Replies to post #68944 on Muscle Pharm Corp (fka MSLPQ)

[Odessa99]

I think you underestimate the knowledge/insight present on this board.

Here's what I posted Aug 6th 2013:
link: http://investorshub.advfn.com/boards/read_msg.aspx?message_id=90726472
Had the execs at Muscle Pharm shown a little more respect for their corporate currency (the common shares) along the way, those invested here could have made the sort of money that elevates one's level of living, rather than merely eking out an existence. While I disagree with some of the views presented here, I have learned to appreciate those views. There are some strong minds posting viewpoints on this board, many remaining an extended period of time. That does not occur where there's no potential for money to be made, as there are thousands of places to invest, and even more places to discuss those investments.

So here's what I believe to be the true puzzle here. What is the precise future value one can place on a perpetually shrinking share of a growing entity with aspirations for and progress towards industry domination. It is almost like someone is selling theoretical shares of Hawaii at a time when the lucrative tourism trade was exploding there, but the sea level was rising (due to global warming), swallowing up the Hawaiian coastline. If tourism can grow faster than the coastline will shrink, the investment should go up in value.

If Muscle Pharm can grow faster than the dilution necessary for that growth, share value should theoretically continue to increase. With the (hopeful and eventual) arrival of profitability, MP becomes less dependent upon dilution for funding. This is why the recently reported increase in product gross margins has raised some eyebrows.

Here's what I find most interesting about the funding equation. During periods of capital raising, a stronger stock price reduces the necessary level of dilution, which in turn allows for a stronger stock price. And the converse is also true. During periods of capital raising, a weaker stock price increases the necessary level of dilution, which in turn drives the stock price lower. It's sort of like a feedback loop, which grows because it is circular in nature.

With all the positives in the pipeline, my personal belief is that the stock price will continue to rise. That rising stock price will allow for any necessary additional capital raises to have far less of a dilutive impact than they have had in the past. With a slowing rate of dilution, a continued growth in sales, and strong margins, the rate of share price growth will accelerate.

As always, simply my opinion.

I am amazed at the lack of sophistication/intelligence on this board regarding this topic as the potential upside is quelled unless you are in the executive suite granting yourself free shares and a $500K salary.

[Rhenarium]

I believe there are a few major flaws with the numbers you are throwing out.

First of all, the relationship between sales and EPS is non-linear. I ESTIMATE that MSLP is on pace to have about $6.5M in net earnings after non-cash stock amortization expenses of approximately $20M (at least $9.6M through Q2). I BELIEVE though don't KNOW that this equates to free cash flow of $26M. (Please correct me if I am wrong - I freely admit that you are much the more sophisticated / knowledgeable investor between us). Due to economies of scale, if revenue were to increase six-fold both FCF and EPS would increase far more that six-fold.

I don't believe this point is really open for debate. After all, dispite the massive dilution you cite, an extra $100M in revenue this year is going to move them from a huge loss to fully-diluted EPS of $0.50.

Second, just as "historical returns are no guarantee of future performance", historical rates of dilution are no guarantee of future rates of dilution. There has been a tremendous amount of dilution, but the RATE of dilution is obviously slowing down tremendously while the rate of revenue growth is staying constant.

The Frost and Arnold deals were TREMENDOUSLY dilutive because the O/S and market cap were so low at the time. The Frost deal saved the company. The Arnold deal seems to have been a tremendous one for the company. These deals, combined with the BNZE acquisition, are responsible for a significant percentage of the recent dilution and are unlikely to recur. Even if similar deals DO occur, they will be FAR LESS DILUTIVE given the increased O/S and market cap - a $10M deal paid for in stock when the share price is $12 and the O/S is 15M is obviously far less dilutive than a $10M deal with the share price at $8 and O/S at 8M.

Ditto for the impact of free shares that management lavishes upon itself so freely. Yes, it's excessive. But, again, the dilutive impact decreases over time as the O/S grows.

I am pretty confident that, on a percentage basis, revenue growth will FAR exceed fully-diluted O/S growth in 2014 (NOT average weighted O/S, which is sort of a BS, lagging number).

There will be no more 100% YoY increases in fully-diluted O/S.

[Maverick_]

You're a smart guy Bellator and you know you're shit, but you keep spinning every argument negative when you can stand back and take a look and see there are some positives.

Now is executive compensation bullshit? Yeah, I hate it, they made this company almost go bankrupt and now that they're back above water they shouldn't be rewarded for failing to do their job in the first place. They diluted themselves, they should have to deal with it like all of us.

That said some dilution was needed to save the company, if they didn't dilute they would have been bankrupt. The athlete endorsements take a bit more time to see if they pay off. Arnold accounted for a good chunk of sales, so I would personally say that worked and gave the company added growth. The athletes well, we'll see. If Tiger can't get healthy it'll be worthless. He still is golf though and most people tune in for him, looking at ESPN there's 6 straight articles in a row on his injury. He's still the face of golf and a global star unlike a football player that has appeal only here in the US.

The argument you keep making though is dilution increasing faster than revenue. Is that a problem? Yes, completely. That being said this was the first quarter where revenue outpaced it 183% vs 163%. I still have dilution outpacing revenue for the full year, but there's one thing far more important than revenue, earnings. Sales is only a piece of the puzzle. They are finally earning money which is the whole point of a company. That is increasing far above dilution, giving them 50 mil in sales this quarter with the same gross margin would increase EPS from $0.03 to $0.12, 4x on only a little more than 3 million additional sales. Look at last quarter, they could easily repeat that if they weren't trying to grow and have strong numbers. They also have finally seemed to get operating expenses steady around $15 million and it has decreased slightly the past 2 quarters. Next year looks like they'll have an uptick in endorsements and sponsorships, but with some big product launches i'm not worried, for now they have those going back down in 2016. Gross margins are also improving and showing up on the bottom line.

My point is simply dilution is a problem, executive compensation in particular, and has to be addressed. That said earnings growth is far out pacing that and we should see some pretty big #s next year despite dilution being a possibility. There are some positives and negatives here, but creating the brand they have upside far outweighs downside risk at this point seeing what they're valued at.

P.S. SEC is overshadowing this, the full potential will never be reached with that and it could go on for a while and as long as that is there the company will probably never get the premium everyone wants. Cash flow also needs to improve as it looks like they keep building up their facility which doesn't benefit shareholders much. If earnings and EBITDA continue to grow the stock can still move up as we await the SEC verdict.