tit_8k.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(D) OF
THE
SECURITIES EXCHANGE ACT OF 1934
Date of
Report (Date of earliest event reported): February 18, 2010
Tone
in Twenty
(Exact
Name of Registrant as Specified in its Charter)
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Nevada
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000-53166
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77-0664193
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(State
or Other Jurisdiction of Incorporation)
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(Commission
File No.)
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(I.R.S.
Employer Identification Number)
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3390
Peoria St., #307, Aurora, CO 80010
(Address
of Principal Executive Offices) (Zip Code)
Registrant’s
telephone number, including area code: (800) 210-7369
__________
(Former
name or former address, if changed since last report)
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General Instruction A.2. below):
[ ] 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
1.01 Entry Into a Material Definitive Agreement
On
February 1, 2010, Tone in Twenty (the “Company”) executed a Securities Exchange
Agreement with Muscle Pharm, LLC, a Colorado limited liability company (“Muscle
Pharm”) (“Securities Exchange Agreement”), pursuant to which the Company agreed
to issue an aggregate of 26,000,000 shares of the Company’s common stock for all
of the issued and outstanding equity and voting interests of Muscle Pharm from
the Muscle Pharm members (the “Share Exchange”). Upon the closing of this
transaction, which occurred on February 18, 2010, Muscle Pharm became a wholly
owned subsidiary of the Company.
In
addition, pursuant to the terms and conditions of the Securities Exchange
Agreement, Muscle Pharm paid $25,000 to the President of the Company (John Dean
Harper) for his 366,667 shares of the Company’s common stock and these shares
have been cancelled.
As a
result of the above transactions, the Company has approximately 26,070,838
shares of common stock and 83,333 shares of Series A Convertible Preferred Stock
outstanding.
On the
closing, the Company’s board of directors was reconstituted to consist of Brad
Pyatt and Cory Gregory who, prior to this transaction were the managers of
Muscle Pharm, and the new officers are: Brad Pyatt, President and
Chief Executive Officer; Cory Gregory, Executive Vice President; Todd E. Huss,
Chief Financial Officer; and Leonard K. Armenta, Jr., Chief Operating
Officer.
As of the
date of the execution and closing of the Securities Exchange Agreement and
currently, there were and are no material relationships between any of the
officers, directors or shareholders of the Company and Muscle Pharm, other than
in respect of the Securities Exchange Agreement.
Item
2.02 Completion of Acquisition or Disposition of Assets
See Item
1.01, Entry into a Material Definitive Agreement above.
The Share Exchange. On
February 18, 2010, in accordance with the Securities Exchange Agreement dated
February 1, 2010, the Company acquired all of the issued and outstanding equity
and voting interests of Muscle Pharm in exchange for an aggregate of 26,000,000
shares of the Company’s common stock. As a result, at closing, in
exchange for 100% of the outstanding equity and voting interests of Muscle
Pharm, the former members of Muscle Pharm received an aggregate of 26,000,000
shares of our common stock, which represented approximately 99.4% of our
outstanding common stock following the Share Exchange and related
transactions.
There
were 437,505 shares of our common stock outstanding before giving effect to the
stock issuances in the Share Exchange, the cancellation of 366,667 shares
by the Company’s former President. Following these events, there
were approximately 26,070,838 shares outstanding.
The
shares of our common stock issued to former members of Muscle Pharm in
connection with the Share Exchange were not registered under the Securities Act
of 1933, as amended (the “Securities Act”), but were issued in reliance upon the
exemption from registration provided by Section 4(2) of the Securities Act
and/or Regulation D promulgated under that section, which exempts transactions
by an issuer not involving a public offering. These securities may not be
offered or sold in the United States absent registration or an applicable
exemption from the registration requirements. Certificates representing these
shares contain a legend stating the same.
General Changes Resulting from the
Share Exchange. We intend to carry on the business of Muscle Pharm as our
primary line of business. Our intention is to cease our prior business by
terminating all business operations associated with our prior business. We have
relocated our principal executive offices to 3390 Peoria Street, Unit 7, Aurora,
Colorado 80010 and our telephone number is (800) 210-7369.
Our
original plan of operations was to establish a model physical fitness facility
in order to train personal trainers on isometric training techniques. As a
consequence of the Share Exchange, we will no longer pursue development of this
business.
Changes to the Board of
Directors. At the closing of the Share Exchange, John Dean
Harper resigned as our sole officer and director. Pursuant to the terms of the
Securities Exchange Agreement, Brad Pyatt and Cory Gregory who, prior to the
Share Exchange, were the members of Muscle Pharm, were appointed as our
directors.
All
directors hold office for one-year terms until the election and qualification of
their successors. Officers are elected by the board of directors and serve at
the discretion of the board.
Accounting Treatment; Change of
Control. The Share Exchange is being accounted for as a “reverse merger,”
as the members of Muscle Pharm own a majority of the outstanding shares of our
common stock immediately following the Share Exchange and now control our board
of directors. Muscle Pharm is deemed to be the accounting acquirer in the
reverse merger. Consequently, the assets and liabilities and the historical
operations of Muscle Pharm prior to the Share Exchange will be reflected in the
financial statements and will be recorded at the historical cost basis of Muscle
Pharm. Our consolidated financial statements after completion of the Share
Exchange will include the assets and liabilities of both companies, the
historical operations of Muscle Pharm, and our operations from the closing date
of the Share Exchange. As a result of the issuance of the shares of our common
stock pursuant to the Share Exchange, a change in control of the Company
occurred on the date of the consummation of the Share Exchange. Except as
described herein, no arrangements or understandings exist among present or
former controlling stockholders with respect to the election of members of our
board of directors and, to our knowledge, no other arrangements exist that might
result in a future change of control of the Company. We will continue to be a
“smaller reporting company,” as defined under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), following the Share
Exchange.
Description of our Company
In the
following discussion whenever we refer to financial information such as Selected
Financial Data, Results of Operations, and Liquidity and Capital Resources, we
are referring to the financial information relating to Muscle Pharm,
LLC. In addition when we refer to auditors we are referring to the
auditors of Muscle Pharm, LLC.
Description
of Business
GENERAL
We
currently manufacture and market six branded, high-quality sports nutrition
products: Combat Powder™, Assault™, Battle Fuel™, Bullet Proof™ ,
Shred Matrix™, and Recon™. These products are comprised of amino
acids, herbs, and proteins scientifically tested and proven as safe and
effective for the overall health of athletes. These nutritional
supplements were created to enhance the effects of workouts, repair muscles, and
nourish the body for optimal physical fitness.
We
entered the sports nutrition market near the end of 2008 distributing our line
of “MusclePharm” sports nutritional supplements primarily through
BodyBuilding.com. During the late summer of 2009 we started selling
our products to GNC Canada. By the end of the first quarter of 2010,
GNC Canada will provide full distribution of all MusclePharm products and
prominent placement within its stores as one of its top ten
brands. GNC Canada is allowing us to control our initial growth by
launching on a smaller scale, while providing a platform for eventual entrance
into the much larger US market through its affiliates. We also
started selling our products in approximately 485 of The Vitamin Shoppes outlets
in the US during the summer of 2009, and our products are available in over 120
countries worldwide through specialty retailers such as GNC, The Vitamin Shoppe,
BodyBuilding.com, international distributors, and the number one US sports
nutrition distributor, Europa Sports.
Our
marketing strategy was formulated to brand MusclePharm as the “must have”
nutritional supplement line for high performance
athletes. Endorsements have been completed with over 5 ultimate
fighters, Joey Porter, an NFL linebacker, Chris Johnson, an NFL running back,
and endorsements with a number of additional champion athletes are being
negotiated. We also plan to endorse two WEC fighters for each of the WEC fights
of which there will be seven in 2010. Athletes are considered role models and
many people strive to emulate their fitness and well-being
regimen. The objective of athletic endorsements is to build both
consumer awareness and confidence and to drive consumer demand for our products
in retail outlets and health clubs.
Our
products fall into the general definition of vitamins, minerals, herbs and
dietary supplements and are regulated by the U.S. Food and Drug
Administration (FDA).
All of
the products we sell are sold under the MusclePharm brand. Our
MusclePharm brand products target athletes, body builders and health minded
individuals seeking a high degree of physical fitness.
We
currently sell our products through several distribution channels throughout the
United States and internationally. The domestic channels include
retail outlets such as The Vitamin Shoppes and GNC, sports nutrition retail
stores, fitness centers, and distributors with the largest one being
Europa. We also sell our products in the U.S. through over 100
Internet sites with the largest one being
Bodybuilding.com. Bodybuilding.com awarded Muscle Pharm as the
new brand of the year in 2009. Internationally our products are sold
through distributors which cover over 120 foreign countries. Our
primary manufacturer is located in Canada, and they also distribute our products
in over 80 countries, with an emphasis on Canada. We also sell direct
to GNC Canada. See “Sales” below for more details.
BUSINESS
STRATEGIES
Our
primary focus at the current time is on the following:
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1.
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Raise
additional financing in order to allow us to purchase more inventory to
fulfill orders from existing and new
customers.
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2.
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Increase
our distribution and sales
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3.
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Conduct
additional testing of the safety and efficacy of our
products.
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4.
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Start
marketing the Gel Pack line of new products which are expected to be
shipped in March 2010.
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THE
SPORTS NUTRITION AND HIGH ENERGY SUPPLEMENT MARKET
The
Sports Nutrition and High Energy Supplement Market is comprised of sports
beverages, sports food and sports supplements. According to BCC
Research’s 2008 Global Research Report, sports beverages maintain the largest
market share with $24.9 billion in annual sales in 2007, the sports food segment
had $1.2 billion in annual sales and the sports supplement segment had 2007
annual sales of $1.1 billion. BCC projected that the sports
supplement sales would reach $2.3 billion by 2013.
According
to BCC Research, the United States is the largest consumer market for sports
nutrition products, with annual sales reaching $22 billion in 2007 and projected
sales of $29 billion in 2013. Western Europe and Japan are the second
and third largest consumers of sports nutrition products. The key
market drivers for sports nutrition products are taste, price, variety and brand
loyalty. In recent years, the consumption of sports nutrition
products has shifted to mainstream consumers who have become the key drivers of
growth within the industry.
CURRENT
PRODUCTS
We
currently offer six products: Combat Powder™, Assault™, Battle Fuel™,
Bullet Proof™, Shred Matrix™, and Recon™ and we plan on introducing
approximately 2 new products every quarter this year. Our next
product will be our gel pack system which will initially include two products,
Musclegel™ and Energel Shot™. Our products are comprised of amino
acids, herbs, and proteins scientifically tested and proven as safe and
effective for the overall health of athletes. These nutritional
supplements were created to enhance the effects of workouts, repair muscles, and
nourish the body for optimal physical fitness. Following is a brief
description of each of our products:
ASSAULT™ is a combination of
several powerful, clinically proven, naturally occurring substances brought
together for their specific performance-enhancing, endurance-boosting and
strength-building properties. These key ingredients work
synergistically to provide your muscles with true increased energy at the
cellular level, to dramatically improve performance:
ASSAULT™
has been scientifically proven to:
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Allow
users to train harder and longer
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BATTLE FUEL™ combines several
natural compounds that have been shown to impact the body’s hormonal, recovery
and immune pathways. BATTLE FUEL™ is a comprehensive system of 5 “Matrices” each
specifically formulated to target key anabolic and recovery pathways within the
body to support muscle growth, fuel recovery and maximize the body’s adaptive
response to hard training.
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Maximize
testosterone output
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BULLET PROOF™ is a clinically
proven combination of several key natural components combined to support the
most restful state of sleep possible, while optimizing recovery and repair
through specific hormonal modulation and precise nutrient
delivery. The specific ingredients of BULLET PROOF™ work together for
maximal impact on recovery and repair systems, hormonal up-regulation and
anabolic support to create an internal environment that supports maximum growth
and recovery.
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Enhance
deep rest for maximum growth and
recovery
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Enhance
libido in men and women
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COMBAT POWDER™ With a
precision-engineered matrix that contains whey protein concentrates,
hydrolysates, and isolates, as well as egg albumin and micellar casein, COMBAT
is the ultimate timed-released protein super-food! Because each of the distinct
protein sources found within COMBAT digest at varying rates, amino acids are not
only flooded into the bloodstream within minutes after consumption, but will
continuously be “trickle fed” to your muscles for up to 8 hours
afterward.
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Technologically
advanced protein "super-food"
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Fast,
medium and slow releasing protein
source
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Added
digestive blend for maximum
utilization
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RECON™ Muscle Reconstruction
Matrix leaves no stone unturned in the name of recovery and growth – every facet
of reconstruction nutrition is accounted for in this brazen, innovative
formulation. Research has proven time and time again essential and
branched chain amino acids to be critical components of the muscle building
process. Especially in immediate post-training “window of growth”, BCAAs and
EAAs are critical components of muscle repair and rebuilding. RECON™ contains 10
grams of EAA’s and 6 grams of BCAAs.
SHRED MATRIX™ combines several
natural compounds that have been shown to impact the body’s multiple metabolic,
energy and performance pathways. SHRED MATRIX ™ is a comprehensive
system of 5
“Matrices” each specifically formulated to target the key metabolic pathways
within the body that control fat metabolism. Careful combination of the key
ingredients in SHRED MATRIX™ results in one of the most comprehensive, most
complete, most-effective fat loss systems ever formulated.
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Utilize
fat first for energy
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Destroy
sugar cravings / block fat storage
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FUTURE
PRODUCTS
In March
2010 we intend to start shipping a fit-gel series line which will have two
products. The two products in the fit-gel series will be MUSCLEGEL™ and ENERGEL
SHOT™. These fit-gels are a revolutionary, high performance
nutrient delivery system, manufactured using a patent-pending process called
Profusion™ Technology. Profusion Technology is a molecular process
whereby specific nutritional elements, such as high-quality protein, or powerful
energy-yielding nutritional substrates, are suspended in a super-absorbable
medium, the Fit-Gel. Utilizing Profusion™ Technology, the Fit-Gels
represent a high-speed nutrient “shuttle”, delivering faster absorption and
quicker cellular uptake of nutrients than any other system of nutrient
delivery. Each MUSCLEGEL provides 22 grams of
high-power protein, which is more protein than 6 egg whites, 4 ounces of chicken
breast, or a single serving of most powders. Protein helps the body
build lean mass, burn fat, and boost metabolism. The ENERGEL SHOTS provide energy,
endurance, better focus and improved performance.
SALES
We sell
our products both domestically and internationally. With respect to
our domestic sales we started selling our products in the summer of 2009 in
approximately 485 of The Vitamin Shoppes outlets. In February 2010,
we started shipping products to GNC in the United States, where they have agreed
to place our products in approximately 1,000 stores with a goal of increasing
the number of stores to 2,500 by the end of 2010 if sales meet their
expectations. We also expect to start shipping products to Rite Aid
in March for their approximately 1,500 stores. In addition to the
foregoing retail stores, we also sell domestically through several
distributors
and
through over 100 internet sites. The primary domestic internet site
is Bodybuilding.com, which is the largest on line retailer of sports nutrition
products in the US. They awarded Muscle Pharm as the best new brand
for 2009, and Muscle Pharm is now one of their top 50 sellers. Our
largest domestic distributor is Europa Sports which distributes to over 12,000
small stores and gym/workout chains. Lone Star has recently agreed to
start distributing our products in Texas and other parts of the
South. United Distributors, Inc. has agreed to distribute our two gel
pack products which we plan to start shipping in March, 2010. They
have indicated that they expect to have our gel packs in approximately 4,500
stores by June 30, 2010.
With
respect to international sales, we started selling our products to GNC Canada in
the late summer of 2009. By the end of the first quarter of 2010,
they expect to provide full distribution of our products with prominent
placement within their stores as one of their top ten brands. Our
primary manufacturer is located in Vancouver, Canada and they also act as a
distributor since they have a presence in over 80 countries selling primarily to
midsize and smaller outlets. We use several other international
distributors, and we also just started working with Sportika, a large
international distributor which covers approximately 120 countries and they sell
primarily to larger stores. Over 40% of our sales in 2009 were to
international customers.
Leonard
Armenta currently handles our sales and distribution, and in November 2009 we
added two experienced sales persons to work in our sales and marketing
department. These persons are expected to help develop our existing
sales relationships and to expand our sales to new markets. These two
new persons are Peter J. Ciccone who serves as the Director of Marketing and
Joseph Lawanson who is a sales representative who works with professional and
college athletic teams with an emphasis on major league baseball
teams.
Our first
sales were made late in 2008 and Bodybulding.com was responsible for most of our
sales in 2008. During the year ended December 31, 2009, our four
largest customers were The Vitamin Shoppe (29.6%), PSI Products, an
international distributor with sales in Australia and New Zealand (21.9%), MS
Enterprises, an international distributor with sales in India (11.3%), and GNC
Canada (10.5%).
MARKETING
Our core
marketing strategy is to brand MusclePharm as the “must have” nutritional
supplement line for high performance athletes. We want to be known as
the athlete’s company, run by athletes with products for athletes. We
have endorsements from over 5 ultimate fighters, two well-known NFL players
(Joey Porter and Chris Johnson) and we are in the process of negotiating with
additional champion athletes. We also plan to sponsor 2 WEC fighters
for each WEC fight of which there will be 7 in 2010. Athletes are
considered role models and many people strive to emulate their fitness and
well-being regimen. The objective of these athletic endorsements is
to build both consumer awareness and confidence and to drive consumer demand for
our products in the market.
The
fighters we sponsor wear our brand on their uniforms and we also advertise at
the Ultimate Fighting Championship and World Extreme Cagefighting
events. We have a full page advertisement that we run on the inside
back cover of every major body building and fitness magazine and we do a little
advertising in on-line forums. We plan on doing 3 commercials for
each WEC fight on Versus in 2010 and later we may do some television commercials
on ESPN and MTV and starting later this year we plan on doing a one hour weekly
radio show on Sherdog, a channel owned by ESPN which focuses on the UFC and
mixed martial arts.
We are
also doing in-store promos including point-of-purchase stands and end caps in
The Vitamin Shoppes outlets. Our contract with The Vitamin Shoppes
provides that starting in 2010, 430 of their stores will have 2 full TV’s
showing Muscle Pharm videos all day long and 2 full end caps with Muscle Pharm
products.
RESEARCH
AND DEVELOPMENT
Our six
products were developed and formulated by Brad Pyatt with the assistance of
Dr. Eric Serrano, one of the leading sports nutrition doctors in the
country. We are committed to developing and introducing new products
when the time is appropriate, and we have a number of products that we have
developed which we are waiting to introduce. Many of the products in
the sports nutrition industry include many common ingredients, but it is the
formulations of those ingredients that differentiate the products. We
are in the process of establishing more formal processes for testing existing
and potential new products and we have identified a doctor with an MBA degree
that we plan to hire to assist in this area. We are also planning to
start clinical testing of our existing products, one at a time, with the goal of
testing all five products by the end of 2010. Clinical testing is not
a regulatory requirement, but it will help establish our credibility as a
company that emphasizes the safety and efficacy of its products.
We have a
law firm which assists us in reviewing the legality of the claims we make about
our products to ensure that we are in compliance with all applicable rules and
regulations.
MANUFACTURING
AND PRODUCT QUALITY
We are
committed to produce and sell highly efficacious products that can be trusted
for their quality and safety. To date our products have been
outsourced to two third party manufacturers where the products are manufactured
in full compliance with the GMP standards set by the NPA. We have
recently turned over all of our manufacturing to Fit Foods Ltd., a Canadian
company that formulates and manufactures sport nutrition and healthy lifestyle
products in Vancouver, British Columbia pursuant to an agreement whereby Fit
Foods will procure the raw materials, manufacture and, in some cases, drop ship
our products to our customers.
We ship
some of our products from our Colorado warehouse, but most of our products have
been shipped directly from the manufacturers to the customers. Once
Fit Foods starts manufacturing our products they will ship most of the products
to the customers, including GNC Canada and The Vitamin Shoppes. Some
of the products will be shipped to our Colorado warehouse from which we will
ship the products to the customers.
TRADEMARKS
AND PATENTS
We regard
our trademarks and other proprietary rights as valuable assets and we believe
that protecting our key trademarks is crucial to our business strategy of
building strong brand name recognition and that such trademarks have significant
value in the marketing of our products.
Our
policy is to pursue registrations for all of the trademarks associated with our
products. Federally registered trademarks have a perpetual life,
provided that they are maintained and renewed on a timely basis and used
correctly as trademarks, subject to the rights of third parties to attempt to
cancel a trademark if priority is claimed or there is confusion of
usage. We rely on common law trademark rights to protect our
unregistered trademarks. Common law trademark rights generally are
limited to the geographic area in which the trademark is actually used, while a
United States federal registration of a trademark enables the registrant to stop
the unauthorized use of the trademark by any third party anywhere in the United
States. Furthermore, the protection available, if any, in foreign
jurisdictions may not be as extensive as the protection available to us in the
United States.
Although
we seek to ensure that we do not infringe on the intellectual property rights of
others, there can be no assurance that third parties will not assert
intellectual property infringement claims against us.
COMPETITION
The
sports nutrition business is highly competitive. Competition is based
primarily on quality and assortment of products, marketing support, and
availability of new products. Currently our main competitors are
three private companies: MuscleTech Research & Development,
Bio-Engineered Supplements and Nutrition, Inc., and Gaspari Nutrition,
Inc.
MuscleTech,
the largest company in this industry, is owned by Iovate Health Sciences, Inc.,
a Canadian company, and is projected as the first billion dollar sport nutrition
company by 2010. This company is 10 years old and the key to their
success is their control of magazine advertising.
Bio-Engineered
Supplements and Nutrition, Inc. is an 8 year old company and its revenues are
projected to exceed $500 million by 2011. The keys to their success
are their athletic endorsements and industry support.
Gaspari
Nutrition, Inc. is owned by a former bodybuilder, Rich Gaspari. This
company is 5 years old and the keys to their success are their guerilla
marketing tactics and industry relationships.
We intend
to compete by aggressively marketing our brand, emphasizing our relationships
with professional athletes, and utilizing our relationships with those athletes
and with retail outlets and industry publications.
REGULATORY
MATTERS
The
manufacture, packaging, labeling, advertising, promotion, distribution and sale
of our products are subject to regulation by numerous governmental
agencies. Our products are subject to regulation by, among other
regulatory entities, the Consumer Product Safety Commission (CPSC), the
U.S. Department of Agriculture (USDA), the Environmental Protection
Agency (EPA) and the U.S. Food and Drug Administration
(FDA). Advertising and other forms of promotion and methods of
marketing are subject to regulation primarily by the U.S. Federal
Trade Commission (FTC), which regulates these activities under the Federal Trade
Commission Act (FTCA). The manufacture, labeling and advertising of
our products are also regulated by various state and local agencies as well as
those of each foreign country to which we distribute our products.
The
Dietary Supplement Health and Education Act of 1994 (DSHEA) revised the
provisions of the Federal Food, Drug, and Cosmetic Act (FFDC Act) concerning the
regulation of dietary supplements. All of the products we market are
regulated as dietary supplements under the FFDC Act.
Under the
current provisions of the FFDC Act, there are four categories of claims that
pertain to the regulation of dietary supplements. Health claims are
claims that describe the relationship between a nutrient or dietary ingredient
and a disease or health related condition and can be made on the labeling of
dietary supplements if supported by significant scientific agreement and
authorized by the FDA in advance via notice and comment
rulemaking. Nutrient content claims describe the nutritional value of
the product and may be made if defined by the FDA through notice and comment
rulemaking and if one serving of the product meets the
definition. Statements of nutritional support or product performance,
which are permitted on labeling of dietary supplements without FDA pre-approval,
are defined to include statements that: (i) claim a benefit related to a
classical nutrient deficiency disease and disclose the prevalence of such
disease in the United States; (ii) describe the role of a nutrient or dietary
ingredient intended to affect the structure or function in humans; (iii)
characterize the documented mechanism by which a dietary ingredient acts to
maintain such structure or function; or (iv) describe general well-being from
consumption of a nutrient or dietary ingredient. In order to make a
nutritional support claim, the marketer must possess adequate substantiation to
demonstrate that the claim is not false or misleading and if the claim is for a
dietary ingredient that does not provide traditional nutritional value,
prominent disclosure of the lack of FDA review of the relevant statement and
notification to the FDA of the claim is required. Drug claims are
representations that a product is intended to diagnose, mitigate, treat, cure or
prevent a disease. Drug claims are prohibited from use in the
labeling of dietary supplements.
Claims
made for our dietary supplement products may include statements of nutritional
support and health and nutrient content claims when authorized by the FDA or
otherwise allowed by law. The FDA’s interpretation of what
constitutes an acceptable statement of nutritional support may change in the
future thereby requiring that we revise our labeling. In addition, a
dietary supplement that contains a new dietary ingredient (i.e., one not on the
market before October 15, 1994) must have a history of use or other evidence of
safety establishing that it is reasonably expected to be safe. The
manufacturer must notify the FDA at least 75 days before marketing products
containing new dietary ingredients and provide the FDA the information upon
which the manufacturer based its conclusion that the product has a reasonable
expectation of safety. There is no assurance that the FDA will accept
the evidence of safety for any new dietary ingredients that we may wish to
market, and the FDA’s refusal to accept that evidence could prevent the
marketing of the new dietary ingredients and dietary supplements containing a
new dietary ingredient.
Our
dietary supplements must comply with the Dietary Supplement and Nonprescription
Drug Consumer Protection Act, which became effective on December 22,
2007. This Act amends the FFDC Act to mandate the reporting of
serious adverse events received by us to the FDA.
The FDA
has also announced its intention to promulgate new GMPs specific to dietary
supplements, to fully enforce DSHEA and monitor compliance with the Bioterrorism
Act of 2002.
Our
failure to comply with applicable FDA regulatory requirements could result in,
among other things, injunctions, product withdrawals, recalls, product seizures,
fines and criminal prosecutions. We intend to comply with the new
GMPs once they are adopted. The new GMPs, predicted to be finalized
shortly, would be more detailed and stringent than the GMPs that currently apply
to dietary supplements and may, among other things, require dietary supplements
to be prepared, packaged, produced and held in compliance with regulations
similar to the GMP regulations for drugs. There can be no assurance
that, if the FDA adopts GMP regulations for dietary supplements, we will be able
to comply with the new regulations without incurring a substantial
expense.
As a
result of our efforts to comply with applicable statutes and regulations in the
U.S. and elsewhere, we have from time to time reformulated,
eliminated or relabeled certain of our products and revised certain advertising
claims. We cannot predict the nature of any future laws, regulations,
interpretations or applications, nor can we determine what effect additional
governmental regulations or administrative orders, when and if promulgated,
would have on our business in the future. They could, however,
require the reformulation of certain products to meet new standards, the recall
or discontinuance of certain products not capable of reformulation, additional
record keeping, expanded documentation of the properties of certain products,
expanded or different labeling, and/or scientific substantiation. Any
or all of such requirements could have a material adverse effect on our
business, financial condition and results of operations.
Our
advertising of dietary supplement products is subject to regulation by the FTC
under the FTCA. Section 5 of the FTCA prohibits unfair methods of
competition and unfair or deceptive acts or practices in or affecting
commerce. Section 12 of the FTCA provides that the dissemination or
the causing to be disseminated of any false advertisement pertaining to drugs or
foods, which would include dietary supplements, is an unfair or deceptive act or
practice. Under the FTC’s Substantiation Doctrine, an advertiser is
required to have a “reasonable basis” for all objective product claims before
the claims are made. Failure to adequately substantiate claims may be
considered either deceptive or unfair practices. Pursuant to this FTC
requirement, we are required to have adequate substantiation for all material
advertising claims made for our products.
On
November 18, 1998, the FTC issued “Dietary Supplements: An Advertising Guide for
Industry.” This guide provides marketers of dietary supplements with
guidelines on applying FTC law to dietary supplement advertising. It
includes examples of the principles that should be used when interpreting and
substantiating dietary supplement advertising. Although the guide
provides additional explanation, it does not substantively change the FTC’s
existing policy that all supplement marketers have an obligation to ensure that
claims are presented truthfully and to verify the adequacy of the support behind
such claims. Our outside counsel reviews our advertising claims for
compliance with FTC requirements.
The FTC
has a variety of processes and remedies available to it for enforcement, both
administratively and judicially, including compulsory process, cease and desist
orders and injunctions. FTC enforcement can result in orders
requiring, among other things, limits on advertising, corrective advertising,
consumer redress, divestiture of assets, rescission of contracts and such other
relief as may be deemed necessary. A violation of such orders could
have a material adverse effect on our business, financial condition and results
of operations.
Advertising
and labeling for dietary supplements and conventional foods are also regulated
by state, county and other local governmental authorities. Some
states also permit these laws to be enforced by private attorney
generals. These private attorney generals may seek relief for
consumers, seek class action certifications, seek class-wide damages, seek
class-wide refunds and product recalls of products sold by us. There
can be no assurance that state and local authorities will not commence
regulatory action, which could restrict the permissible scope of our product
advertising claims, or products that can be sold in the future.
Governmental
regulations in foreign countries where we plan to or expand sales may prevent or
delay entry into the market or prevent or delay the introduction, or require the
reformulation, of certain of our products. Compliance with such
foreign governmental regulations is generally the responsibility of our
distributors for those countries. These distributors are independent
contractors over whom we have limited control.
EMPLOYEES
As of
January 15, 2010, we had 9 employees, including the four officers.
Risk
Factors
An
investment in our common stock involves a number of risks. You should
carefully read and consider the following risks as well as the other information
contained in this report, including the financial statements and the notes to
those financial statements, before making an investment decision. The
realization of any of the risks described below could have a material adverse
affect on our business, financial condition, results of operations, cash flows
and/or future prospects. The trading price of our common stock could
decline due to any of these risks, and you could lose part or all of your
investment. The order of these risk factors does not reflect their
relative importance or likelihood of occurrence.
Risks
Related to Our Business and Industry
Our
independent auditors have expressed substantial doubt about our ability to
continue as a going concern, which may hinder our ability to continue as a going
concern and our ability to obtain future financing.
In their
report dated October 26, 2009, our independent auditors stated that our
financial statements for the period ended December 31, 2008 were prepared
assuming that we would continue as a going concern. Our ability to
continue as a going concern is an issue raised as a result of recurring losses
from operations and cash flow deficiencies since our inception. Our
ability to continue as a going concern is subject to our ability to generate a
profit and/or obtain necessary funding from outside sources, including obtaining
additional funding from the sale of our securities, increasing sales or
obtaining loans from various financial institutions where possible.
We
will need to raise additional capital to carry out our business
plan.
Although
we have raised approximately $1,050,000 during the past 6 months by issuing
convertible notes, we will need to raise additional capital to fund the growth
of our business. There is no guarantee that we will be able to access
additional capital at rates and on terms which are attractive to us, if at
all. Without the additional funding needed to fund our growth we may
not be able to grow as planned.
There
are risks relying on one manufacturer which is located in Canada for all of our
products.
We are
currently using Fit Foods Inc. which is headquartered near Vancouver, British
Columbia, Canada as our sole manufacturer. We intend to add a second
manufacturer within the next couple of months, but if we are unable to add
another manufacturer, and if Fit Foods were to go out of business for any
reason, there could be significant adverse consequences for us such as loss of
inventory, loss of sales revenues from products sold by Fit foods, and inability
to obtain product to fulfill sales orders. We would be forced to
locate and negotiate with another manufacturer which may not provide terms as
favorable as the terms we have with Fit Foods, and there would be a delay in
starting up production with the new manufacturer. In addition, for
any products which we purchase from Fit Foods for sale in the United States, the
products will have to be shipped across the Canadian border and go through U.S.
customs which could cause delays. Although we will conduct periodic
audits and inspections of the Fit Foods facility, there is no assurance that
they will not manufacture and sell some of our products without our knowledge
and without compensating us.
Our
failure to appropriately respond to competitive challenges, changing consumer
preferences and demand for new products could significantly harm our customer
relationships and product sales.
The
nutritional sports supplement industry is characterized by intense competition
for product offerings and rapid and frequent changes in consumer
demand. Our failure to accurately predict product trends could
negatively impact our products and inventory levels and cause our revenues to
decline.
Our
success with any particular product offering (whether new or existing) depends
upon a number of factors, including our ability to:
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deliver
products in a timely manner in sufficient
volumes;
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accurately
anticipate customer needs;
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differentiate
our product offerings from those of our
competitors;
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competitively
price our products; and
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develop
and/or acquire new products.
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Products
often have to be promoted heavily in stores or in the media to obtain visibility
and consumer acceptance. Acquiring distribution for products is
difficult and often expensive due to slotting and other promotional charges
mandated by retailers. Products can take substantial periods of time
to develop consumer awareness, consumer acceptance and sales
volume. Accordingly, some products fail to gain or maintain
sufficient sales volume and as a result have to be discontinued.
Our
industry is highly competitive, and our failure to compete effectively could
adversely affect our market share, financial condition and future
growth.
The
sports supplement industry is highly competitive with respect to:
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brand
and product recognition;
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new
product introductions; and
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Several
of our competitors are larger, more established and possess greater financial,
personnel, distribution and other resources. We face competition in
the health food channel from a limited number of large nationally known
manufacturers, private label brands and many smaller manufacturers of dietary
supplements.
We
rely on a limited number of customers for a substantial portion of our sales,
and the loss of or material reduction in purchase volume by any of these
customers would adversely affect our sales and operating results.
In 2008,
three customers accounted for approximately 74% of net sales. Our
largest customer in 2008 was Bodybuilding.com which represented 48% of our
sales. In 2009, 4 customers accounted for approximately 73% of our
sales. The largest customer in 2009 was The Vitamin Shoppe which
accounted for 29.6% of our sales. The loss of any of our major
customers, a significant reduction in purchases by any major customer, or, any
serious financial difficulty of a major customer, could have a material adverse
effect on our sales and results of operations.
Adverse
publicity or consumer perception of our products and any similar products
distributed by others could harm our reputation and adversely affect our sales
and revenues.
We are
highly dependent upon positive consumer perceptions of the safety and quality of
our products as well as similar products distributed by other sports nutrition
supplement companies. Consumer perception of sports nutrition
supplements and our products in particular can be substantially influenced by
scientific research or findings, national media attention and other publicity
about product use. Adverse publicity from such sources regarding the
safety, quality or efficacy of dietary supplements and our products could harm
our reputation and results of operations. The mere publication of
reports asserting that such products may be harmful or questioning their
efficacy could have a material adverse effect on our business, financial
condition and results of operations, regardless of whether such reports are
scientifically supported or whether the claimed harmful effects would be present
at the dosages recommended for such products.
If
we are unable to retain key personnel, our ability to manage our business
effectively and continue our growth could be negatively impacted.
Key
management employees include Brad Pyatt, Cory Gregory, Leonard Armenta and
certain other individuals. These key management employees are
primarily responsible for our day-to-day operations, and we believe our success
depends in large part on our ability to retain them and to continue to attract
additional qualified individuals to our management team. Currently,
we do not have an employment agreement with any of our key management
employees. The loss or limitation of the services of any of our key
management employees or the inability to attract additional qualified personnel
could have a material adverse effect on our business and results of
operations.
Our
operating results may fluctuate, which makes our results difficult to predict
and could cause our results to fall short of expectations.
Our
operating results may fluctuate as a result of a number of factors, many outside
of our control. As a result, comparing our operating results on a
period-to-period basis may not be meaningful, and you should not rely on our
past results as an indication of our future performance. Our
quarterly, year-to-date, and annual expenses as a percentage of our revenues may
differ significantly from our historical or projected rates. Our
operating results in future quarters may fall below
expectations. Each of the following factors may affect our operating
results:
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our
ability to deliver products in a timely manner in sufficient
volumes;
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our
ability to recognize product
trends;
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our
loss of one or more significant
customers;
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the
introduction of successful new products by our
competitors;
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adverse
media reports on the use or efficacy of sports nutrition
supplements.
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Because
our business is changing and evolving, our historical operating results may not
be useful to you in predicting our future operating results.
The
effects of the recent global economic crisis may impact our business, operating
results, or financial condition.
The
recent global economic crisis has caused disruptions and extreme volatility in
global financial markets and increased rates of default and bankruptcy, and has
impacted levels of consumer spending. These macroeconomic
developments could negatively affect our business, operating results, or
financial condition. For example, if consumer spending continues to
decrease, this may result in lower sales.
Our
business and operations are experiencing rapid growth. If we fail to
effectively manage our growth, our business and operating results could be
harmed.
We have
experienced and expect to continue to experience rapid growth in our operations,
which has placed, and will continue to place, significant demands on our
management, operational and financial infrastructure. If we do not
effectively manage our growth, we may fail to timely deliver products to our
customers in sufficient volume or the quality of our products could suffer,
which could negatively affect our operating results. To effectively
manage this growth, we will need to hire additional persons, particularly in
sales and marketing, and we will need to continue to improve our operational,
financial and management controls and our reporting systems and
procedures. These additional employees, systems enhancements and
improvements will require significant capital expenditures and management
resources. Failure to implement these improvements could hurt our
ability to manage our growth and our financial position.
We
may be exposed to material product liability claims, which could increase our
costs and adversely affect our reputation and business.
As a
marketer and distributor of products designed for human consumption, we are
subject to product liability claims if the use of our products is alleged to
have resulted in injury. Our products consist of vitamins, minerals,
herbs and other ingredients that are classified as dietary supplements and in
most cases are not subject to pre-market regulatory approval in the United
States or internationally. Previously unknown adverse reactions
resulting from human consumption of these ingredients could occur.
We have
not had any product liability claims filed against us, but in the future we may
be, subject to various product liability claims, including among others that our
products had inadequate instructions for use, or inadequate warnings concerning
possible side effects and interactions with other substances. The
cost of defense can be substantially higher than the cost of settlement even
when claims are without merit. The high cost to defend or settle
product liability claims could have a material adverse effect on our business
and operating results.
Our
insurance coverage or third party indemnification rights may not be sufficient
to cover our legal claims or other losses that we may incur in the
future.
We
maintain insurance, including property, general and product liability, and
workers’ compensation to protect ourselves against potential loss
exposures. In the future, insurance coverage may not be available at
adequate levels or on adequate terms to cover potential losses, including on
terms that meet our customer’s requirements. If insurance coverage is
inadequate or unavailable, we may face claims that exceed coverage limits or
that are not covered, which could increase our costs and adversely affect our
operating results.
Our
intellectual property rights are valuable, and any inability to protect them
could reduce the value of our products and brand.
We have
invested significant resources to protect our brands and intellectual property
rights. However, we may be unable or unwilling to strictly enforce
our intellectual property rights, including our trademarks, from
infringement. Our failure to enforce our intellectual property rights
could diminish the value of our brands and product offerings and harm our
business and future growth prospects.
In
the future we may be subject to intellectual property rights claims, which are
costly to defend, could require us to pay damages and could limit our ability to
sell some of our products.
Although
we have not been subject to any intellectual property litigation or infringement
claims, we may be in the future, which could cause us to incur significant
expenses to defend such claims, divert management’s attention or prevent us from
manufacturing, selling or using some aspect of our products. If we
chose or are forced to settle such claims, we may be required to pay for a
license to certain rights, paying royalties on both a retrospective and
prospective basis, and/or cease our manufacturing and sale of certain products
that are alleged to be infringing. Future infringement claims against
us by third parties may adversely impact our business, financial condition and
results of operations.
We
rely on highly skilled personnel and, if we are unable to retain or motivate key
personnel, hire qualified personnel, we may not be able to grow
effectively.
Our
performance largely depends on the talents and efforts of highly skilled
individuals. Our future success depends on our continuing ability to
identify, hire, develop, motivate and retain highly skilled personnel for all
areas of our organization, particularly sales and
marketing. Competition in our industry for qualified employees is
intense. In addition, our compensation arrangements, such as our
equity award programs, may not always be successful in attracting new employees
and retaining and motivating our existing employees. Our continued
ability to compete effectively depends on our ability to attract new employees
and to retain and motivate our existing employees.
We
may experience greater than expected product returns, which might adversely
affect our sales and results of operations.
Product
returns are a customary part of our business. While customers
generally do not have an absolute right of return, products may be returned for
various reasons, including expiration dates or lack of sufficient sales
volume. In addition, we may experience significantly more returns as
a result of a loss of a customer account or the purchase of one customer by
another. If product returns greatly exceeded our estimates, our
revenues and results of operations would be adversely affected.
A
shortage in the supply of key raw materials could increase our costs or
adversely affect our sales and revenues.
We obtain
all of our raw materials from third-party suppliers with whom we do not have
significant long-term supply contracts. Since all of the ingredients
in our products are commonly used, we have not experienced any shortages or
delays in obtaining raw materials. If things changed, shortages could
result in materially higher raw material prices or adversely affect our ability
to manufacture a product. Price increases from a supplier would
directly affect our profitability if we are not able to pass price increases on
to customers. Our inability to obtain adequate supplies of raw
materials in a timely manner or a material increase in the price of our raw
materials could have a material adverse effect on our business, financial
condition and results of operations.
Because
we are subject to numerous laws and regulations, and we may become involved in
litigation from time to time, we could incur substantial judgments, fines, legal
fees and other costs.
Our
industry is highly regulated. The manufacture, labeling and
advertising for our products are regulated by various federal, state and local
agencies as well as those of each foreign country to which we
distribute. These governmental authorities may commence regulatory or
legal proceedings, which could restrict the permissible scope of our product
claims or the ability to manufacture and sell our products in the
future. The FDA regulates our products to ensure that the products
are not adulterated or misbranded. Failure to comply with FDA
requirements may result in, among other things, injunctions, product
withdrawals, recalls, product seizures, fines and criminal
prosecutions. Our advertising is subject to regulation by the FTC
under the FTCA. In recent years the FTC has initiated numerous
investigations of dietary supplement and weight loss products and
companies. Additionally, some states also permit advertising and
labeling laws to be enforced by private attorney generals, who may seek relief
for consumers, seek class action certifications, seek class wide damages and
product recalls of products sold by us. Any of these types of adverse
actions against us by governmental authorities or private litigants could have a
material adverse effect on our business, financial condition and results of
operations.
Selected
Financial Data and Management’s Discussion and Analysis of Financial Condition
and Results of Operations
Certain
statements in this Management's Discussion and Analysis of Financial Condition
and Results of Operations which are not historical facts are forward-looking
statements such as statements relating to future operating results, existing and
expected competition, financing and refinancing sources and availability and
plans for future development or expansion activities and capital
expenditures. Such forward-looking statements involve a number of
risks and uncertainties that may significantly affect our liquidity and results
in the future and, accordingly, actual results may differ materially from those
expressed in any forward-looking statements. Such risks and
uncertainties include, but are not limited to, those related to effects of
competition, leverage and debt service financing and refinancing efforts, and
general economic conditions. The following discussion and analysis
should be read in conjunction with the financial statements and notes thereto
included elsewhere in this report.
Results
of Operations – Nine Months Ended September 30, 2009 Compared to Inception
(April 22, 2008) to September 30, 2009
We
recognized a net loss of $(1,020,451) for the nine months ended September 30,
2009, compared to a net loss of $(196,592) for the period from inception (April
22, 2008) to September 30, 2008. The increase in our net loss is
primarily attributable to various marketing, advertising and promotion expenses
we have incurred as we develop our procurement and distribution
channels.
Revenues
and Cost of sales
Sales of
product net of sales allowances and discounts of $(231,744) were $671,347 for
the nine months ended September 30, 2009. Sales of product net of
sales allowances and discounts of $(567) were $4,561 for the period from
inception (April 22, 2008) to September 30, 2008. Selling activities
during the period ending September 30, 2008 were limited due to capital
constraints and to a lesser degree due to our efforts in developing our product
procurement, distribution and marketing strategies. Selling
activities during the period ending September 30, 2009 have also been
constrained by capital resources necessary to procure sufficient product to meet
customer demand.
Cost of
sales for the nine months ended September 30, 2009 were $663,849, as compared to
$47,827 for the period from inception (April 22, 2008) to September 30,
2008. Cost of sales for both periods include various initial
marketing and distributions costs including packaging development and costs of
samples. For the nine months ended September 30, 2009, a total of
approximately $120,000 of samples were distributed to potential customers and
distribution channels. We expect our gross margins on product sales
to improve as the markets for our products become more fully developed, although
there can be no assurance that will occur.
Operating
Expenses
Advertising and
promotions: Includes all expenses associated with our
marketing efforts, including costs for direct media advertising, trade shows,
development of apparel lines, and all other promotional efforts including
payments to professional athletes and trainers with whom we have sponsorship and
endorsement agreements. For the nine months ended September 30, 2009
we incurred total advertising and promotions expenses of $617,968, which
included $84,760 in print advertising and $302,213 in endorsement and
sponsorship payments. For the period from inception (April 22, 2008)
to September 30, 2008 our total advertising and promotion expenses totaled
$110,696, which included $56,438 in print advertising and $4,750 in endorsement
and sponsorship payments
Bad debt: Includes
amounts of customer accounts that have been deemed uncollectible based on our
periodic review of customer accounts. For the nine months ended
September 30, 2009 we charged $5,631 for accounts considered uncollectible, as
compared to $-0- for the period from inception (April 22, 2008) to September 30,
2008. Where customers are considered viable entities, we intend to
pursue collection of all accounts regardless of their age or
amount.
Bank charges:
Includes all charges by financial institutions for fees related to banking and
credit services, as well as charges associated with our accounts receivable
factoring arrangements. During the nine months ended September 30,
2009 we have experienced significant fees associated with overdraft charges and
other fees due to insufficient operating cash balances. For the nine
months ended September 30, 2009 our total bank charges were
$21,046. For the period from inception (April 22, 2008) to September
30, 2008 we incurred $369 of banking fees and charges.
Salaries and labor:
Includes all expenses associated with our employee compensation, including
payments made to our initial members for compensation for services performed
during the build up of the business. For the nine months ended
September 30, 2009 we have incurred a total of $149,436 in salaries and labor
charges, which includes $66,041 in service payments to our senior management
represented by our two initial members. For the period from inception
(April 22, 2008) to September 30, 2008 our total salaries and labor charges
totaled $8,480 which was entirely payments to our two initial
members. We do not have employment agreements with any of our
employees or management personnel.
Depreciation and
amortization: Includes depreciation on our fixed assets and amortization
on our website. For the nine months ended September 30, 2009 we
charged total depreciation and amortization of $4,968, which included $2,103 of
depreciation on displays, furniture and equipment, and $2,865 of amortization on
our website. For the period from inception (April 22, 2008) to
September 30, 2008 we charged total depreciation and amortization of $208, which
was entirely attributed to depreciation on displays, furniture and
equipment.
Insurance: Includes
costs of our business insurance plans. Total insurance charges were
$11,021 and $375 for the nine months ended September 30, 2009, and for the
period from inception (April 22, 2008) to September 30, 2008,
respectively.
Information
technology: Includes costs associated with maintenance of our office
computer systems and costs associated with the hosting and maintenance of our
website. Total information technology charges were $13,338 and $1,713
for the nine months ended September 30, 2009, and for the period from inception
(April 22, 2008) to September 30, 2008, respectively.
Travel, meetings and
entertainment: Includes all costs associated with travel to meetings,
shows and conventions, as well as travel associated with product procurement and
customer development. Total travel charges were $72,138 and $15,501
for the nine months ended September 30, 2009, and for the period from inception
(April 22, 2008) to September 30, 2008, respectively.
Occupancy, telephone and
utilities: Includes all costs associated with our business offices and
our warehouse operations, as well as the associated telephone and utilities
costs. Total occupancy and related charges were $17,619 and $2,214
for the nine months ended September 30, 2009, and for the period from inception
(April 22, 2008) to September 30, 2008, respectively.
Office and warehouse
supplies: Includes all general supplies costs associated with the
operations of our business offices and warehouse. Total supplies
charges were $14,051 and $9,718 for the nine months ended September 30, 2009,
and for the period from inception (April 22, 2008) to September 30, 2008,
respectively.
Professional fees:
Includes charges for professional legal and accounting fees associated with our
business organization and financial reporting efforts. Total
professional fees were $90,611 and $4,040 for the nine months ended September
30, 2009, and for the period from inception (April 22, 2008) to September 30,
2008, respectively.
Repairs and
maintenance: Includes costs associated with repairs and maintenance of
office and warehouse equipment. Total repair and maintenance charges
were $799 and $-0- for the nine months ended September 30, 2009, and for the
period from inception (April 22, 2008) to September 30, 2008,
respectively.
Other: Generally
includes any operating costs not attributable to any of the above
categories. Total other charges were $633 and $25 for the nine months
ended September 30, 2009, and for the period from inception (April 22, 2008) to
September 30, 2008, respectively.
As a
result of the above, operating expenses totaled $1,019,259 for the nine months
ended September 30, 2009 resulting in an operating loss of
$(1,011,761). For the period from inception (April 22, 2008) to
September 30, 2008 total operating expenses were $153,339 resulting in an
operating loss of $(196,605).
Interest income and
expense: Interest income of $13 for the period from inception
(April 22, 2008) to September 30, 2008 resulted from bank interest on cash
deposits. No interest income was realized during the nine months
ended September 30, 2009 as we had no cash on deposit in interest bearing bank
accounts.
Interest
expense of $8,690 for the nine months ended September 30, 2009 represents
interest accrued on our convertible promissory notes, interest accrued and paid
on other certain short term obligations, as well as interest associated with the
use of credit cards owned by certain members. During the period from
inception (April 22, 2008) to September 30, 2008 we had no interest bearing
obligations.
Inflation
did not have a material impact on the Company's operations for the
period.
Other
than the foregoing, management knows of no trends, demands, or uncertainties
that are reasonably likely to have a material impact on the Company's results of
operations.
Liquidity
and Capital Resources
Our
primary source of operating cash has been through the sale of member equity and
through the issuance of convertible secured promissory notes as discussed
below.
At
September 30, 2009, the Company had cash and cash equivalents of $451 and a
working capital deficit of $(876,179), compared to a cash balance of $32 and
working capital of $58,519 at December 31, 2008. However, our cash
balances were offset by certain overdrawn bank accounts in the amounts of
$17,645 and $12,002 at September 30, 2009 and December 31, 2008, respectively,
which are included in current liabilities. The working capital
decrease of $(934,698) is primarily attributed to the operating losses incurred
during the nine months ended September 30, 2009. Cash used in
operating activities was $(409,073) for the nine months ended September 30,
2009. For the period from inception (April 22, 2008) to September 30,
2008, operating activities used net cash of $(298,024), and for the period from
inception (April 22, 2008) to December 31, 2008 cash used in operating
activities was $(449,595). The increase in cash used in operating
activities for the periods ended September 30, 2009 and 2008 was primarily the
result of the net operating loss for the nine months ended September 30, 2009 as
discussed above.
Because
of our limited availability of credit we have utilized the credit lines of
personal credit cards owned by certain members and their immediate families to
pay for various operating expenses and business development items on behalf of
the company. During the nine months ended September 30, 2009 we
utilized net borrowing under these credit cards of $54,317, which is reflected
in the increase due to related parties. For the period from inception
(April 22, 2008) to December 31, 2008 net borrowings under credit cards was
$2,612. In addition, during the period from July through September
2009, an investor paid certain professional legal and accounting fees on behalf
of the Company totaling $19,211. The amounts were recorded as amounts
due a related party, bear no interest and are due on demand. For the
period from inception (April 22, 2008) to September 30, 2008 no cash advances
from related parties occurred.
Cash used
in investing activities was $(5,508) for the nine months ended September 30,
2009, and represents purchases of product displays and various office furniture
and equipment. Cash used in investing activities was $(17,351) for
the period from inception (April 22, 2008) to September 30, 2008, and represents
purchases of product displays and investments in development of our
website. Cash used in investing activities of $(24,873) for the
period from inception (April 22, 2008) to December 31, 2008 also represents
purchases of product displays and investments in our website. Future
investments in equipment and other fixed assets, as well as further development
of our Internet presence will largely depend on available capital
resources.
Cash
flows provided by financing activities were $415,000 for the nine months ended
September 30, 2009, as compared to cash flows provided by financing activities
of $324,500 for the period from inception (April 22, 2008) to September 30,
2008.
In March
2009, we received $30,000 in short term working capital loans from
non-affiliated third parties evidenced by two uncollateralized promissory notes
each in the amount of $15,000. The notes require no periodic
payments, accrue interest at 10% per annum, and mature in March 2010, at which
time all outstanding principal and accrued interest is due and
payable.
During
the nine months ended September 30, 2009 the Company sold to various investors a
total of $297,500 of convertible secured promissory notes. The Notes
are collateralized by all assets of the Company.
A series
of Notes with principal balances totaling $225,000 accrue interest at 8% and
mature on March 31, 2010, at which time all principal and accrued interest is
due and payable. In the event the Company is acquired by a
publicly-traded company in a reverse acquisition, a reverse merger or any other
similar form of corporate reorganization during the term of the notes, the
principal together with accrued interest may be converted to shares of the
publicly-traded company’s common stock at the election of the debt
holder. The number of shares into which the Notes may be converted
will be based on the market price of the common stock of the publicly-traded
company, and shall be the number of shares which will provide the debt holder a
dollar amount equal to 120% of the Note principal and accrued interest at the
time of conversion.
In
addition, two Notes, each with a principal balance $5,000 accrue interest at 8%
and mature on March 31 and May 25, 2010 at which time all principal and accrued
interest is due and payable. In the event the Company is acquired by
a publicly-traded company in a reverse acquisition, a reverse merger or any
other similar form of corporate reorganization during the term of the Notes, the
principal together with accrued interest may be converted to shares of the
publicly-traded company’s common stock at the election of the debt
holder. The number of shares into which the Notes may be converted
will be based on the market price of the common stock of the publicly-traded
company, and shall be the number of shares which will provide the debt holder a
dollar amount equal to 150% of the Note principal and accrued interest at the
time of conversion.
In
addition, two Notes, with principal balances of $27,500 and $35,000 accrue
interest at 8% and mature on June 9, 2010 at which time all principal and
accrued interest is due and payable. In the event the Company is
acquired by a publicly-traded company in a reverse acquisition, a reverse merger
or any other similar form of corporate reorganization during the term of the
notes, the principal together with accrued interest may be converted to shares
of the publicly-traded company’s common stock at the election of the debt
holder. The number of shares into which the Notes may be converted
will be based on the market price of the common stock of the publicly-traded
company, and shall be the number of shares which will provide the debt holder a
dollar amount equal to 200% of the note principal and accrued interest at the
time of conversion.
Finally,
during the nine months ended September 30, 2009 we received proceeds of $87,500
representing member equity contributions from six investors. For the
period from inception (April 22, 2008) to September 30, 2008 we received a total
of $324,500 from two investors representing member equity
contributions. During the three months ended December 31, 2008, an
additional $150,000 was received from two additional investors representing
member equity contributions which is reflected in the cash provided by financing
activities for the period from inception (April 22, 2008) to December 31,
2008.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Significant estimates included herein
relate to the recoverability of assets including customer accounts, the value of
long-lived assets and liabilities, and the long-term viability of the
business. Actual results may differ from estimates.
Other
than the foregoing, management knows of no trends, demands, or uncertainties
that are reasonably likely to have a material impact on the Company's liquidity
and capital resources.
Description
of Property
We
currently lease approximately 1962 square feet of office/warehouse space
pursuant to a 25 month lease which expires in May 2010. Our monthly rent
is approximately $817.50. This office/warehouse space is located at
3390 Peoria Street, Unit 307, Aurora, Colorado. We also rent 3
offices in an executive office suite for a total of $1,308 per month pursuant to
a six month lease which expires March 31, 2010. These offices are
located at 8310 S. Valley Highway, Suite 300, Englewood, Colorado
80112.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth, as of February 18, 2010, after giving effect to the
closing of our reverse acquisition of Muscle Pharm, LLC, the total number of
shares owned beneficially by each of our directors and executive officers,
individually and as a group, and the present owners of 5% or more of our total
outstanding shares.
To our
knowledge, except as set forth in the footnotes to this table, each person named
in the table has sole voting and investment power with respect to the shares set
forth opposite such person’s name and they have no rights to acquire any shares
within sixty days from options, warrants, rights, conversion privileges or other
similar obligations.
Each
stockholder’s percentage ownership is based on 26,070,834 shares of our common
stock outstanding.
|
|
|
Amount
and
|
|
|
|
|
|
|
|
Nature
of
|
|
|
|
|
|
Name
and Address
|
|
Beneficial
|
|
|
Percent
|
|
|
of Beneficial Owner
|
|
Ownership
|
|
|
Of Class
|
|
|
|
|
|
|
|
|
|
|
Brad
Pyatt
|
|
|
12,331,668 |
|
|
|
47.3 |
% |
|
3390
Peoria Street, Unit 307
|
|
|
|
|
|
|
|
|
|
Aurora,
Colorado 80010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cory
Gregory
|
|
|
7,833,014 |
|
|
|
30.0 |
% |
|
422
Middleground Road
|
|
|
|
|
|
|
|
|
|
Pataskala,
Ohio 43062
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Todd
E. Huss
|
|
|
0 |
|
|
|
- |
|
|
13802
Boulder Lane
|
|
|
|
|
|
|
|
|
|
Larkspur,
Colorado 80118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leonard
K. Armenta, Jr.
|
|
|
0 |
|
|
|
- |
|
|
3390
Peoria Street, Unit 307
|
|
|
|
|
|
|
|
|
|
Aurora,
Colorado 80010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
executive officers and directors
|
|
|
20,164,602 |
|
|
|
77.3 |
% |
|
as
a group (4 persons)
|
|
|
|
|
|
|
|
|
Directors,
Executive Officers, Promoters and Control Persons
The
names, ages and positions of our officers and directors are set forth
below:
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
Brad
Pyatt
|
|
|
29 |
|
President,
Chief Executive Officer and Director
|
|
Cory
Gregory
|
|
|
30 |
|
Executive
Vice President and Director
|
|
Todd
E. Huss
|
|
|
57 |
|
Chief
Financial Officer
|
|
Leonard
K. Armenta, Jr.
|
|
|
33 |
|
Chief
Operating Officer
|
The
biographies of each of our executive officers and directors are as
follows:
Brad Pyatt
has served as the President and Chief Executive Officer of Muscle Pharm LLC
since its inception in April 2008. After leaving the University of
Northern Colorado in June 2003, he played for the Indianapolis Colts ( 2003,
2004 and 2005 seasons) and the Miami Dolphins (2006 season) in the NFL and he
played for the Colorado Crush from 2007 through 2008 in the Arena Football
League. Mr. Pyatt is knowledgeable in Kinesiology and he has learned and
developed innovative approaches to training that have improved his speed,
strength and overall performance. While playing in the NFL he posted
one of the fastest 40-yard times in the history of the NFL. In May
2004, while Mr. Pyatt was in the NFL he purchased a small supplement
manufacturer and then founded and developed a sports nutrition line called Hard
Nutrition which he sold in July 2007. He attended the University of
Kentucky for four years and the University of Northern Colorado for one
year. He majored in kinesiology and exercise science and left college
to play professional football needing 6 more hours credit to earn a
degree.
Cory
Gregory has served as the Executive Vice President of Muscle Pharm LLC
since its inception in April 2008. He has been the owner of Old
School gym since 1999 . Mr. Gregory is a personal trainer and
professional bodybuilder, competing as a NASA power lifter. He is the
founder of the Ohio Natural bodybuilding Federation and a board member of Agel
Enterprises, a developer of gel form products within the supplement
industry. He possesses expertise in personal training, nutrition and
dieting.
Todd E.
Huss has served in a part-time capacity as the Chief Financial Officer of
Muscle Pharm LLC since September 2009. Since 2002, Mr. Huss has performed
contract accounting services for various public companies. His work includes
planning and testing for Sarbanes-Oxley compliance for a media company with
revenues of $250 million. From 1996 to 2002, he served as the Chief
Financial Officer for Premier Concepts, Inc., the publicly-traded owner and
operator of a national chain of specialty retail jewelry stores. From 1991 to
1995 he served as the Chief Financial Officer for Gardenswartz Sportz, Inc., a
privately-held corporation which owned and operated eight full service retail
sporting goods stores in New Mexico and Texas. Mr. Huss graduated from
California State University-Long Beach in 1984, with a Bachelor of Science
degree in business administration and professional accounting, and subsequently
worked for KPMG Peat Marwick in its Los Angeles, California, and Albuquerque,
New Mexico offices until 1991.
Leonard K.
Armenta, Jr. has served as the Chief Operations Officer since September
1, 2009. He has been working for Muscle Pharm part time since July
2008 and full time since June 2009 where he has been working in the sales,
marketing and manufacturing areas of the business. From 2000 until
June, 2009 he worked for Colorado Sports Innovations as a sales and marketing
consultant. From 1997 until 2000 he was a sales representative for
Select Investor Relations.
The Board
of Directors currently does not have any committees. Within the next 30 days, we
intend to establish audit and compensation committees and such other committees
as determined advisable by our Board.
Advisory
Board
We have
established an Advisory Board currently consisting of four members which serves
to advise management with respect to product formulations, product ideas,
marketing and related matters. Members of the Advisory Board do not
meet on a formal or regular basis. Our management team consults with
one or more members of the Advisory Board as needed, from time to time, by means
of meetings or telephone conference calls.
Following
is a brief description of the background of our advisory board
members:
Dr. Eric Serrano
– Chief Medical Advisor-
Dr. Serrano has been practicing medicine in Ohio for over 12 years and is
considered one of the leading sports nutrition doctors in the
country. His clients include a wide array of athletes from the NFL,
NHL, and MLB, in addition to many elite amateur athletes. Dr. Serrano
was a professor of family practice medicine at Ohio State University and he now
consults and lectures across the country to universities, medical groups and
health and fitness conferences. He has formulated numerous
nutritional supplements for some of the leading nutritional companies on the
market. He has also been a contributing writer for some of the
leading health and fitness magazines. Dr. Serrano has been involved
in the final formulations for each of our products.
Lowell T.
Harmison, Ph.D. - Dr.
Harmison has over 40 years of experience and leadership in biomedicine as a
researcher, inventor, author, U.S. government Senior Executive and foundation
and corporate executive roles in both private and public
companies. His work includes a decade of research at the National
Institute of Health, a decade of service as the U.S. Public Health Service
Science Advisor and Principal Deputy Assistant Secretary of Health, DHHS; and
two decades of private foundation and corporation work on a global
scale. Dr. Harmison’s principal scientific achievements
include: (a) developing and testing the first completely implantable
artificial assist heart to augment the function of the diseased heart and the
totally implantable artificial heart (Dr. Harmison holds the first U.S. and
foreign patents for the completely implantable artificial heart); and (b)
leading the development and testing of the HIV/AIDS blood test from the
laboratory stage to an FDA approved and licensed commercial blood test for the
AIDS virus that the American Red Cross used to screen the American blood supply
for the HIV virus. Dr. Harmison now serves as a senior executive
advisor to the Hasumi International Research foundation, Chairman of the
WorldDoc Foundation, Dean of the International Academy of Artificial Organ
Pioneers, and adjunct professor at the University of Maryland as well as serving
on several boards of directors. Dr. Harmison has authored over 100
publications, edited two books and most recently co-authored the book Zeroing in on the Cancer Cell:
Cancer Vaccines as well as presented more than 500 lectures around the
world. Dr. Harmison plans to work with Dr. Serrano and others to
conduct further tests to provide additional proof of the safety and efficacy of
our products.
Louie Simmons,
Chief Strength Advisor –
Mr. Simmons is a strength consultant for the New England Patriots, Green
Bay Packers, Seattle Seahawks, Cleveland Browns, and numerous Division 1 college
football teams. Mr. Simmons is the owner of the West Side Barbell
located in Columbus, Ohio.
Greg Jackson –
Director of Fight Development – Mr. Jackson is an expert in
mixed martial arts, representing a combination of basic Judo and
wrestling. He has trained and developed top-ranked fight teams, with
several fights appearing on spike TV’s Ultimate Fighter.
Paul Dillet,
Chief Bodybuilding Advisor – Mr. Paul Dillet is one of
the most influential bodybuilders and a legend in the bodybuilding
world. He has been instrumental in creating a new era in fitness and
bodybuilding for the everyday athlete.
Executive
Compensation
During
the years ended December 31, 2008 and December 31, 2009, the only form of
compensation paid to the executive officers of Muscle Pharm, LLC was
cash. The table below lists the aggregate amount of the cash payments
that were made by Muscle Pharm LLC to executive officers during the years ended
December 31, 2008 and December 31, 2009.
|
|
|
Total
Cash Paid
|
|
|
Name and principal position
|
|
2008
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Brad
Pyatt - President
|
|
$ |
16,125 |
|
|
$ |
133,992 |
|
|
Cory
Gregory – Executive Vice President
|
|
|
3,000 |
|
|
|
17,846 |
|
|
Leonard
Armenta, Jr. – Chief Operating Officer
|
|
|
10,500 |
|
|
|
54,799 |
|
The
current annual salary levels of the executive officers are as
follows:
|
Brad
Pyatt
|
|
$ |
193,992 |
|
|
Cory
Gregory
|
|
$ |
60,000 |
|
|
Leonard
Armenta
|
|
$ |
86,400 |
|
DIRECTOR
COMPENSATION
The
following table sets forth Director compensation of Muscle Pharm, LLC for the
fiscal year ended December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
|
|
Earned
or
|
|
|
|
|
|
|
|
|
Incentive
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
Paid
in
|
|
|
Stock
|
|
|
Option
|
|
|
Plan
|
|
|
Compensation
|
|
|
All
Other
|
|
|
|
|
|
|
|
Cash
|
|
|
Awards
|
|
|
Awards
|
|
|
Comp.
|
|
|
Earnings
|
|
|
Compensation
|
|
|
|
|
|
Name
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)(1)
|
|
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brad
Pyatt
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0 |
|
|
Cory
Gregory
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0 |
|
Certain
Relationships and Related Transactions, and Director Independence
Muscle
Pharm, LLC was formed as a Colorado limited liability company on April 22,
2008. The initial owners of Muscle Pharm were Brad Pyatt and Cory
Gregory. Mr. Pyatt received a 60% membership interest in exchange for
his contribution of formulations for potential products, contacts with GNC
Canada and other potential customers, and contacts with professional
athletes. Mr. Gregory received a 40% membership interest in exchange
for his contacts with Dr. Serrano, Louie Simmons, potential distributors,
professional athletes and potential investors. Neither Mr. Pyatt nor
Mr. Gregory contributed any cash and no value was placed on their respective
contributions.
The
Company does not have any independent directors at this time, but it intends to
begin seeking a potential independent director as soon as possible.
Legal
Proceedings
We are
not currently a party to any legal proceedings. From time to time, we may be
involved in legal proceedings and claims arising out of the ordinary course of
business.
Item
3.02 Unregistered Sales of Equity Securities
In
connection with the reverse acquisition of Muscle Pharm, LLC, on February 18,
2010 the Company issued a total of 26,000,000 shares of its common stock to the
12 former owners of Muscle Pharm LLC in reliance on the exemption from
registration provided by Section 4(2) of the Securities Act of 1933, as
amended.
Item
5.01 Changes in Control of Registrant.
On
February 18, 2010, the Company exchanged, pursuant to a Securities Exchange
Agreement with Muscle Pharm, LLC, a Colorado limited liability company (“Muscle
Pharm”) (“Securities Exchange Agreement”), an aggregate of 26,000,000 shares of
the Company’s common stock for all of the issued and outstanding equity and
voting interests of Muscle Pharm from the Muscle Pharm members (the “Share
Exchange”). As a result of this transaction, Muscle Pharm became a
wholly owned subsidiary of the Company.
In
addition, pursuant to the terms and conditions of the Securities Exchange
Agreement, Muscle Pharm paid $25,000 to the President of the Company (John Dean
Harper) for his 366,667 shares of the Company’s common stock and these shares
were cancelled.
The Share
Exchange with Muscle Pharm is being accounted for as a “reverse acquisition,”
since the former owners of Muscle Pharm own a majority of the outstanding shares
of the Company’s common stock immediately following the transaction. No
arrangements or understandings exist among present or former controlling
shareholders with respect to the election of members of the Company’s board of
directors and, to the Company’s knowledge, no other arrangements exist that
might result in a change of control in the future. As a result of the Share
Exchange with Muscle Pharm and the change in the majority of the Company’s
directors, a change in control occurred on the date of the consummation of the
transaction.
The
information set forth in Item 1.01 above is incorporated herein by
reference.
Item
5.02 Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.
Upon the
closing of the Share Exchange, John Dean Harper, the Company’s only director and
officer resigned. See “Item 2.01 - Completion of Acquisition or Disposition of
Assets - Management” for information with regard to the individuals who became
officers and directors of the Company upon completion of the Share
Exchange.
Item
5.06 Change in Shell Company Status
See Item
2.01above.
Item
9.01 Financial Statements and Exhibits.
(a) Financial Statements of Businesses
Acquired
Financial
Statements of Muscle Pharm, LLC. are included herewith as Exhibit
99.1.
(b) Pro Forma Financial
Statements
Pro Forma
Financial Information giving effect to the acquisition of Muscle Pharm, LLC and
the Company is included herewith as Exhibit 99.2.
(c) Exhibits
| Exhibit No. |
Exhibits |
| |
|
|
2.1
|
Agreement
Concerning the Exchange of Securities by and Among Tone in Twenty and
Muscle Pharm, LLC and the Security Holders of Muscle Pharm, LLC
(1)
|
|
|
|
|
3.3
|
Articles
of Amendment
|
|
|
|
|
3.4
|
Certificate
of Designation relating to the Series A Convertible Preferred
Stock
|
|
|
|
|
10.2
|
Purchasing
Agreement with General Nutrition Corporation dated December 16,
2009
|
|
|
|
|
10.3
|
Production
and Advertising Agreement with Alive Media Group dated July 23,
2009
|
|
|
|
|
99.1
|
Audited
financial statements of Muscle Pharm, LLC for the nine months ending
September 30, 2009 and from Inception (April 22, 2008) to December 21,
2008. (1)
|
|
|
|
|
99.2
|
Unaudited
pro forma consolidated balance sheet as of September 30, 2009; unaudited
pro forma consolidated statement of operations for the nine months ended
September 30, 2009; unaudited pro forma consolidated balance sheet as of
December 31, 2008; and unaudited pro forma consolidated statement of
operations for the period ended December 31, 2008
(1)
|
(1) Filed
with Form 8-K on February 2, 2010
SIGNATURES
Pursuant to the requirements of the
Securities and Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned hereunto duly
authorized.
|
|
Tone
in Twenty
|
|
|
|
|
|
|
|
|
By:
/s/ Brad Pyatt
|
|
|
Name: Brad
Pyatt
|
|
|
Title: President
|
Dated: February
24, 2010