Muscle Pharm Corporation (MSLPQ)

[goldbergstein]

Had a little time tonight to go over the 10-Qs.

The $20m-$30m in charges are not likely endorsements terminations.

Other than Arnold who receives a cash royalty on sales in addition to his stock and Tiger Woods who receives an annual cash payment for his bag in addition to his stock, I don't see where any terminations would save any real significant cash other than the UFC contract. UFC term could be in play now and is significant but IMO it is reaching the target audience and probably effective.

The questionable assessment to me is the fact that on the conference call, management said that they would look at the marketing budget as starting from ZERO so I want to be a able to find something but don't see anything obvious to cut especially in light of the $2.5m spent on the Cavs for 2 years and the big deal with Man City Footy.

The charges are likely to be related to BioZone.

Non core as they manufacture nothing in the MSLP line. $12m in annual revenue but showing a pretty good size loss in some archived 10-Qs the company used to report in breakdowns. BioZone lease #1 is $32k a month is set to expire in a couple days but lease #2 of $24k a month extends to 2029. That one charge alone on lease #2 could be as high as $4.3m but could be mitigated down with that term length. Plant and equipment charges could be significant as well. $12m in MSLP stock was used as currency in the BioZone acquisition deal but I am confused as to the final purchase price due to litigation settlements that altered the final price and the repurchase $10 cash exchange per share option. There are also some intangible assets related to BioZone on the balance sheet that can be charged. So there are some pretty serious charge possibilities with BioZone that could be recouped in a potential asset sale. I don't have any real information on exactly what BioZone manufactures or sells so I am of no use in that respect. I can see almost a $20m charge related to BioZone alone though before any potential asset sales.

Any employee terminations and severance would seem to be fairly minor so don't expect that to amount to much.

Other lease terminations could add up but BioZone is the prime suspect. The positive is that those cash costs have already occurred and writing off some significant intangible assets and plant equipment off the balance sheet won't affect bottom line EPS. Now you would lose $12m in top line revenue but save the bottom line EPS losses attributed to the sales.

The most positive aspect would be the recent forecast downward revision could reflect a significant portion of what would have been BioZone revenue if BioZone was shut down immediately now the lease #1 has expired at $32k month.