UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 10, 2016
Date of report (date of earliest event reported)
MusclePharm Corporation
(Exact name of registrant as specified in its charter)
| Nevada | 000-53166 | 77-0664193 | ||
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(State or other jurisdictions of incorporation or organization)
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(Commission File Number)
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(I.R.S. Employer Identification Nos.)
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4721 Ironton Street, Building A
Denver, Colorado 80239
(Address of principal executive offices) (Zip Code)
(303) 396-6100
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrants under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 8.01. Other Events.
Completion of BioZone Sale
As previously disclosed, on April 21, 2016, MusclePharm Corporation (the “Company”) entered into an Agreement for Purchase and Sale of Stock (the “Acquisition Agreement”), by and among the Company, its wholly-owned subsidiary, BioZone Laboratories, Inc. (“BioZone”), BioZone Holdings, Inc. (the “Buyer”) and Flavor Producers, Inc., pursuant to which the Company sold 100% of the common stock of BioZone to the Buyer.
On May 16, 2016, the Company issued a press release announcing the completion of its sale of BioZone (the “Closing”). In accordance with the terms of the Acquisition Agreement, the Company received $8.3 million at Closing (with a potential additional $1.5 million being paid if certain financial targets are met), subject to certain post-closing adjustments including adjustments based on BioZone’s working capital as of the closing date. In connection with the Closing, the Company issued and pre-paid for purchase orders to BioZone under the Manufacturing and Supply Agreement described below of $2 million. In addition, the Company paid down $350,000 of BioZone’s accounts payables, which was deducted from the purchase price. As a result, the Company received $5.9 million net of the various adjustments detailed above. As part of the transaction, the Company also sold 200,000 shares of its common stock for $50,000.
This description of the Acquisition Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Acquisition Agreement, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 27, 2016, and the terms of which are incorporated herein by reference.
Simultaneous with the Closing, the Company and BioZone entered into a Manufacturing and Supply Agreement (the “Manufacturing and Supply Agreement”) pursuant to which BioZone will continue to supply products which MusclePharm currently purchases from BioZone. MusclePharm is required to purchase a minimum of $3 million of products from BioZone annually. The Manufacturing and Supply agreement has an initial term of three (3) years.
Simultaneous with the Closing, the Company and Flavor Producers, Inc. (“FPI”), the parent company of the Buyer, entered into a Product Development and Supply Agreement (the “Development and Supply Agreement”) pursuant to which FPI will develop certain products to be sold by the Company. If the product development effort is successful, the Company has agreed to certain minimum purchases during the term of the Development and Supply Agreement.
In connection with the Closing, the Company and BioZone also entered into a Transition Services Agreement to provide administrative support, and a sub-lease for certain premises.
A copy of the Company’s press release is attached hereto as Exhibit 99.1 to this Current Report on Form 8-K, and is incorporated herein by reference.
Item 3.02. Unregistered Sales of Equity Securities.
As discussed above, in connection with the Closing, the Company sold 200,000 shares of its common stock to CFC SoCal Holdings, LLC for a purchase price of $50,000.
Item 9.01. Financial Statements and Exhibits.
(b) Pro Forma Financial Information.
The unaudited pro forma financial information required pursuant to Article 11 of Regulation S-X is attached as Exhibit 99.2 hereto and is incorporated by reference herein.
(d) Exhibits:
| Exhibit No. | Description | |
| 99.1 | Press Release of MusclePharm Corporation, dated May 16, 2016. | |
| 99.2 | Unaudited pro forma financial information of MusclePharm Corporation. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MUSCLEPHARM CORPORATION | |||
| By: | /s/ John Price | ||
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Name: John Price
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Date: May 16, 2016
EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Press Release of MusclePharm Corporation, dated May 16, 2016. | |
| 99.2 | Unaudited pro forma financial information of MusclePharm Corporation. |
Exhibit 99.1
MusclePharm Announces Closing of Sale of BioZone Laboratories
Company Continues to Strengthen Financial Position
MusclePharm Corporation (OTCQB: MSLP) ("MusclePharm" or the "Company"), a scientifically-driven, performance-lifestyle sports nutrition company, announced today that it has closed the sale of wholly-owned subsidiary, BioZone Laboratories, Inc. ("BioZone") for $8.3 million, and a potential earn-out of $1.5 million if certain financial targets are met, subject to certain post-closing working capital and other adjustments. The transaction enables MusclePharm to continue to strengthen the financial position of the company.
“After a thorough and deliberate process, we’ve concluded the sale of BioZone. We believe that this transaction will maximize shareholder value by allowing us to continue to grow strategically and address current debt,” commented Interim Chief Executive Officer, Interim President, and Chairman of the Board of Directors, Ryan Drexler.
BioZone will continue to be a strategic partner with MusclePharm through a manufacturing and supply agreement. The sale of BioZone has been a part of the ongoing restructuring plan that continues to allow MusclePharm to improve the health of the business.
BioZone is a manufacturer and developer of over-the-counter drugs, supplements, and nutritional supplements. BioZone manufactures a portion of MusclePharm's product portfolio: Combat ProGelsTM, a high-quality protein gel in a convenient and portable travel pouch; and MusclePharm Carnitine, a stimulant-free energy booster, and fat metabolizer.
About MusclePharm Corporation
MusclePharm® is a scientifically-driven, performance lifestyle company that develops, manufactures, markets and distributes branded nutritional supplements. The company offers a range of powders, capsules, tablets and gels. Its portfolio of recognized brands includes MusclePharm® Sport Series, Black Label, Core Series, and FitMiss™, which are available in more than 120 countries-over 45,000 retail outlets worldwide. The clinically-proven supplements are developed through a six-stage research process utilizing the expertise of leading nutritional scientists, doctors, and universities. MusclePharm is the innovator of the sports nutrition industry. For more information, visit http://www.musclepharm.com. To sign up to receive MusclePharm news via email, please visit http://ir.musclepharmcorp.com/email-alerts.
Forward-Looking Statements
This release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. Statements that are not a description of historical facts constitute forward-looking statements and may often, but not always, be identified by the use of such words as “expects”, “anticipates”, “intends”, “estimates”, “plans”, “potential”, “possible”, “probable”, “believes”, “seeks”, “may”, “will”, “should”, “could” or the negative of such terms or other similar expressions. Actual results may differ materially from those set forth in this release due to the risks and uncertainties inherent in the Company’s business. More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements is set forth in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015, the Company’s Quarter Reports on Form 10-Q and other filings submitted by the Company to the SEC, copies of which may be obtained from the SEC’s website at www.sec.gov. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. All forward-looking statements are qualified in their entirety by this cautionary statement and the Company undertakes no obligation to revise or update this release to reflect events or circumstances after the date hereof.
Investors:
investors@musclepharm.com
Media:
media@musclepharm.com
Exhibit 99.2
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On May 16, 2016, MusclePharm Corporation (the “Company”) issued a press release announcing the completion of its sale of its wholly-owned subsidiary, BioZone Laboratories, Inc. (“BioZone”) (the “Closing”) pursuant to an Agreement for Purchase and Sale of Stock (the “Acquisition Agreement”), by and among the Company, BioZone, BioZone Holdings, Inc. (the “Buyer”) and Flavor Producers, Inc. Pursuant to the Agreement for Purchase and Sale of Stock, the Company sold 100% of the common stock of BioZone to the Buyer. In accordance with the terms of the Acquisition Agreement, the Company received $8.3 million at Closing (with a potential additional $1.5 million being paid if certain financial targets are met), subject to certain post-closing adjustments including adjustments based on BioZone’s working capital as of the closing date. In connection with the Closing, the Company issued and pre-paid for purchase orders to BioZone under the Manufacturing and Supply Agreement described below of $2 million. In addition, the Company paid down $350,000 of BioZone’s accounts payables, which was deducted from the purchase price. As a result, the Company received $5.9 million net of the various adjustments detailed above. As part of the transaction, the Company also sold 200,000 shares of its common stock for $50,000.
This description of the Acquisition Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Acquisition Agreement, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on April 27, 2016, and the terms of which are incorporated herein by reference.
Simultaneous with the Closing, the Company and BioZone entered into a Manufacturing and Supply Agreement (the “Manufacturing and Supply Agreement”) pursuant to which BioZone will continue to supply products which MusclePharm currently purchases from BioZone. MusclePharm is required to purchase a minimum of $3 million of products from BioZone annually. The Manufacturing and Supply agreement has an initial term of three (3) years.
Simultaneous with the Closing, the Company and Flavor Producers, Inc. (“FPI”), the parent company of the Buyer, entered into a Product Development and Supply Agreement (the “Development and Supply Agreement”) pursuant to which FPI will develop certain products to be sold by the Company. If the product development effort is successful, the Company has agreed to certain minimum purchases during the term of the Development and Supply Agreement.
The following Unaudited Pro Forma Condensed Consolidated Financial Statements have been derived by the application of adjustments to the Company's historical consolidated financial statements. The Unaudited Pro Forma Condensed Consolidated Statement of Operations for the fiscal year ended December 2015 and the quarter ended March 31, 2016 are presented as if the sale of BioZone had occurred on January 1, 2015, the beginning of the most recent fiscal year. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of March 31, 2016 is presented as if the sale of BioZone had occurred on March 31, 2016. The pro forma adjustments related to the sale of BioZone are based on available information and assumptions that management believes are (1) directly attributable to the disposal; (2) factually supportable and (3) with respect to the statement of operations, expected to have a continuing impact on the consolidated results, as described in the accompanying notes. The Unaudited Pro Forma Condensed Consolidated Financial Statements are being provided for informational purposes only and are not necessarily indicative of the results of operations or financial position that would have resulted if the disposition had actually occurred on the dates indicated and are not intended to project the Company's results of operations or financial position for any future period.
The following is a brief description of the amounts recorded under each of the column headings in the Unaudited Pro Forma Condensed Consolidated Financial Statements and the accompanying notes, which should be read in conjunction with the historical consolidated financial statements and accompanying notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and Quarterly Reports on Form 10-Q.
As previously reported
This column reflects our historical audited operating results for the year ended December 31, 2015 and the unaudited quarter ended March 31, 2016 or the balance sheet as of March 31, 2016 prior to any adjustment for the sale of BioZone described above.
Pro Forma Adjustments
This column reflects the elimination of the historical operating results of BioZone for the year ended December 31, 2015 and the quarter ended March 31, 2016 at the amounts that have been reflected in our consolidated statements of operations for these periods. The pro forma adjustments column on the unaudited pro forma consolidated balance sheet as of March 31, 2016 reflects the value of the assets and liabilities included in BioZone as of that date, the issuance of 200,000 shares of the Company’s common stock valued at the closing share price on the date of the close of the sale of BioZone and an increase in the valuation allowance against deferred tax assets due to deconsolidation of BioZone's net deferred tax liability.
MusclePharm Corporation
Pro Forma Condensed Consolidated Statements of Operations
Quarter Ended March 31, 2016
(In thousands, except share and per share data)
(Unaudited)
| As Reported | Pro Forma Adjustments | Pro Forma | ||||||||||
| Revenue, net | $ | 42,912 | $ | (1,141 | )(a) | $ | 41,771 | |||||
| Cost of revenue | 27,699 | (449 | )(a) | 27,250 | ||||||||
| Gross profit | 15,213 | (692 | ) | 14,521 | ||||||||
| Operating expenses: | ||||||||||||
| Advertising and promotion | 4,287 | - | 4,287 | |||||||||
| Salaries and benefits | 9,620 | (529 | )(a) | 9,091 | ||||||||
| Selling, general and administrative | 4,243 | (655 | )(a) | 3,588 | ||||||||
| Research and development | 863 | (320 | )(a) | 543 | ||||||||
| Professional fees | 1,388 | (149 | )(a) | 1,239 | ||||||||
| Restructuring and other charges | 574 | - | 574 | |||||||||
| Total operating expenses | 20,975 | (1,653 | ) | 19,322 | ||||||||
| Loss from operations | (5,762 | ) | 961 | (4,801 | ) | |||||||
| Other (expense) income, net | (712 | ) | 12 | (a) | (700 | ) | ||||||
| (Loss) income before provision for income taxes | (6,474 | ) | 973 | (5,501 | ) | |||||||
| Provision for income taxes | 131 | 9 | 140 | |||||||||
| Net (loss) income | $ | (6,605 | ) | $ | 964 | $ | (5,641 | ) | ||||
| Net loss per share, basic and diluted | $ | (0.48 | ) | - | $ | (0.41 | ) | |||||
| Weighted-average shares used in computing net loss per share, basic and diluted | 13,896,876 | - | 13,896,876 | |||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial statements
MusclePharm Corporation
Pro Forma Condensed Consolidated Statements of Operations
Year Ended December 31, 2015
(In thousands, except share and per share data)
(Unaudited)
| As Reported | Pro Forma Adjustments | Pro Forma | ||||||||||
| Revenue, net | $ | 166,858 | $ | (8,913 | )(a) | $ | 157,945 | |||||
| Cost of revenue | 109,927 | (4,528 | )(a) | 105,399 | ||||||||
| Gross profit | 56,931 | (4,385 | ) | 52,546 | ||||||||
| Operating expenses: | ||||||||||||
| Advertising and promotion | 26,985 | (1 | )(a) | 26,984 | ||||||||
| Salaries and benefits | 31,176 | (2,370 | )(a) | 28,806 | ||||||||
| Selling, general and administrative | 19,372 | (2,796 | )(a) | 16,576 | ||||||||
| Research and development | 4,251 | (1,296 | )(a) | 2,955 | ||||||||
| Professional fees | 6,801 | (107 | )(a) | 6,694 | ||||||||
| Restructuring and other charges | 18,293 | (6 | )(a) | 18,287 | ||||||||
| Total operating expenses | 106,878 | (6,576 | ) | 100,302 | ||||||||
| Loss from operations | (49,947 | ) | 2,191 | (47,756 | ) | |||||||
| Other (expense) income, net | (1,806 | ) | 50 | (a) | (1,756 | ) | ||||||
| (Loss) income before provision for income taxes | (51,753 | ) | 2,241 | (49,512 | ) | |||||||
| Provision for income taxes | 105 | (3 | )(a) | 102 | ||||||||
| Net (loss) income | $ | (51,858 | ) | $ | 2,244 | $ | (49,614 | ) | ||||
| Net loss per share, basic and diluted | $ | (3.81 | ) | - | $ | (3.64 | ) | |||||
| Weighted-average shares used in computing net loss per share, basic and diluted | 13,621,255 | - | 13,621,255 | |||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial statements
Pro Forma Condensed Consolidated Balance Sheet
As of March 31, 2016
(In thousands, except share and per share data)
(Unaudited)
| As Reported | Pro Forma Adjustments | Pro Forma | ||||||||||||
| ASSETS | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash | $ | 9,054 | $ | 7,874 | (b), (c) | $ | 16,928 | |||||||
| Accounts receivable, net | 22,339 | (804 | ) | (b) | 21,535 | |||||||||
| Inventory | 8,613 | (1,608 | ) | (b) | 7,005 | |||||||||
| Prepaid giveaways | 293 | - | 293 | |||||||||||
| Prepaid stock compensation, current portion | 938 | - | 938 | |||||||||||
| Prepaid expenses and other current assets | 3,952 | (282 | ) | (b) | 3,670 | |||||||||
| Total current assets | 45,189 | 5,180 | 50,369 | |||||||||||
| Property and equipment, net | 6,404 | (2,024 | ) | (b) | 4,380 | |||||||||
| Long-term investments | 977 | - | 977 | |||||||||||
| Intangible assets, net | 8,433 | (5,721 | ) | (b) | 2,712 | |||||||||
| Other assets | 230 | 1,429 | (b), (d), (f) | 1,659 | ||||||||||
| TOTAL ASSETS | $ | 61,233 | $ | (1,136 | ) | $ | 60,097 | |||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable | $ | 39,365 | $ | (1,025 | ) | (b) | $ | 38,340 | ||||||
| Accrued liabilities | 12,738 | (676 | ) | (b), (e) | 12,062 | |||||||||
| Accrued restructuring charges | 8,814 | - | 8,814 | |||||||||||
| Obligation under secured borrowing arrangement | 5,713 | - | 5,713 | |||||||||||
| Convertible note with related party, net of discount | 5,964 | - | 5,964 | |||||||||||
| Other debt obligations | 21 | - | 21 | |||||||||||
| Total current liabilities | 72,615 | (1,701 | ) | 70,914 | ||||||||||
| Accrued restructuring charges, long-term | 279 | - | 279 | |||||||||||
| Other long-term liabilities | 227 | - | 227 | |||||||||||
| TOTAL LIABILITIES | 73,121 | (1,701 | ) | 71,420 | ||||||||||
| Stockholders’ (deficit) equity: | ||||||||||||||
| Common stock, par value of $0.001 per share; 100,000,000 shares authorized as of March 31, 2016; 14,809,406 shares issued as of March 31, 2016; 13,933,785 shares outstanding as of March 31, 2016 | 14 | - | 14 | |||||||||||
| Additional paid-in capital | 152,436 | 640 | (h) | 153,076 | ||||||||||
| Treasury stock, at cost; 875,621 shares as of March 31, 2016 | (10,039 | ) | - | (10,039 | ) | |||||||||
| Accumulated other comprehensive loss | (177 | ) | - | (177 | ) | |||||||||
| Accumulated deficit | (154,122 | ) | (75 | ) | (e), (f), (g) | (154,197 | ) | |||||||
| TOTAL STOCKHOLDERS’ (DEFICIT) EQUITY | (11,888 | ) | 565 | (11,323 | ) | |||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | $ | 61,233 | $ | (1,136 | ) | $ | 60,097 | |||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial statements
MusclePharm Corporation
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Condensed Consolidated Financial Statements are being provided for informational purposes only and are not necessarily indicative of the results of operations or financial position that would have resulted if the disposition had actually occurred on the dates indicated and are not intended to project the Company's results of operations or financial position for any future period.
The unaudited pro forma adjustments reflect the following assumptions:
| (a) | Elimination of revenue, cost of revenue, operating expenses, other income (expense), net and income taxes attributable to BioZone Labs, with intercompany transactions at historical internal transfer pricing. Not included in the pro-forma results are anticipated savings due to costs that may be reduced or eliminated. | |
| (b) | Elimination of the assets and liabilities sold as per the Acquisition Agreement as if the divestment occurred on March 31, 2016. | |
| (c) | This adjustment reflects the receipt of $8.3 million cash consideration less $350,000 withheld for payments on outstanding accounts payable at the closing of the transaction. | |
| (d) |
This adjustment reflects the estimated fair value of the contingent consideration of $1.5 million to be paid approximately 12 months after closing if certain financial targets of BioZone are met for the twelve months following the closing.
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| (e) | To reflect the additional transaction costs, including legal costs, of $40,000 as if the disposition of BioZone Labs had occurred on March 31, 2016. | |
| (f) |
This adjustment reflects the estimated pre-tax gain, based on all the above assumptions, from the disposition of BioZone Labs as if it occurred on March 31, 2016. This estimated gain has not been reflected in the pro forma condensed consolidated statement of operations as it is considered to be nonrecurring in nature. No adjustment has been made to the sale proceeds to give effect to any potential post-closing adjustments under the terms of the Acquisition Agreement.
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| (g) | Due to the sale of BioZone, including the net deferred tax liabilities of $864,000 as at March 31, 2016, a pro forma adjustment was made to increase the valuation allowance against the Company’s remaining deferred tax assets by $864,000 to reduce the deferred tax asset to the amount that is expected to be realized. | |
| (h) |
This adjustment reflects the issuance of 200,000 shares of the Company’s common stock at the closing market price on May 10, 2016 of $3.20 per share.
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