Summary of Significant Accounting Policies (Policies) | 6 Months Ended |
Jun. 30, 2013 |
Accounting Policies [Abstract] | ' |
Consolidation, Policy [Policy Text Block] | ' |
Principles of Consolidation |
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The consolidated financial statements include the accounts of MusclePharm Corporation and its wholly-owned subsidiary MusclePharm Canada Enterprises Corp (“MusclePharm Canada”). MusclePharm Canada began operations in April of 2012. All intercompany accounts and transactions between MusclePharm Corporation and MusclePharm Canada have been eliminated upon consolidation. |
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Use of Estimates, Policy [Policy Text Block] | ' |
Use of Estimates |
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The preparation of financial statements in conformity with GAAP 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 period. |
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Making estimates requires management to exercise significant judgment. It is reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, the actual results could differ significantly from estimates. |
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Risks and Uncertainties [Policy Text Block] | ' |
Risks and Uncertainties |
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The Company operates in an industry that is subject to rapid change and intense competition. The Company’s operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory, industry adverse publicity and other risks, including the potential risk of business failure. |
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Cash and Cash Equivalents, Policy [Policy Text Block] | ' |
Cash and Cash Equivalents |
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The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents. At June 30, 2013 and December 31, 2012, respectively, the Company had no cash equivalents. |
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Accounts Receivable and Allowance For Doubtful Accounts [Policy Text Block] | ' |
Accounts Receivable and Allowance for Doubtful Accounts |
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Accounts receivable represents trade obligations from customers that are subject to normal trade collection terms. Prior to July 1, the accounts receivable were sent directly to the Company’s third party manufacturer and netted with any outstanding liabilities to the manufacturer (see Note 11). Liabilities to the manufacturer totaled $4,213,394 at June 30, 2013 and are included in accounts payable and accrued liabilities. The Company periodically evaluates the collectability of its accounts receivable and considers the need to establish an allowance for doubtful accounts based upon historical collection experience and specific customer information. Accordingly, the actual amounts could vary from the recorded allowances. There is also a review of customer discounts at the period end and an accrual made for discounts earned but not yet received by quarter end. |
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Management reserves for bad debt expense based on the aging of accounts receivable. Bad debt expense is classified under general & administrative expense in the Consolidated Statement of Operations. |
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The Company does not charge interest on past due receivables. Receivables are determined to be past due based on the payment terms of the original invoices. Accounts receivable consisted of the following at June 30, 2013 and December 31, 2012: |
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| | As of | | As of | | | | | | | |
June 30, 2013 | December 31, 2012 | | | | | | |
Accounts receivable | | $ | 10,492,646 | | $ | 4,416,193 | | | | | | | |
Less: allowance for discounts | | | -1,004,000 | | | -1,088,720 | | | | | | | |
Less: allowance for doubtful accounts | | | -253,552 | | | -25,129 | | | | | | | |
Accounts receivable – net | | $ | 9,235,094 | | $ | 3,302,344 | | | | | | | |
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At June 30, 2013 and December 31, 2012, the Company had the following concentrations of accounts receivable with significant customers: |
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Customer | | As of June 30, 2013 | | | As of December 31, 2012 | | | | | | |
A | | | 14 | % | | | 19 | % | | | | | |
B | | | 8 | % | | | 6 | % | | | | | |
C | | | 7 | % | | | 0 | % | | | | | |
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Inventory, Policy [Policy Text Block] | ' |
Inventory |
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Inventory is valued at the lower of cost or market value. Product-related inventories are primarily maintained using the average cost method. |
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Prepaid Giveaways [Policy Text Block] | ' |
Prepaid Giveaways |
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Prepaid giveaways represent non-inventory sample items, which are given away to aid in promotion of the brand. |
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Prepaid Sponsorship Fees [Policy Text Block] | ' |
Prepaid Sponsorship Fees |
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Prepaid sponsorship fees represents fees paid in connection with future advertising to be received. |
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Property, Plant and Equipment, Policy [Policy Text Block] | ' |
Property and Equipment |
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Property and equipment are stated at cost and depreciated to their estimated residual value over their estimated useful lives. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are relieved from the accounts and the resulting gains or losses are included in operating income in the statements of operations. Repairs and maintenance costs are expensed as incurred. Depreciation is provided using the straight-line method for all property and equipment. |
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Website Development Cost [Policy Text Block] | ' |
Website Development Costs |
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Costs incurred in the planning stage of a website are expensed, while costs incurred in the development stage are capitalized and amortized over the estimated useful life of the asset. |
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Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block] | ' |
Long-Lived Assets |
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The Company reviews long-lived assets for impairment whenever events or changes in circumstances, such as service discontinuance or technological obsolescence, indicate that the carrying amount of the long-lived asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that impairment is present, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the asset. During the six months ended June 30, 2013 and 2012, the Company recorded no impairment expense. |
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Fair Value of Financial Instruments, Policy [Policy Text Block] | ' |
Fair Value of Financial Instruments |
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The Company measures assets and liabilities at fair value based on an expected exit price which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements contains a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level. |
The following are the hierarchical levels of inputs to measure fair value: |
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| ⋅ | Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. | | | | | | | | | | | |
| ⋅ | Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. | | | | | | | | | | | |
| ⋅ | Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. | | | | | | | | | | | |
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The following are the major categories of liabilities measured at fair value on a recurring basis as of June 30, 2013 and December 31, 2012, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3): |
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| | As of June 30, 2013 | | As of December 31, 2012 | | | | | | | |
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Derivative liabilities (Level 2) | | $ | 2,369,032 | | $ | - | | | | | | | |
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The Company’s financial instruments consisted primarily of accounts receivable, accounts payable and accrued liabilities, and debt. The Company’s debt approximates fair value based upon current borrowing rates available to the Company for debt with similar maturities. The carrying amounts of the Company’s financial instruments generally approximated their fair values as of June 30, 2013 and December 31, 2012, respectively, due to the short-term nature of these instruments. |
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Revenue Recognition Accounting Policy, Gross and Net Revenue Disclosure [Policy Text Block] | ' |
Revenue Recognition |
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The Company records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) product has been shipped or delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. |
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Depending on individual customer agreements, sales are recognized either upon shipment of products to customers or upon delivery. For all of our Canadian sales, which represent 3% of total sales, recognition occurs upon shipment. |
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The Company has determined that advertising related credits that are granted to customers fall within the guidance of ASC No. 605-50-55 (“Revenue Recognition” – Customer Payments and Incentives – Implementation Guidance and Illustrations). The guidance indicates that, absent evidence of benefit to the vendor, appropriate treatment requires netting these types of payments against revenues and not expensing as advertising expense. |
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The Company records sales allowances and discounts as a direct reduction of sales. |
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Sales for the three and six months ended June 30, 2013 and 2012 were as follows: |
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| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
Sales | | $ | 28,515,483 | | $ | 18,869,103 | | $ | 53,439,519 | | $ | 38,171,872 | |
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Discounts | | | -3,035,424 | | | -3,439,763 | | | -5,398,293 | | | -6,181,852 | |
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Sales - Net | | $ | 25,480,059 | | $ | 15,429,340 | | $ | 48,041,226 | | $ | 31,990,020 | |
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The Company has an informal seven day right of return for products. There were nominal returns for the three and six months ended June 30, 2013 and 2012. |
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For the three and six months ended June 30, 2013 and 2012, the Company had the following concentrations of revenues with significant customers: |
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| | Three Months Ended June 30, | | | | | | |
Customer | | 2013 | | | 2012 | | | | | | |
A | | | 25 | % | | | 33 | % | | | | | |
B | | | 11 | % | | | 8 | % | | | | | |
C | | | 6 | % | | | 1 | % | | | | | |
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| | Six Months Ended June 30, | | | | | | |
Customer | | 2013 | | | 2012 | | | | | | |
A | | | 29 | % | | | 40 | % | | | | | |
B | | | 11 | % | | | 11 | % | | | | | |
C | | | 6 | % | | | 17 | % | | | | | |
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Licensing Income and Royalty Revenue [Policy Text Block] | ' |
Licensing Income and Royalty Revenue |
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On May 5, 2011, the Company granted an exclusive indefinite license to market, manufacture, design and sell the Company’s existing apparel line. The licensee paid an initial fee of $250,000 in June 2011, and will pay the Company a 10% net royalty based on its net income at the end of each fiscal year. To date, no royalty revenue has been earned by the Company. |
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Cost of Sales, Policy [Policy Text Block] | ' |
Cost of Sales |
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Cost of sales represents costs directly related to the production, manufacturing and freight of the Company’s products. |
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Shipping and Handling Cost, Policy [Policy Text Block] | ' |
Shipping and Handling |
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Until March 1, 2013 MusclePharm used a manufacturer from Tennessee to ship directly to our customers, and after that date MusclePharm took control of the shipping and began shipping product to our customers from a previously leased 152,000 square foot distribution center in Franklin, Tennessee in close proximity of our manufacturer. Our products are transported from our manufacturer to the MusclePharm distribution center, but title does not pass from the manufacturer until loaded on the truck for shipment. Through June 30, 2013, MusclePharm does not take title to our products (see Note 11). The facility in Franklin, Tennessee is operated with the Company’s equipment and employees. This transition away from having our Tennessee manufacturer ship product for us is an effort to reduce our costs and improve gross margins. |
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The Company also uses a manufacturer in New York for the manufacture of one of the Company’s products. These orders are typically large and heavy and are drop shipped directly to our customers at the time of order. |
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Costs associated to the shipments are recorded in cost of sales. For Canadian sales, the product is shipped from our Canadian warehouse to our customers. Costs associated with the shipments are recorded as shipping. |
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Advertising Costs, Policy [Policy Text Block] | ' |
Advertising |
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The Company expenses advertising costs when incurred. |
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Advertising expense for the three and six months ended June 30, 2013 and 2012 were as follows: |
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| | Three Months Ended June 30, | | Six Months Ended June 30, | |
| | 2013 | | 2012 | | 2013 | | 2012 | |
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Advertising | | $ | 3,275,200 | | $ | 2,044,005 | | $ | 5,592,577 | | $ | 3,976,840 | |
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Beneficial Conversion Feature [Policy Text Block] | ' |
Beneficial Conversion Feature |
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For conventional convertible debt where the rate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”) and related debt discount. |
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When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument. The discount is amortized to interest expense over the life of the debt. |
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Accounts Payable and Accrued Liabilities [Policy Text Block] | ' |
Accounts payable and accrued liabilities |
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Accounts payable and accrued liabilities consists of the Company’s trade payables as well as amounts estimated by management for future liability payments that relate to the current accounting period. Management reviews these estimates periodically to determine their reasonableness and fair presentation. |
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Debt, Policy [Policy Text Block] | ' |
Debt |
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The Company defines short term debt as any debt payment due less than one year from the date of the financial statements. Long term debt is defined as any debt payment due more than one year from the date of the financial statements. Refer to Note 4 for further disclosure of debt liabilities. |
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Derivatives, Policy [Policy Text Block] | ' |
Derivative Liabilities |
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Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in equity instruments and warrants granted, and measurement of their fair value. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible equity instruments, management determines if the convertible equity instrument is conventional convertible equity and further if the beneficial conversion feature requires separate measurement. |
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Once derivative liabilities are determined, they are adjusted to reflect fair value at the end of each reporting period. Any increase or decrease in the fair value is recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model. Once a derivative liability ceases to exist any remaining fair value is reclassified to additional paid in capital. |
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Deferred Equity Costs Policy [Policy Text Block] | ' |
Deferred Equity Costs |
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The Company may pay costs related to the underwriting and offering of equity securities. These costs are treated as a reduction to equity capital raised and recorded in equity when the share issuances are recorded. Until the shares are recorded or until offering is aborted, these costs will be held on the balance sheet as a deferred asset. |
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Debt Issue Costs and Debt Discount [Policy Text Block] | ' |
Debt Issue Costs and Debt Discount |
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The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of debt. These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed. |
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Original Issue Discount [Policy Text Block] | ' |
Original Issue Discount |
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For certain convertible debt issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded to debt discount and additional paid-in capital at an amount not to exceed gross proceeds raised, reducing the face amount of the debt, and is amortized to interest expense over the life of the debt. |
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Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | ' |
Share-Based Payments |
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Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non- employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. |
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Earnings Per Share, Policy [Policy Text Block] | ' |
Earnings (loss) Per Share |
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Net earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) for the period by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. |
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The Company uses an “if converted” method to determine whether there is a dilutive effect of outstanding option and warrant contracts. For the three months ended June 30, 2012, all of the Company’s convertible debt options and 625,028 warrants had exercise prices below of the Company’s period end market price of the common stock into which they convert. The adjusted dilutive net loss reflects the add back of approximately $349 of interest expense related to the convertible debt and the reduction of $9,449,050 of gains on derivative contracts for the three months ended June 30, 2012. For the three months ended June 30, 2013 and six months ended June 30, 2013 and 2012, and the three months ended June 30, 2012 the Company reflected net loss and a dilutive net loss, respectively, and the effect of considering any common stock equivalents would have been anti-dilutive for these periods. Therefore, separate computation of diluted earnings (loss) per share is not presented. |
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The Company has the following common stock equivalents for the six months ended June 30, 2013 and 2012, respectively: |
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| | Six Months Ended June 30, | | | | | | | |
| | 2013 | | 2012 | | | | | | | |
Stock options (exercise price - $425/share) | | | 670 | | | 1,903 | | | | | | | |
Warrants (exercise price $4 – $1,275/share) | | | 330,089 | | | 84,820 | | | | | | | |
Convertible debt (exercise price $17/share) | | | - | | | 2,471 | | | | | | | |
Total common stock equivalents | | | 330,759 | | | 89,194 | | | | | | | |
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In the above table, some of the outstanding instruments from 2013 and 2012 contain ratchet provisions that would cause variability in the exercise price at the balance sheet date. As a result, common stock equivalents could change at each reporting period. |
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Foreign Currency Transactions and Translations Policy [Policy Text Block] | ' |
Foreign Currency |
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MusclePharm began operations in Canada in April of 2012. The Canadian Dollar was determined to be the functional currency as the majority of the transactions related to the day to day operations of the business are exchanged in Canadian Dollars. At the end of the period, the financial results of the Canadian operation are translated into United States Dollars, which is our reporting currency, and added to the U.S. operations for consolidated company financial results. The revenue and expense items are translated using the average rate for the period and the assets and liabilities at the end of period rate. Transactions that have completed the accounting cycle and resulted in a gain or loss related to translation are recorded in realized gain or loss due to foreign currency translation under other income expense on the income statement. Transactions that have not completed their accounting cycle but appear to have gain or loss due to the translation process are recorded as unrealized gain or loss due to translation and held in the equity section on the balance sheet until such date the accounting cycle of the transaction is complete and the actual realized gain or loss is recognized. |
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Reclassification, Policy [Policy Text Block] | ' |
Reclassification |
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The Company has reclassified certain prior period amounts to conform to the current period presentation. These reclassifications had no effect on the financial position, results of operations or cash flows for the periods presented. |
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