Medafor's profitability model is simple. Sales less COGS less all variable expenses, results in a 66% contribution percentage.
Fixed costs are about $6.5M
2010 computation: $19M times .66 = $12.5M contribution amount.
$12.5M less $6.5 million fixed costs = $6M available to grow the company and litigate.
Note Medafor has NOLs's of...a guess...$14M.
2011 computation: $26M times .66 = $17M contribution amount.
$17M less $7.5 million fixed costs = $9.5M available to grow the company and litigate.
If this doesn't make CRY's problem apparent, nothing will.
Still, it would be best for Medafor and CRY to bury the hatchet and make it a win-win across the board. But if egos get in the way, Medafor shareholders will stand behind GS.
The real value in Medafor stock is in the future. Fight with Medafor for 4 years if you wish. Medafor has the cash flow to litigate, if need be.
There are things that could really blow the top on Medafor's sales. For example, Medafor may end up being the only blood clotting product that can be used in brain surgery. So other great market too have not yet been exploited.
With $45M to $60M in sales, Medafor is a much better fit for a bigger and more diverse acquirer.
The longer CRY fights, the longer GS and GT hang around, the more Medafor sales and cash flow improve, and the better off Medafor shareholders will be.
Starting in 2012, 2013, the above calculations would need to be adjusted for a combined state and federal tax rate of 43%.
One final point. If CRY canceled the contract tomorrow, Medafor does not lose a beat. Medafor knows where all of the MPH product is sold. Medafor would just sell the product to the people buying it now.