Muscle Pharm Corporation (MSLPQ)

[PeonyVMW]

Filing of draft final budget for the next 13 weeks submitted, for those following the bankruptcy court in Nevada.

Couple observations below the supplied cash flow forecast:


1. This model assumes 16.7% gross profit margin, without including the logistics and shipping costs. The most recent MSLP 10-Q (from March 31, 2022), shows a gross margin of only 11.5%. Logistics' spot on the old 10-Q net income statement isn't explicitly stated. What's caused the favorable significant swing in margin? Most raw materials and inflation are only increasing in prices, hammering CPG margins. Also of note is one of the major suppliers for their protein powders, JW Nutritional has also been appointed to the court-supervised committee of unsecured creditors. Most of the committee contains current or former suppliers involved in litigation with the company. With the debtor-in-possession funding, it stands to reason any supplier would not soften their own pricing to the benefit of the corporation, particularly if there has been litigation in the past.

2. Board member compensation is more than twice the marketing and e-commerce expenses combined. Details aren't available, if the compensation is stock-based (although hard to price equity or options on a delisted ticker), or cash-based. I don't envy having to manage these tough times, but Musclepharm as a brand is coasting on its diminishing legacy reputation. Even acknowledging the stated "catch-up" nature of the compensation for December to February, this still seems out of sync with marketing spend. Sites like Muscle and Strength have long since dropped Combat Protein, and other MP products in their top 50 sellers. But the current bestsellers list is not that impressive - dominated by Chinese-owned MuscleTech, competing with NOW Foods, USN and old standbys like C4 Cellucor. and Allmax. At its core, whey protein is a commodity product and marketing correctly to the target channels will elevate the brand. Is $50K a quarter in marketing really sufficient to drive top-line results?

3. Restructuring costs are about 30% higher than all SG&A costs forecasted for this quarter. That's tough for any balance sheet to absorb, but of note the DIP financing of $2.25M is earning only ~8% in annual interest. With current inflation, it's at par value. Something to think about, which leads to:

4. Assuming the company can emerge from Chapter 11, settle litigation, and actually run as a functional business, and with stripping out all restructuring costs going forward, at current margins including shipping and logistics, this company needs to jump from its forecasted $4.1M revenue per quarter up to about $10.8M. Is this realistic? Not really. That's also making the assumption their non-logistics SG&A costs don't scale and remain fixed. With the customer concentration risk held before with Costco, they might need that account back just to help them meet the sales target.

Very difficult times ahead. I hope the new team can accomplish this feat.