Monday, May 23, 2016 1:22:08 PM
MSLP does not dispute that $22m of legitimate Invoices from Capstone are severely delinquent and an additional $20m of liabilities are currently listed as accrued on the balance sheet. MSLP is severely past due on $42m of liabilities for product and services already rendered.
Capstone Nutrition is fully entitled to cut MSLP off for non-payment. Capstone should have cut MSLP sooner and it might ultimately cause Capstone demise.
Arnold's deal with MSLP was not set to expire with renewal option until July, but Arnold decided to pull the plug effective May 6th due to non-payment.
Further context in Capstone's favor is the fact MSLP sold off the receivables to Prestige Capital to stop Capstone from placing a lien on the product delivered to MSLP related to the unpaid invoices.
This is arguably theft of product and can be prosecuted criminally in many jurisdictions, but I do not wish to get caught up in arguments of the extreme.
The facts of the Capstone vs MusclePharm litigation will be found in Capstones favor but with bankruptcy as a probability, Capstone will need a longshot MSLP acquisition at a huge premium to ever realize any proceeds.
With the $49.8m in annualized Arnold Series termination, $12m in BioZone sales subtracted in the asset sale, MSLP trending on a $100m in pro forma sales currently. Whether or not Arnold Series performed at a better or worse metric when compared to core MSLP products is immaterial in my view as the company requires huge cash flow gains to offset the performance losses. With the loss of $60m in annual revenue expected going forward, the cash flow will be severely compromised.
Another aspect that hasn't been discussed is with the lower sales going forward the purchasing power from contract manufacturer will reflect higher cost of goods. Margins are likely to squeezed going forward.
Would love to hear from other contributors regarding the best case bull scenario as long as there is a basis in reality and not the Combat Crunch Bars being the #1 bar in the world. They are not. Combat Crunch bar sales are $15m annualized. They have stagnated currently as the retail channels necessary for growth require $200K slotting fees for each zone. I have a hard time seeing any growth opportunities in the current environment especially in light of only $8m of Inventory on the balance sheet. MSLP has nothing left to sell and is being required to prepay for product now so the current contract manufacturer doesn't find itself in the Capstone Nutrition position.
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