MusclePharm Raises $1.4 Million

In December, nutritional supplement company, MusclePharm, raised $1.4 million through convertible promissory notes and a registration agreement with accredited investors.

“We are very pleased with the successful completion of the agreement with the investor and believe this capital will support our capital requirements for growth,” commented Brad Pyatt, MusclePharm’s Chief Executive Officer. “We appreciate our investor’s confidence in MusclePharm as we continue to execute our long-term growth strategy.”

 

This capital raise, combined with the previously released fulfillment agreement with IVitals, further enhances the Company’s overall financial strength for future long-term profitable growth. Management will continue to focus on the development, sales & marketing of MusclePharm’s growing portfolio of nutritional supplement products.

Payout Perspective:

It was announced last month that nutritional supplement company, MusclePharm, owed Zuffa approximately $375,000 in over-due sponsorship fees accrued over the course of a year-long agreement between the two companies starting in January. This outstanding debt was subsequently sold by Zuffa to a collection agency in the Fall.

Many were surprised to see the brand return to the Octagon in January. The WEC deal had expired and Zuffa didn’t appear to have any outstanding obligations to the company. Why would it do business with a company that had already failed to pay its debts? The answer is ostensibly because MusclePharm was able to raise new capital in December to fund new marketing efforts and recommit to sponsoring UFC fighters (including the payment of the UFC “sponsor tax”).

MusclPharm’s new apparel partnership with Tapout is encouraging. It’s a textbook case of two brands working together to better leverage the sponsorship of a property and increase value. This is something that’s going to hit across multiple sponsorship objectives such as awareness, interest, intent to purchase, favorable attitudes towards the brand, and increased sales.

However, I remain skeptical that the company can turn things around.  The company sponsors a lot of fighters and that’s a good thing, but if it blows through its working capital again, then it’s likely to leave a lot of people in the lurch. Here’s a glimpse of its liquidity and capital resources as of November 15th’s Q10 (emphasis mine):

Liquidity and Capital Resources

 

Our primary source of operating cash has been through the sale of equity and through the issuance of convertible secured promissory notes and other short term debt as discussed below.

 

At September 30, 2010, the Company had cash of $10,657 and a working capital deficit of $2,578,866, compared to overdrawn bank accounts of $17,841 and a working capital deficit of $1,223,074 at December 31, 2009. The working capital deficit increase of $1,355,792 is primarily attributed to the operating losses incurred for the nine months ended September 30, 2010.

 

Cash used in operating activities was $2.4 million for the nine months ended September 30, 2010, as compared to cash used in operating activities of $0.4 million for the nine months ended September 30, 2009. The increase in cash used in operating activities for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009 was primarily the result of the net operating loss net of non-cash expenses, for the current nine month period.

 

Cash used in investing activities was $30,395 for the nine months ended September 30, 2010, as compared to cash used in investing activities of $5,510 for the nine months ended September 30, 2009. The increase in cash used in investing activities represents purchases of various fixed assets. We also maintain a website http://www.musclepharm.com), designed for customers and investors. Future investments in equipment and other fixed assets, as well as further development of our Internet presence will largely depend on available capital resources.

Note: I pointed out last week that Tapout has been much less consistent on the activation front in the last six months (due, in part, to what I believe to be the ABG acquisition and likely marketing strategy reformulation). However, the partnership is something I also believe needs to be recognized; more sponsoring brands need to co-promote, because its an innovative way of pooling resources, leveraging a sponsorship, and creating value that might not always be present with stand alone activation strategies. Kudos.