EXHIBIT 99.1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Muscle Pharm, LLC
Englewood, Colorado
We have audited the accompanying balance sheets of Muscle Pharm, LLC as of
December 31, 2009 and 2008, and the related statements of operations,
members' equity (deficit), and cash flows for the year ended December 31,
2009, and the period from April 22, 2008 (inception) to December 31, 2008.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Muscle Pharm, LLC as of
December 31, 2009 and 2008, and the results of its operations and its cash
flows for the year ended December 31, 2009, and for the period from April 22,
2008 (inception) to December 31, 2008, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 3, the Company
has negative working capital and members' deficits and has incurred net
losses for the year ended December 31, 2009 and from inception (April 22,
2008) through December 31, 2008 of $1,913,473 and $392,629, respectively,
which raises substantial doubt about its ability to continue as a going
concern. Management's plan in regard to this matter is also discussed in Note
3. The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
/s/ Schumacher & Associates, Inc.
Schumacher & Associates, Inc.
Certified Public Accountants
7931 S. Broadway, #314
Littleton, CO 80122
March 30, 2010
MUSCLE PHARM, LLC
Balance Sheets
December 31, 2009 December 31, 2008
----------------- -----------------
ASSETS
Cash $ - $ 32
Accounts receivable, net of
allowance of $821 and $812 on
December 31, 2009 and 2008,
respectively 111,476 14,248
Inventory 4,245 53,246
Deposits on product 32,115 45,815
Prepaid expenses and other current
assets 76,686 12,368
----------- --------
Total Current Assets 224,522 125,709
Fixed Assets, net of accumulated
depreciation of $5,008 and $884 on
December 31, 2009 and 2008,
respectively 32,810 12,527
Website, net of accumulated amortization
of $4,457 and $637 on December 31,
2009 and 2008, respectively 7,005 10,825
Security Deposits 2,665 -
----------- --------
Total Assets $ 267,002 $149,061
=========== ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Accounts payable $ 765,534 $ 52,576
Accrued liabilities 103,519 -
Overdrawn bank accounts 17,841 12,002
Customer deposits 15,018 -
Due to related parties (Note 4) 85,820 2,612
Notes payable (Note 5) 30,000 -
Convertible notes payable, net of
discount of $467,636 on December 31,
2009 (Note 6) 429,864 -
----------- --------
Total Current Liabilities 1,447,596 67,190
----------- --------
Commitments and contingencies (Notes 1,
2, 3, 4, 5, 6, 7, 8, 9 and 10)
Member's Equity (Deficit) (Note 7) (1,180,594) 81,871
----------- --------
Total Liabilities and Members'
Equity (Deficit) $ 267,002 $149,061
=========== ========
The accompanying notes are an integral part of these financial statements
MUSCLE PHARM, LLC
Statements of Operations
From Inception
Year Ended (April 22, 2008) to
December 31, 2009 December 31, 2008
----------------- -------------------
Sales of product, net of $367,201
and $77,440 allowances and
discounts December 31, 2009
and 2008, respectively $ 1,017,916 $ 80,690
Cost of sales (922,971) (129,815)
----------- ---------
Gross margin (loss) 94,945 (49,125)
Operating Expenses:
Advertising and promotion 1,069,308 248,999
Bad debt 6,452 812
Bank charges 24,137 1,547
Salaries and labor 418,271 19,215
Depreciation and amortization 7,945 1,521
Insurance 21,033 2,649
Information technology 27,350 12,979
Travel, meetings and entertainment 80,422 23,845
Occupancy, telephone and utilities 42,128 8,175
Office and warehouse supplies 17,956 11,962
Professional fees 184,024 9,674
Repairs and maintenance 1,373 -
Other 5,628 840
----------- ---------
Total Operating Expenses 1,906,027 342,218
----------- ---------
Operating (Loss) (1,811,082) (391,343)
Other income (expense):
Interest income - 14
Interest (expense) (102,391) (1,300)
----------- ---------
Total other income (expense) (102,391) (1,286)
----------- ---------
Net (Loss) $(1,913,473) $(392,629)
=========== =========
The accompanying notes are an integral part of these financial statements
MUSCLE PHARM, LLC
Statements of Cash Flows
From Inception
Year Ended (April 22, 2008) to
December 31, 2009 December 31, 2008
----------------- -------------------
Operating Activities
Net Loss $(1,913,473) $(392,629)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 7,945 1,521
Bad debt 9 812
Accretion of discount on
convertible notes payable 79,364 -
Cash provided by (used in) changes in
operating assets and liabilities:
(Increase) in accounts receivable (97,237) (15,060)
Decrease (Increase) in inventory 49,001 (53,246)
Decrease (Increase) in deposits 13,700 (45,815)
(Increase) in prepaid expenses (64,318) (12,368)
(Increase) in security deposits paid (2,665) -
Increase in accounts payable and
accrued liabilities 816,476 52,576
Increase (decrease) in overdrawn
bank accounts 5,839 12,002
Increase in customer deposits 15,018 -
Increase in amounts due to related
parties 83,208 2,612
----------- ---------
Net cash (used in) operating
activities (1,007,133) (449,595)
----------- ---------
Investing Activities
Purchases of fixed assets and website (24,407) (24,873)
----------- ---------
Net cash (used in) investing activities (24,407) (24,873)
----------- ---------
Financing Activities
Proceeds from issuance of notes payable 30,000 -
Proceeds from issuance of convertible
notes 902,500 -
Payments on convertible notes (5,000) -
Member contributions 104,008 474,500
----------- ---------
Net cash provided by financing
activities 1,031,508 474,500
----------- ---------
Net increase in cash (32) 32
Beginning cash 32 -
----------- ---------
Ending cash $ - $ 32
=========== =========
Supplemental Cash Flow Information:
Cash paid for interest $ 5,806 $ -
=========== =========
Cash paid for income tax $ - $ -
=========== =========
Supplemental Schedule of Non-cash
Financing and Investing Activities:
Allocation of beneficial conversion
features on convertible notes
payable to members' equity $ 547,000 $ -
=========== =========
The accompanying notes are an integral part of these financial statements
MUSCLE PHARM, LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
For the Period from
Inception (April 22, 2008) to December 31, 2009
Balance at inception, April 22, 2008 $ -
Member contributions 474,500
Net (loss) for the period ended
December 31, 2008 (392,629)
-----------
Balance, December 31, 2008 81,871
Member contributions 104,008
Allocation of beneficial conversion features
upon issuances of convertible notes payable 547,000
Net (loss) for the year ended December 31, 2009 (1,913,473)
-----------
Balance, December 31, 2009 $(1,180,594)
===========
The accompanying notes are an integral part of these financial statements
MUSCLE PHARM, LLC
NOTES TO FINANCIAL STATEMENTS
December 31, 2009 and 2008
NOTE 1 - ORGANIZATION
Muscle Pharm, LLC (the "Company") was formed as a Colorado limited liability
company on April 22, 2008.
The Company currently manufactures and markets six branded sports nutrition
products with the trade name: Combat, Assault, Battle Fuel, Bullet Proof,
Shred Matrix, and Recon.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Muscle Pharm, LLC
(Company) is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of the
Company's management who is responsible for their integrity and objectivity.
These accounting policies conform to generally accepted accounting principles
in the United States of America and have been consistently applied in the
preparation of the financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make
estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ materially from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers cash and cash
equivalents to include highly liquid investments with original maturities of
90 days or less. Those are readily convertible into cash and not subject to
significant risk from fluctuations in interest rates and market trends. The
recorded amounts for cash equivalents approximate fair value due to the
short-term nature of these financial instruments.
As of December 31, 2009 and 2008, the Company had $7,747 and $12,002,
respectively, overdrawn in its bank accounts. These amounts are shown as a
current liability on the balance sheet.
CONCENTRATION OF CREDIT RISK AND ACCOUNTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk include cash equivalents, trade accounts
receivable, inventory and deposits on product. The Company maintains its
cash and investment balances in the form of bank demand deposits and money
market accounts with financial institutions that management believes to be of
high credit quality. Accounts receivable are typically unsecured and are
derived from transactions with and from customers primarily located in the
United States.
For the year ended December 31, 2009, the Company had made sales to 25
customers. Five of these customers represent approximately 72% of the
Company's gross sales during the period.
Inventory originating from two vendors accounted for 66% and 100% of the
Company's inventory purchases for the year ended December 31, 2009 and the
period from April 22, 2008 (inception) to December 31, 2008, respectively.
At December 31, 2009 the Company was using one vendor to manufacture 100% of
the Company's inventory.
ACCOUNTS RECEIVABLE
The Company performs ongoing evaluations of its clients' financial condition
and generally does not require collateral. Management reviews accounts
receivable periodically and reduces the carrying amount by a valuation
allowance that reflects management's best estimate of amounts that may not be
collectible. Allowances, if any, for uncollectible accounts receivable are
determined based upon information available and historical experience. As of
December 31, 2009 the allowance for accounts receivable was $821 compared to
an allowance for accounts receivable of $812 as of December 31, 2008.
INVENTORY
Inventory is stated at the lower of cost or market. Costs are determined by
the first-in first-out or average cost methods. Cost includes all costs of
purchase, cost of conversion and other costs incurred in bringing the
inventory to its present location and condition.
SHIPPING AND HANDLING
Product sold is typically shipped directly to the customer from the
manufacturer and distributor. Any freight billed to customers is offset
against shipping costs and included in cost of goods sales.
DEPOSITS
As of December 31, 2009 and 2008 the Company had a balance of $32,115 and
$45,815, respectively, as deposits on products to be manufactured.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally on the straight-line method over the
estimated useful life of each type of asset. Maintenance and repairs are
charged to expense as incurred; improvements and betterments are capitalized.
Upon retirement or disposition, the related costs and accumulated
depreciation are removed from the accounts, and any resulting gains or losses
are credited or charged to income. Depreciation totaled $4,125 and $884 for
the periods ended December 31, 2009 and 2008, respectively.
Below is a summary of property and equipment:
Estimated
Useful December 31, December 31,
Asset Type Life 2009 2009
- ---------- --------- ------------ ------------
Displays 5 $ 32,057 $ 12,500
Furniture and equipment 5 5,761 911
-------- --------
Subtotal 37,818 13,411
Less accumulated depreciation (5,008) (884)
-------- --------
Net $ 32,810 $ 12,527
======== ========
WEBSITE DEVELOPMENT COSTS
Website development costs representing capitalized costs of design,
configuration, coding, installation, and testing of the Company's website are
capitalized until initial implementation. Upon implementation, the Company
began amortizing the cost over its estimated useful life of three years using
the straight-line method. Accumulated amortization at December 31, 2009 and
2008 were $4,457 and $637, respectively. Amortization expense for the
periods ended December 31, 2009 and 2008 were $3,821 and $637, respectively.
Ongoing website post-implementation costs of operation, including training
and application maintenance, are charged to expense as incurred.
LONG-LIVED ASSETS
The Company's primary long-lived assets are property and equipment and
website development. The Company assesses the recoverability of its long-
lived assets whenever events and circumstances indicate the carrying value of
an asset or asset group may not be recoverable from estimated future cash
flows expected to result from its use and eventual disposition. Management
does not believe that its long-lived assets are impaired, and no impairment
charges have been recorded as of December 31, 2009.
FAIR VALUE DETERMINATION
Financial instruments consist of cash, accounts, inventory, deposits on
product, prepaid expenses, accounts payable and accrued expenses. The
carrying amount of these financial instruments approximates fair value due to
their short-term nature or the current rates at which the Company could
borrow funds with similar remaining maturities.
Unless otherwise noted, it is management's opinion that the Company is not
exposed to significant interest, currency or credit risks arising from these
financial statements.
ADVERTISING
The Company expenses the cost of advertising when incurred. Advertising
expenses are included with advertising and promotions in the accompanying
statements of operations.
REVENUE RECOGNITION
The Company recognizes revenue when persuasive evidence of a revenue
arrangement exists, delivery has occurred, the sales price is fixed or
determinable, and collectability is reasonably assured.
During 2008 and 2009, the Company has been developing its presence in the
marketplace and establishing distribution channels for its products, and
therefore the Company has incurred significant costs for sales allowances,
sample expense and discounts provided. During the year ended December 31,
2009, the Company recognized gross sales of $1,385,117, but also granted
discounts and allowances of $367,201, for net sales of $1,017,916. During
the period from April 22, 2008 to December 31, 2008, the Company recognized
gross sales of $158,130, but also granted discounts and allowances of
$77,440, for net sales of $80,690.
INCOME TAXES
The Company was formed under the limited liability laws in the State of
Colorado. No provision for income tax has been provided in the financial
statements since the Company has elected to be taxed under the rules
governing partnership taxation election, whereby all income or losses flow
through to the partner for income tax reporting purposes.
As discussed elsewhere in this report, on February 18, 2010 the Company
completed a reverse merger with Tone in Twenty, a Nevada corporation which
had a fiscal year ending August 31st. Muscle Pharm is deemed to be the
accounting acquirer in the merger, while Tone in Twenty is deemed the legal
acquirer. As such, the Company subsequently changed the fiscal year of the
combined entity to December 31st. As a result of the reverse merger, the
Company will be subject to corporate U.S. federal, state, and local taxes
beginning in February 2010.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
There were various accounting standards and interpretations issued during
2009 and 2008, none of which are expected to have a material impact on the
Company's financial position, operations or cash flows.
NOTE 3 - BASIS OF PRESENTATION - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America,
which contemplates continuation of the Company as a going concern. However,
the Company has negative working capital and members' deficits, and has
incurred net losses for the year ended December 31, 2009 and from inception
(April 22, 2008) through December 31, 2008 of $1,913,473 and $392,629,
respectively, which raises substantial doubt about its ability to continue
as a going concern. In view of these matters, realization of certain of the
assets in the accompanying balance sheet is dependent upon its ability to
meet its financing requirements, raise additional capital, and the success
of its future operations. There is no assurance that future capital raising
plans will be successful in obtaining sufficient funds to assure its eventual
profitability. Management believes actions planned and presently being taken
provide the opportunity for the Company to continue as a going concern,
including:
- Increasing prices of products;
- reducing discounts and free samples;
- obtaining manufacturers which have substantially decreased
manufacturing costs, and
- securing additional working capital through additional sales of
debt or equity to investors.
The financial statements do not include any adjustments that might result
from these uncertainties.
NOTE 4 - DUE TO RELATED PARTIES
Certain members of the Company have utilized personal credit cards owned by
them and immediate family members to assist in financing its operations. As
of December 31, 2009 and 2008, the Company owed $27,929 and $2,612,
respectively on these aforementioned credit cards.
During the year ended December 31, 2009 an investor paid various legal and
accounting fees and other administrative expenses on behalf of the company
totaling $32,891. The advances from the investor are uncollateralized, bear
no interest and are due on demand.
In December 2009 a company controlled by an investor advanced the Company
$25,000 for working capital. The advance is uncollateralized, bears no
interest and is due on demand.
NOTE 5 - NOTES PAYABLE
At December 31, 2009, the Company had $30,000 in short term working capital
loans represented by two uncollateralized promissory notes issued in March
2009. 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. As of the date of this report, the
loans had matured and are considered in default, and have not been repaid.
NOTE 6 - CONVERTIBLE NOTES PAYABLE
During the year ended December 31, 2009 the Company sold to various investors
a total of $902,500 of convertible secured promissory notes, of which $5,000
was subsequently repaid to one note holder in December 2009. All the notes
accrue interest at 8% per annum. At December 31, 2009 the total interest
accrued on the notes was $14,721. The notes are convertible to common stock
by the note holder in the event that the Company is acquired by a publicly-
traded company in a reverse acquisition or merger, or any other similar form
of corporate reorganization during the term of the note. The conversion
terms are designed to provide the holder with a dollar amount of common stock
equal to a designated percentage of the note amount plus any accrued
interest, ranging from 120% to 350%. In accordance with ASC 470 these terms
are considered beneficial conversion features, and as such $547,000
representing the intrinsic value of the beneficial conversion features has
been allocated to members' equity and is reflected as a discount to the
amount of the note amounts which is being accreted to interest expense over
the term of the notes. During the year ended December 31, 2009 a total of
$79,364 was accreted and is included in interest expense in the accompanying
financial statements. All the Notes are collateralized by all the assets of
Muscle Pharm, LLC.
The following table summarizes the Company's convertible notes payable:
Six convertible secured promissory notes
maturing in March 2010, interest accruing at
8%, convertible at the rate of 120% $ 370,000
Convertible secured promissory note maturing in
March 2010, interest accruing at 8%, convertible
at the rate of 150% 5,000
Five convertible secured promissory notes maturing
in May 2010, interest accruing at 8%, convertible
at the rate of 150% 27,500
Convertible secured promissory note maturing in
May 2010, interest accruing at 8%, convertible at the
rate of 350% 100,000
Convertible secured promissory note maturing in
June 2010, interest accruing at 8%, convertible at
the rate of 120% 40,000
Two convertible secured promissory notes maturing
in June 2010, interest accruing at 8%, convertible
at the rate of 150% 12,500
Three convertible secured promissory notes maturing
in June 2010, interest accruing at 8%, convertible
at the rate of 200% 117,500
Two convertible secured promissory notes maturing
in December 2010, interest accruing at 8%,
convertible at the rate of 200% 225,000
----------
Total convertible secured promissory notes 897,500
Lss discount (467,636)
----------
Total convertible secured promissory notes,
net of discount $ 429,864
----------
NOTE 7 - MEMBERS' EQUITY
There were two initial members/owners of the Company. One member 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. The other initial member received a
40% membership interest in exchange for his contacts with key contacts
including potential distributors, professional athletes and potential
investors. No accounting value was placed on these respective contributions
since it was considered immaterial. During the year ended December 31, 2009
one of the initial members forgave $16,508 of amounts previously advanced to
the Company, which was recorded as a cash contribution to the member's
account at December 31, 2009.
During the year ended December 31, 2009, the Company approved the admission
of six new members with total cash investments of $87,500, representing 0.7%
ownership.
On November 30, 2008, the Company approved the admission of four new members
with a total cash investment of $474,500 representing 9.4% ownership.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
As a component of the Company's overall marketing strategy, it has entered
into various sponsorship and endorsement agreements with professional
athletes and fitness trainers. These agreements generally provide for
payments to the athletes and trainers based on pre-determined events in which
the athlete or trainer agree to provide exposure of the Company and its
products through media exposure and coverage of specific athletic events.
During the period from inception (April 22, 2008) to September 30, 2008 the
Company paid out $4,750 in sponsorships and related fees. For the year ended
December 31, 2009 the Company paid out $571,232 in sponsorships and related
fees. These payments are included in the Statements of Operations in
advertising and promotion expense. At December 31, 2009 the Company
estimates future obligations under its existing sponsorship and endorsement
agreements is approximately $933,000, assuming all contingencies contained in
the agreements occur, of which there can be no assurance. This estimate does
not include amounts for reimbursements for travel and expenses that are
included in certain of the agreements. Subsequent to December 31, 2009, the
Company entered into additional agreements as further discussed in Note 10,
Subsequent Events.
At December 31, 2009 the Company has accrued a liability of approximately
$56,000 representing delinquent payroll taxes. The Company plans to resolve
this liability with the appropriate agencies, but no resolution of these
matters has occurred as of the date of this report. A contingency exists for
this matter, the ultimate resolution of which can not presently be
determined.
In April 2009, the Company signed a 13 month lease for warehouse space, which
is personally guaranteed by an initial member. The base rate is $818 per
month. In September 2009, a six month office lease was signed at a base rate
of $1,458 month. The office lease is also personally guaranteed by an
initial member.
NOTE 9 - RELATED PARTY TRANSACTIONS
Muscle Pharm, LLC was formed as a Colorado limited liability company on April
22, 2008. There were two initial members/owners of the Company. One member
received a 60% membership interest in exchange for his contribution of
formulations for potential products, contacts with GNC Canada and other
potential customers, as well as contacts with professional athletes. The
other initial member received a 40% membership interest in exchange for his
contacts including potential distributors, professional athletes and
potential investors. Neither of the two initial members contributed any cash
and no accounting value was placed on their respective contributions. During
the period from inception to December 31, 2008 a total of approximately
$19,000 was paid to the initial members, and for the year ended December 31,
2009 payments of approximately $152,000 were paid to the initial members.
The payments were made as compensation for management services provided to
the Company and are included in salaries and labor in the accompanying
Statements of Operations.
During 2008, an initial member's wife was paid $6,000 for various
administrative services. For the year ended December 31, 2009, approximately
$38,000 was paid to two initial members' wives also for various
administrative services. In addition, during 2008 a company controlled by
the initial member's wife made a $13,000 working capital loan to the Company.
The loan was fully repaid during 2008 together with $1,300 of accrued
interest.
During the year ended December 31, 2009, a company controlled by an initial
member purchased $2,603 of the Company's products. As of December 31, 2009,
the customer owed a balance of $950 which was subsequently collected in
January 2010.
NOTE 10 - SUBSEQUENT EVENTS
The Company has evaluated subsequent events through the date which the
financial statements were available to be issued.
Subsequent to December 31, 2009 the Company has raised an additional $471,000
in convertible notes payable from various investors. The terms of the notes
were similar to those described in Note 6.
Subsequent to December 31, 2009 the Company has entered into various
sponsorship and endorsement agreements. The Company estimates future
obligations under these agreements is approximately $164,000, assuming all
contingencies contained in the agreements occur, of which there can be no
assurance. This estimate does not include amounts for reimbursements for
travel and expenses that are included in certain of the agreements.
On February 18, 2010, in accordance with a Securities Exchange Agreement
dated February 1, 2010, the Company exchanged all its outstanding equity and
voting interest for an aggregate of 26,000,000 shares of common stock of Tone
in Twenty, a Nevada corporation. Following the exchange and related
transactions, Muscle Pharm members owned approximately 99.4% of Tone in
Twenty outstanding common stock. In addition, upon completion of the
exchange, the Company's two initial members were appointed as the directors
of Tone in Twenty. The exchange is being accounted for as a "reverse
merger," as the members of Muscle Pharm own a majority of the outstanding
shares of Tone in Twenty common stock immediately following the exchange and
now control the Tone in Twenty board of directors. The Company is deemed to
be the accounting acquirer in the reverse merger, while Tone in Twenty is
deemed to be the legal acquirer. As a result of the reverse merger, the
holders of the convertible secured promissory notes are entitled to
exercise the conversion option embedded in the notes. If all the holders of
notes exercised their conversion rights, approximately 1,625,000 shares of
Tone in Twenty common stock would be issued.
Also, as a result of the completion of the reverse merger, Tone in Twenty,
the legal acquirer, changed its name to Muscle Pharm Corporation, and changed
its fiscal year from August 31st to December 31st.
2010 Stock Incentive Plan:
On February 1, 2010 the Company's board of directors and shareholders
approved the 2010 Stock Incentive Plan ("2010 Plan"). The 2010 Plan allows
the Company to grant incentive stock options, non-qualified stock options,
restricted stock awards, restricted stock units and stock appreciation rights
to key employees and directors of the Company or its subsidiaries,
consultants, advisors and service providers. Any stock option granted in the
form of an incentive stock option will be intended to comply with the
requirements of Section 422 of the Internal Revenue Code of 1986, as amended.
Only options granted to employees qualify for incentive stock option
treatment. No incentive stock option shall be granted after February 1, 2020,
which is 10 years from the date the Plan was initially adopted. A stock
option may be exercised in whole or in installments, which may be cumulative.
Shares of Common Stock purchased upon the exercise of a stock option must be
paid for in full at the time of the exercise in cash or such other
consideration determined by the Compensation Committee. Payment may include
tendering shares of Common Stock or surrendering of a stock award, or a
combination of methods.
The 2010 Plan will be administered by the Compensation Committee. The
Compensation Committee has full and exclusive power within the limitations
set forth in the Plan to make all decisions and determinations regarding the
selection of participants and the granting of awards; establishing the terms
and conditions relating to each award; adopting rules, regulations and
guidelines; and interpreting the Plan. The Compensation Committee will
determine the appropriate mix of stock options and stock awards to be granted
to best achieve the objectives of the Plan. The 2010 Plan may be amended by
the Board or the Compensation Committee, without the approval of
stockholders, but no such amendments may increase the number of shares
issuable under the Plan or adversely affect any outstanding awards without
the consent of the holders thereof. The total number of shares that may be
issued shall not exceed Five Million (5,000,000), subject to adjustment in
the event of certain recapitalizations, reorganizations and similar
transactions. As of the date of this report, no stock options or rights have
been granted under the 2010 Plan.