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 1, 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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3433
Losee Rd., Suite 2, North Las Vegas, NV 89030
(Address
of Principal Executive Offices) (Zip Code)
Registrant’s
telephone number, including area code: (702) 604-7038
(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, Muscle
Pharm would become a wholly owned subsidiary of the Company.
In addition, pursuant to the terms and
conditions of the Securities Exchange Agreement, Muscle Pharm has agreed to pay
on the closing, $25,000 to the President of the Company (John Dean Harper) for
his 366,666 shares of the Company’s common stock and these shares will then be
cancelled.
As a result of the above transactions,
the Company will have approximately 26,070,834 shares of common stock and 83,333
shares of Series A Convertible Preferred Stock outstanding.
On the closing, the Company’s board of
directors will be reconstituted to consist of Brad Pyatt and Cory Gregory who,
prior to this transaction were the managers of Muscle Pharm, and the new
officers will be: 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 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.
This transaction will not close until
the expiration of the 10-day period following the filing of an Information
Statement pursuant to Section 14(f) with the SEC and mailing of the Information
Statement to our shareholders.
Description of Muscle Pharm
In the following discussion regarding
Muscle Pharm LLC, whenever we refer to “we”, “us” or “our”, we are referring to
Muscle Pharm and not tone in Twenty.
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 will start 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 shiche 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 1, 2010 and 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.
Each stockholder’s percentage ownership
is based on 26,070,836 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 was cash. The table below lists the aggregate amount of the
cash payments that were made 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
|
$193,992
|
|
Cory
Gregory
|
60,000
|
|
Leonard
Armenta
|
86,400
|
DIRECTOR
COMPENSATION
The following table sets forth Director
compensation for the fiscal year ended December 31, 2009.
|
|
|
|
|
Non-
|
|
|
|
|
|
Fees
|
|
|
Equity
|
Nonqualified
|
|
|
|
|
Earned
or
|
|
|
Incentive
|
Deferred
|
|
|
|
|
Paid
in
|
Stock
|
Option
|
Plan
|
Compensation
|
All
Other
|
|
|
|
Cash
|
Awards
|
Awards
|
Comp.
|
Earnings
|
Compensation
|
|
|
Name
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)(1)
|
Total ($)
|
|
|
|
|
|
|
|
|
|
|
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
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.
|
|
|
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
|
|
|
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.
|
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/ John Dean Harper
|
|
|
Name: John
Dean Harper
|
|
|
Title: President
|
|
|
Dated:
February 2, 2010
|