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Well - there is now a new owner at Musclepharm.
For those few still following the carcass of Musclepharm, here are the highlights:
A. The various creditors, secured and unsecured, the vulture fund Empery, and Drexler spent the summer burning through cash sorting out litigation in Judge Cox's bankruptcy and other civil courts. At least counsel made money out of this debacle.
B. Ultimately the investment bank Hilco was retained to seek a buyer. Empery used their credit bid of $18M as a stalking horse. Naturally, nobody else wanted to bid anywhere near that price.
C. Attached is a link to the results of the sale proceeds - : it's gloomy
So this is the result - Musclepharm's Ch. 11 bankruptcy became a liquidation as expected, and as a result a short micro-cap hedge fund from NYC owns it (for now).
Based on the prepared liquidation analysis, none of the funds went to Drexler, or to Prestige Capital. As for those steep historic NOL, looks like they go to White Winston.
Beast Nutrition is still for sale, at a much more realistic valuation and without the litigation headache. So for any readers out there looking to carry the sports nutrition torch, there's an alternative to start looking elsewhere.
Good night, and good luck.
Madcowelixir, you raise a good point regarding the uneven reporting of expenses as the DIP financing may highlight a situation where the regular GAAP of revenue recognition may not be consistently applied.
I also note that I was unaware of the South Korean e-commerce channel forming such a significant percentage of revenue - you have been following this company much longer than I have (including under the Goldberg Stein alias). Attached is a summary chart of MSLP's reported financials submitted to the court docket via monthly operating reports, showing topline, income excluding legal and their net income. I think it's fair when counsel for the corporation states that excluding the restructuring costs the company is profitable.
Perhaps you've noticed that Judge Cox struck down the order to enforced the Intercreditor and Subordination Agreement, and Drexler's counsel submitting multiple case law examples citing instances where dispute over a creditor's lien can often nullify the creditor's ability to use its lien as a credit bid. There are multiple Empery entities, but I'm sure you've seen enough 13-F filings to get a general sense of the AUM that Empery controls. If the credit bid is deemed null due to the litigation dispute, I'll tip my hat to Drexler's counsel, if this succeeds and the secondary request for more time is also provided the results of Hilco running an auction might not produce the expected result. My prior comments about this company being a black hole that sucks in everybody's money is yet to be disproved. Retail investors' holdings remain destroyed, either way, which I believe is the biggest tragedy in Musclepharm's history.
Lastly, for your entertainment, here is the list of questions that Drexler will be put to the challenge of answering under his own deposition. I'm sure questions 13 and 14, posted below, will result in some eye-rolling on your part:
INTERROGATORY NO. 13:
Describe the factual circumstance Concerning the turnover of principal accounting officers
of MusclePharm in the third quarter of 2017.
INTERROGATORY NO. 14:
Describe MusclePharm’s process for recognizing revenue on inventory which has been
temporarily stored off-site in trailers rather than being shipped to MusclePharm’s customers prior
to year-end.
Codie, typically the DOJ's Fraud division is not required to publicly announce a criminal investigation. So there may be something lurking in the reeds that we do not know about.
To consider, when the DOJ does announce an investigation it often produces the intended result of causing skid marks on the undergarments of the announced target. For example, currently investigated short-seller Andrew Left of the infamous Citron Research, made national headlines this month when he publicly announced his cracking under pressure.
"Short Seller Andrew Left Is Living in Fear of the Feds"
Also, Codie, I strongly encourage you to go back and read through madcowelixir's posts, particularly the period from 2019-2021. He understands the plumbing of short-selling stocks, FTDs, using warrants as a locate to cover or close well before a broader population of people have become familiar with it since the 2021-ongoing saga kicked off by Gamestop. I suspect, like me, the work of Michael Lewis and his eye-opening book "Flash Boys" may be what kicked the doors open on understanding the intricacies of markets, including alternative trading systems. Or maybe he's from an institutional trading desk and now flies solo. Point is, go through those posts and see where Empery was likely coming from with the structuring of their notes, both the original Securities Purchase Agreement from Oct '21 and the amendments.
Make no mistake, Empery is a long-short opportunistic fund, and were likely using the warrants they asked for and received in the financing as locates as a way to assist in shorting the stock further. Don't forget, if a short-seller's target goes to zero, the short-seller never has to repay the borrowed stock because it's now worthless. They don't have to close, they don't have to even cover (what's to cover? The ticker is delisted and bankrupt!). Hey, they can even reap the gains without exposure of capital gains taxation, because they never disposed of the asset. That is the cruel fate when short-selling bets pay off. Except in this case, the target company was run by management that repeatedly ran afoul and received sanctions and fines from the SEC, and became more of a litigation company moonlighting as a supplement company.
Have you found the good guys yet? So far I see only villains and hapless shareholder casualties.
Here, to help connect the dots further: A link to some of the parties named in the DOJ short-selling probe.
Now look at the names of the holders of the Empery note: Anson Funds, Hudson Bay Capital, Intracostal Capital
Here's an example of the type of digging others are performing on, say, Anson Funds, one of the participants with Empery in the Securities Purchase Agreement (the "Notes" that ultimately sewered MSLP into bankruptcy.) This site's article on exploiting lax Euro regulations for direct market access, aka "the pipes" is showing an increasingly sophisticated understanding by retail on how some institutional players short-sell stocks.
After you read through all the links, it's worth asking yourself these questions:
--Was there ever a plan from the Note holders to support the business success of MSLP?
--Would a friendly investor charge interest that makes credit card rates look like cheap capital?
--Or perhaps they met their match in Drexler, and that this is a tale in which there are no good guys, just multiple parties looking to short the company into oblivion, but it backfired so now the biggest parties are litigating and grab what they can from this carcass of a company?
Also, if you are interested you can order transcripts and read the rulings and conferences set by Hon. Natalie Cox, the Nevada bankruptcy judge presiding over this case. She shot down Empery's pleading to enforce the Intercreditor and Subordination Agreement, and the deadlines for the second attempt at an auction keep getting pushed back, and parties that were interested in December are pulling out of any second auction. As I referenced in my prior post - against all odds, really - when you strip out the restructuring costs, somehow, this company is profitable, albeit dependent on debtor-in-possession funding for liquidity. But there is so much animosity, destruction of goodwill in that monsoon of litigation, lack of liquidity, narrowing of channels to sell into, that it's hard for me to put a value for this company above zero.
You work hard for your money, why not invest it in supporting a company that deserves your capital?
Agreed, SLC. Perhaps one of the most frustrating aspects of this proposed restructuring is that the legal costs are wiping out the profitable efforts of the new management team. Included is a link to the June operating performance (including financial statements)
MSLP is blazing past $1.5M in legal fees cumulatively since the Ch. 11 filing. Can you see a situation where a company dealing with wholesale whey protein costs nearly doubling since 2019 can survive the stress test of COGS doubling and legal expenses devouring gross profit?
Reading through the court docket on Stretto, it looks like Drexler is relentlessly throwing everything he can as a legal impediment to a) invalidate the Intercreditor and Subordination agreement that he signed to receive funding from Empery and b) tie up the parties attempting to use Hilco Corporate Finance LLC as the investment banker to run a timely auction. Like being caught in a whirlpool and your partner is trying to hold your head under water so you can't climb out.
Court filings by Empery call out that one prospective bidder has already communicated their withdrawal from the auction based on the uncertainty surrounding the asset sale. And to be clear - not all assets are up for sale. White Winston has carved out D&O litigation claims prior to 2018 (based on last month's SEC settled complaint, looks like a rewarding move for WW), there is a pool of litigation for creditors, etc. So when (if?) the auction arrives late this summer, how much are the copyrights, trademarks and trade dress of MP really worth? Particularly if any goodwill has been potentially poisoned by Drexler's behaviour towards all those stiffed vendors
It may still be listed as a Chapter 11, but I agree SLC - it's going to look like a liquidation. Empery can be a stalking horse, but they may find themselves as the only serious bidder. And as for your final point, that the corporate entity may get shopped around as a vehicle for something else to reverse merge to, would be quite poetic. This is precisely how the stock ticker MSLP came to be:
"Rather than go through the onerous IPO process, MusclePharm paid $25,000 for a dormant public company, “isometric training technique” marketer Tone in Twenty, and changed its ticker symbol to MSLP. Once public, MusclePharm began making deals with outfits that buy stock from companies at a huge discount then flip it to individuals. “Brad needed to raise a sensational amount of money,” says William Bossung, who was part of the investor group that helped MusclePharm get listed. One financier paid off $375,000 of the World Extreme Cagefighting debt in exchange for 7.8 million shares. Another, who’d turned to penny stocks after being barred from the hedge fund business, acquired about 200 million shares for as little as three-tenths of a penny each." Source: here
That price fetched for a penny stock listing isn't going to make a dent in the total amounts owing.
The operating performance based on prior, SEC-sanctioned management of this company is a black hole for retail investors, with MP in the middle.
AI
