm over "To The Stars"

As noted in the previous posting, the deal for "investors" to purchase shares in To The Stars Academy expired on September 28. It was available for exactly twelve months, and that time is now up. We do not know how much money was actually raised in that way, but we know that it was far less than the maximum subscription of $50 million. For a while, TTSA published the total of "investments" on its website. But when "investments" noticeably slowed at about $2 million, they removed this information. Steve Basset of the Paradigm Research Group recently posted on Facebook that TTSA raised about $2.5 million through selling shares, which is probably correct.

Rocker Tom DeLonge, founder of To The Stars.

But what set off the current wave of feces-throwing was when the Internet discovered To The Stars' required financial filing with the U.S. Securities and Exchange Commission dated June 30, 2018. What got everyone's attention was the passage at the bottom of page 13:

NOTE 2 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred losses from operations and has an accumulated deficit at June 30, 2018 of $37,432,000. These factors raise doubt about the Company’s ability to continue as a going concern.

What this appears to say is: To The Stars has assets of less than $3 million, vs. a debt of over $37 million. Therefore, it is toast. However, others maintained that this interpretation is not correct. A "deficit" is not the same as a "debt," and start-up companies reportedly often show similar "deficits" that represent only highly over-valued insider shares, or some other such financial legerdemain. This begs the question: if the "accumulated deficit" of $37 million does not really mean anything, then why does the SEC filing say that it "raise[s] doubt about the Company’s ability to continue as a going concern"?

This was discussed widely on UFO-related groups on Facebook and elsewhere, starting about September 30. As typically happens, "real journalists" picked up the story much later. On October 15, Eric Berger wrote an article for Ars Technica titled "All the dumb things? UFO project has $37 million deficit":

Put another way, after a year of fundraising, Tom DeLonge's alien business has raised just over $1 million in outside funding. The company has racked up a $37.4 million deficit, however, largely from a stock incentive plan for its employees. The financial filing states that To the Stars intends to remain in business over the next 12 months by selling additional stock. Their website says they accept credit cards, if you're so inclined to help keep the effort afloat. But bear in mind that any financial returns may be beyond the reach of even The Phenomenon.

Actually, To The Stars cannot sell any more stock, and there is no longer any solicitation of funds on their website. Apparently, this article was finally was noticed by Tom De Longe. That same day, DeLonge posted the following to his Facebook page:

Wow!

BLATENT LIE — APPARENTLY, THIS WRITER CAN’T READ? BTW- TTSA never even raised $37m, so how in the hell did we spend it? Lord. I ask all of you that believe in the @tothestarsacademy mission to right now go write a complaint on their website for trying to hurt our admirable effort through negative attacks using—-> lies. Dear Ars Technica— I am writing you regarding the article posted to Ars Technica this morning titled ‘All the dumb things? Blink 182 front man’s UFO project $37 million in debt’ by Eric Berger. Link: https://arstechnica.com/science/2018/10/all-the-dumb-things-blink-182-front-mans-ufo-project-37-million-in-debt/

We were surprised Ars Technica would allow Mr. Berger to post such an article without asking either Mr. DeLonge or To The Stars Academy of Arts and Science for comment. This article is highly misleading and grossly mischaracterizes statements in an SEC filing. Had Mr. Berger bothered to reach out to us for comment this could have been prevented.

Mr. Berger apparently did not read the filing in its entirety, and clearly did not understand the excerpt of the SEC filing he quotes. The approximate $37 million stockholders’ deficit is not debt as he characterized it but is attributable to stock-based compensation expense. It is not related to the operational results of the company. The Consolidated Balance Sheets of To The Stars Academy of Arts and Science in the SEC filing quoted by your author clearly shows the approximately $37 million deficit is attributed to Stockholders’ Equity (Deficit). The filing goes on to explain the mechanism for calculating stock-based compensation and details the various grants of stock options by the company. Mr. Berger’s characterizations of this as debt implies that it stems from traditional borrowings.

Had Mr. Berger bothered to email or call us we could have directed him to these portions of the SEC filing and walked him through it. For Mr. Berger to make the conclusions he did on incomplete research and his own interpretations without contacting Mr. DeLonge or the company is inexcusable.

We request that you print this letter in full within the article as our

The original was truncated in this way. Also, apparently DeLonge does not use a spell checker. This posting has since been deleted from DeLonge's Facebook page. As I noted earlier, DeLonge is a serial Deleter - he has a history of making stupid posts on social media, then deleting them.

What is especially galling about DeLonge's reply is his self-righteous statement that "Had Mr. Berger bothered to email or call us we could have directed him to these portions of the SEC filing and walked him through it." This is beyond ludicrous, since TTSA has famously ignored journalists' questions and requests for information. Well-known UFO researchers like Billy Cox, John Greenewald, Alejandro Rojas, and many others have commented on TTSA's unwillingness to answer questions. Researcher M.J. Banias wrote, "I have inquired about six times for comment on various articles to TTSA. Never heard back, ever."

Speculation soon began about why DeLonge deleted this posting. Chris Cogswell of The Mad Scientist Podcast posted to Facebook that

From what I have understood his comments on the SEC filing could be construed as an attempt to commit fraud or harm investors. Similar to Elon Musk's tweets... As far as I understand it by suggesting that the SEC filing is in some way incorrect or misleading (e.g. they are doing better than they claim on the required form) they open themselves up considerably. Add to that the now rampant speculation that TTSA is actually doing significantly better than the SEC filing suggests and you have all the makings of a fraud case by unnaturally inflating the public confidence in an investment.

There is now an article on TTSA's website titled "An explanation for the recent mischaracterization of TTS Academy's Stockholders’ equity/deficit." It says many of the same things that DeLonge said above, but it has obviously passed through a lawyer's review:

We've noticed some reports that we are “in debt” in some astronomical amount. The reports are highly misleading and grossly mischaracterized statements in an SEC filing.  It looks like people are misunderstanding the difference between debt and stockholders’ equity. “Debt” is what we owe.  The number that is getting the attention is actually the “Stockholders’ equity/deficit” number. That looks like a big number but we don’t “owe” it to anyone and it's not related to the operational results of the company. It just reflects the fact that we’ve been paying our people, like many start-ups, in stock as opposed to paying them in dollars.

An article just published in The Daily Grail by Red Pill Junkie is titled "Man Overboard: One Year After Its Launch, To the Stars Academy’s Financial Situation Remains Stuck on the Ground." It takes note of the difference between "deficit" and "debt," but is nonetheless pessimistic about the company's prospects:

That does not mean the company is not in financial hot water, mind you. They still have amassed quite a few i.o.u’s from DeLonge’s other companies –mainly Our Two Dogs, although they also need to pay Angels and Airwaves royalties for the use of Tom’s image (!)– and, like they themselves admit in the filing, the only way they can stay afloat is by “raising additional capital through debt and/or equity transactions.”

And they cannot do any more equity transactions. We shall see how this plays out.