Muscle Pharm Corporation (OTC:MSLP) lost nearly 80% of the stock value after the management announced they are going to raise up to $1.6 million through convertible promissory note and registration rights agreement.
The price continues to roll down as the potential dilution threat and poorly looking fundamentals are not weighted out by the recently announced agreement to have Muscle Pharm products in locations of Vitamin World’s 400 store network in 2011.
The company had little cash and significant debt recorded on their latest quarterly report for the period ending September 30, 2010. The decision to raise additional cash using a debt instrument puts even heavier pressure on the balance sheet.
The company has been using stock sales and borrowings since the beginning of 2010, when the business started generating first revenues. Apparently, there was no other choice as Muscle Farm’s liquid assets were exhausted at the time. [BANNER]
The business appears to be growing, but the costs associated with increasing revenues are killing off any possible profits and forces the management to look for additional funds. The company is concentrating a lot of funds on product advertising in attempt to capture a larger portion of the market, but they are concurrently hurting investors by paying in stock and going into debt on every contract.
Long term outcome might still prove to be good, but at the current financial situation the stock price deserved the serious collapse it got.
