UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported): February 18, 2010

Tone in Twenty
(Exact Name of Registrant as Specified in its Charter)

Nevada
000-53166
77-0664193
(State or Other Jurisdiction of Incorporation)
(Commission File No.)
(I.R.S. Employer Identification Number)

3390 Peoria St., #307, Aurora, CO  80010
 (Address of Principal Executive Offices)  (Zip Code)

Registrant’s telephone number, including area code:   (800) 210-7369

__________
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

[   ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

[   ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

[   ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

[   ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




 
 

 

Item 1.01  Entry Into a Material Definitive Agreement

On February 1, 2010, Tone in Twenty (the “Company”) executed a Securities Exchange Agreement with Muscle Pharm, LLC, a Colorado limited liability company (“Muscle Pharm”) (“Securities Exchange Agreement”), pursuant to which the Company agreed to issue an aggregate of 26,000,000 shares of the Company’s common stock for all of the issued and outstanding equity and voting interests of Muscle Pharm from the Muscle Pharm members (the “Share Exchange”). Upon the closing of this transaction, which occurred on February 18, 2010, Muscle Pharm became a wholly owned subsidiary of the Company.

In addition, pursuant to the terms and conditions of the Securities Exchange Agreement, Muscle Pharm paid $25,000 to the President of the Company (John Dean Harper) for his 366,667 shares of the Company’s common stock and these shares have been cancelled.

As a result of the above transactions, the Company has approximately 26,070,838 shares of common stock and 83,333 shares of Series A Convertible Preferred Stock outstanding.

On the closing, the Company’s board of directors was reconstituted to consist of Brad Pyatt and Cory Gregory who, prior to this transaction were the managers of Muscle Pharm, and the new officers are:  Brad Pyatt, President and Chief Executive Officer; Cory Gregory, Executive Vice President; Todd E. Huss, Chief Financial Officer; and Leonard K. Armenta, Jr., Chief Operating Officer.

As of the date of the execution and closing of the Securities Exchange Agreement and currently, there were and are no material relationships between any of the officers, directors or shareholders of the Company and Muscle Pharm, other than in respect of the Securities Exchange Agreement.

Item 2.02  Completion of Acquisition or Disposition of Assets

See Item 1.01, Entry into a Material Definitive Agreement above.

The Share Exchange . On February 18, 2010, in accordance with the Securities Exchange Agreement dated February 1, 2010, the Company acquired all of the issued and outstanding equity and voting interests of Muscle Pharm in exchange for an aggregate of 26,000,000 shares of the Company’s common stock.  As a result, at closing, in exchange for 100% of the outstanding equity and voting interests of Muscle Pharm, the former members of Muscle Pharm received an aggregate of 26,000,000 shares of our common stock, which represented approximately 99.4% of our outstanding common stock following the Share Exchange and related transactions.

There were 437,505 shares of our common stock outstanding before giving effect to the stock issuances in the Share Exchange, the cancellation of 366,667 shares by the Company’s former President.  Following these events, there were approximately 26,070,838 shares outstanding.

 
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The shares of our common stock issued to former members of Muscle Pharm in connection with the Share Exchange were not registered under the Securities Act of 1933, as amended (the “Securities Act”), but were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated under that section, which exempts transactions by an issuer not involving a public offering. These securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. Certificates representing these shares contain a legend stating the same.

General Changes Resulting from the Share Exchange . We intend to carry on the business of Muscle Pharm as our primary line of business. Our intention is to cease our prior business by terminating all business operations associated with our prior business. We have relocated our principal executive offices to 3390 Peoria Street, Unit 7, Aurora, Colorado 80010 and our telephone number is (800) 210-7369.

Our original plan of operations was to establish a model physical fitness facility in order to train personal trainers on isometric training techniques. As a consequence of the Share Exchange, we will no longer pursue development of this business.

Changes to the Board of Directors .  At the closing of the Share Exchange, John Dean Harper resigned as our sole officer and director. Pursuant to the terms of the Securities Exchange Agreement, Brad Pyatt and Cory Gregory who, prior to the Share Exchange, were the members of Muscle Pharm, were appointed as our directors.

All directors hold office for one-year terms until the election and qualification of their successors. Officers are elected by the board of directors and serve at the discretion of the board.

Accounting Treatment; Change of Control . The Share Exchange is being accounted for as a “reverse merger,” as the members of Muscle Pharm own a majority of the outstanding shares of our common stock immediately following the Share Exchange and now control our board of directors. Muscle Pharm is deemed to be the accounting acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations of Muscle Pharm prior to the Share Exchange will be reflected in the financial statements and will be recorded at the historical cost basis of Muscle Pharm. Our consolidated financial statements after completion of the Share Exchange will include the assets and liabilities of both companies, the historical operations of Muscle Pharm, and our operations from the closing date of the Share Exchange. As a result of the issuance of the shares of our common stock pursuant to the Share Exchange, a change in control of the Company occurred on the date of the consummation of the Share Exchange. Except as described herein, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our board of directors and, to our knowledge, no other arrangements exist that might result in a future change of control of the Company. We will continue to be a “smaller reporting company,” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), following the Share Exchange.


 
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Description of our Company

In the following discussion whenever we refer to financial information such as Selected Financial Data, Results of Operations, and Liquidity and Capital Resources, we are referring to the financial information relating to Muscle Pharm, LLC.  In addition when we refer to auditors we are referring to the auditors of Muscle Pharm, LLC.

Description of Business

GENERAL

We currently manufacture and market six branded, high-quality sports nutrition products:  Combat Powder™, Assault™, Battle Fuel™, Bullet Proof™ , Shred Matrix™, and Recon™.  These products are comprised of amino acids, herbs, and proteins scientifically tested and proven as safe and effective for the overall health of athletes.  These nutritional supplements were created to enhance the effects of workouts, repair muscles, and nourish the body for optimal physical fitness.

We entered the sports nutrition market near the end of 2008 distributing our line of “MusclePharm” sports nutritional supplements primarily through BodyBuilding.com.  During the late summer of 2009 we started selling our products to GNC Canada.  By the end of the first quarter of 2010, GNC Canada will provide full distribution of all MusclePharm products and prominent placement within its stores as one of its top ten brands.  GNC Canada is allowing us to control our initial growth by launching on a smaller scale, while providing a platform for eventual entrance into the much larger US market through its affiliates.  We also started selling our products in approximately 485 of The Vitamin Shoppes outlets in the US during the summer of 2009, and our products are available in over 120 countries worldwide through specialty retailers such as GNC, The Vitamin Shoppe, BodyBuilding.com, international distributors, and the number one US sports nutrition distributor, Europa Sports.

Our marketing strategy was formulated to brand MusclePharm as the “must have” nutritional supplement line for high performance athletes.  Endorsements have been completed with over 5 ultimate fighters, Joey Porter, an NFL linebacker, Chris Johnson, an NFL running back, and endorsements with a number of additional champion athletes are being negotiated. We also plan to endorse two WEC fighters for each of the WEC fights of which there will be seven in 2010. Athletes are considered role models and many people strive to emulate their fitness and well-being regimen.  The objective of athletic endorsements is to build both consumer awareness and confidence and to drive consumer demand for our products in retail outlets and health clubs.

Our products fall into the general definition of vitamins, minerals, herbs and dietary supplements and are regulated by the U.S.  Food and Drug Administration (FDA).

All of the products we sell are sold under the MusclePharm brand.  Our MusclePharm brand products target athletes, body builders and health minded individuals seeking a high degree of physical fitness.

 
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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:

 
1.
Raise additional financing in order to allow us to purchase more inventory to fulfill orders from existing and new customers.
 
2.
Increase our distribution and sales
 
3.
Conduct additional testing of the safety and efficacy of our products.
 
4.
Start marketing the Gel Pack line of new products which are expected to be shipped in March 2010.

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:

 
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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:

 
o
Allow users to train harder and longer
 
o
Lift more
 
o
Recover faster

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.

 
o
Maximize testosterone output
 
o
Modulate estrogen
 
o
Increase lean mass

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.

 
o
Enhance deep rest for maximum growth and recovery
 
o
Improve sleep cycles
 
o
Enhance libido in men and women

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.

 
o
Technologically advanced protein "super-food"
 
o
Fast, medium and slow releasing protein source
 
o
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.

 
o
Refuels muscles
 
o
Replenish nutrients
 
o
Rebuilds muscle

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.

 
o
Accelerate fat loss
 
o
Utilize fat first for energy
 
o
Destroy sugar cravings / block fat storage

FUTURE PRODUCTS

In March 2010 we intend to start shipping a fit-gel series line which will have two products.  The two products in the fit-gel series will be MUSCLEGEL™ and ENERGEL SHOT™ .  These fit-gels are a revolutionary, high performance nutrient delivery system, manufactured using a patent-pending process called Profusion™ Technology.  Profusion Technology is a molecular process whereby specific nutritional elements, such as high-quality protein, or powerful energy-yielding nutritional substrates, are suspended in a super-absorbable medium, the Fit-Gel.  Utilizing Profusion™ Technology, the Fit-Gels represent a high-speed nutrient “shuttle”, delivering faster absorption and quicker cellular uptake of nutrients than any other system of nutrient delivery.  Each MUSCLEGEL provides 22 grams of high-power protein, which is more protein than 6 egg whites, 4 ounces of chicken breast, or a single serving of most powders.  Protein helps the body build lean mass, burn fat, and boost metabolism.  The ENERGEL SHOTS provide energy, endurance, better focus and improved performance.

SALES

We sell our products both domestically and internationally.  With respect to our domestic sales we started selling our products in the summer of 2009 in approximately 485 of The Vitamin Shoppes outlets.  In February 2010, we started shipping products to GNC in the United States, where they have agreed to place our products in approximately 1,000 stores with a goal of increasing the number of stores to 2,500 by the end of 2010 if sales meet their expectations.  We also expect to start shipping products to Rite Aid in March for their approximately 1,500 stores.  In addition to the foregoing retail stores, we also sell domestically through several distributors

 
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and through over 100 internet sites.  The primary domestic internet site is Bodybuilding.com, which is the largest on line retailer of sports nutrition products in the US.  They awarded Muscle Pharm as the best new brand for 2009, and Muscle Pharm is now one of their top 50 sellers.  Our largest domestic distributor is Europa Sports which distributes to over 12,000 small stores and gym/workout chains.  Lone Star has recently agreed to start distributing our products in Texas and other parts of the South.  United Distributors, Inc. has agreed to distribute our two gel pack products which we plan to start shipping in March, 2010.  They have indicated that they expect to have our gel packs in approximately 4,500 stores by June 30, 2010.

With respect to international sales, we started selling our products to GNC Canada in the late summer of 2009.  By the end of the first quarter of 2010, they expect to provide full distribution of our products with prominent placement within their stores as one of their top ten brands.  Our primary manufacturer is located in Vancouver, Canada and they also act as a distributor since they have a presence in over 80 countries selling primarily to midsize and smaller outlets.  We use several other international distributors, and we also just started working with Sportika, a large international distributor which covers approximately 120 countries and they sell primarily to larger stores.  Over 40% of our sales in 2009 were to international customers.

Leonard Armenta currently handles our sales and distribution, and in November 2009 we added two experienced sales persons to work in our sales and marketing department.  These persons are expected to help develop our existing sales relationships and to expand our sales to new markets.  These two new persons are Peter J. Ciccone who serves as the Director of Marketing and Joseph Lawanson who is a sales representative who works with professional and college athletic teams with an emphasis on major league baseball teams.

Our first sales were made late in 2008 and Bodybulding.com was responsible for most of our sales in 2008.  During the year ended December 31, 2009, our four largest customers were The Vitamin Shoppe (29.6%), PSI Products, an international distributor with sales in Australia and New Zealand (21.9%), MS Enterprises, an international distributor with sales in India (11.3%), and GNC Canada (10.5%).

MARKETING

Our core marketing strategy is to brand MusclePharm as the “must have” nutritional supplement line for high performance athletes.  We want to be known as the athlete’s company, run by athletes with products for athletes.  We have endorsements from over 5 ultimate fighters, two well-known NFL players (Joey Porter and Chris Johnson) and we are in the process of negotiating with additional champion athletes.  We also plan to sponsor 2 WEC fighters for each WEC fight of which there will be 7 in 2010.  Athletes are considered role models and many people strive to emulate their fitness and well-being regimen.  The objective of these athletic endorsements is to build both consumer awareness and confidence and to drive consumer demand for our products in the market.


 
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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.

 
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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.

 
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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.


 
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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.

 
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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.



 
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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.



 
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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:

 
deliver products in a timely manner in sufficient volumes;
 
accurately anticipate customer needs;
 
differentiate our product offerings from those of our competitors;
 
competitively price our products; and
 
develop and/or acquire new products.

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.


 
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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:

 
price;
 
shelf space;
 
brand and product recognition;
 
new product introductions; and
 
raw materials.

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.


 
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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:

 
our ability to deliver products in a timely manner in sufficient volumes;
 
our ability to recognize product trends;
 
our loss of one or more significant customers;
 
the introduction of successful new products by our competitors;
 
adverse media reports on the use or efficacy of sports nutrition supplements.

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.


 
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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.


 
18

 

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.


 
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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.

 
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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.

 
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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.

 
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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.


 
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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.

 
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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.
 
 

 
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Finally, during the nine months ended September 30, 2009 we received proceeds of $87,500 representing member equity contributions from six investors.  For the period from inception (April 22, 2008) to September 30, 2008 we received a total of $324,500 from two investors representing member equity contributions.  During the three months ended December 31, 2008, an additional $150,000 was received from two additional investors representing member equity contributions which is reflected in the cash provided by financing activities for the period from inception (April 22, 2008) to December 31, 2008.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Significant estimates included herein relate to the recoverability of assets including customer accounts, the value of long-lived assets and liabilities, and the long-term viability of the business.  Actual results may differ from estimates.

Other than the foregoing, management knows of no trends, demands, or uncertainties that are reasonably likely to have a material impact on the Company's liquidity and capital resources.

Description of Property

We currently lease approximately 1962 square feet of office/warehouse space pursuant to a 25 month lease which expires in May 2010 .   Our monthly rent is approximately $817.50.  This office/warehouse space is located at 3390 Peoria Street, Unit 307, Aurora, Colorado.  We also rent 3 offices in an executive office suite for a total of $1,308 per month pursuant to a six month lease which expires March 31, 2010.  These offices are located at 8310 S. Valley Highway, Suite 300, Englewood, Colorado 80112.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth, as of February 18, 2010, after giving effect to the closing of our reverse acquisition of Muscle Pharm, LLC, the total number of shares owned beneficially by each of our directors and executive officers, individually and as a group, and the present owners of 5% or more of our total outstanding shares.

To our knowledge, except as set forth in the footnotes to this table, each person named in the table has sole voting and investment power with respect to the shares set forth opposite such person’s name and they have no rights to acquire any shares within sixty days from options, warrants, rights, conversion privileges or other similar obligations.

 
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Each stockholder’s percentage ownership is based on 26,070,834 shares of our common stock outstanding.

   
Amount and
       
   
Nature of
       
Name and Address
 
Beneficial
   
Percent
 
of Beneficial Owner
 
Ownership
   
Of Class
 
             
Brad Pyatt
    12,331,668       47.3 %
3390 Peoria Street, Unit 307
               
Aurora, Colorado 80010
               
                 
Cory Gregory
    7,833,014       30.0 %
422 Middleground Road
               
Pataskala, Ohio 43062
               
                 
Todd E. Huss
    0       -  
13802 Boulder Lane
               
Larkspur, Colorado 80118
               
                 
Leonard K. Armenta, Jr.
    0       -  
3390 Peoria Street, Unit 307
               
Aurora, Colorado 80010
               
                 
All executive officers and directors
    20,164,602       77.3 %
as a group (4 persons)
               

Directors, Executive Officers, Promoters and Control Persons

The names, ages and positions of our officers and directors are set forth below:

Name
 
Age
 
Position
         
Brad Pyatt
    29  
President, Chief Executive Officer and Director
Cory Gregory
    30  
Executive Vice President and Director
Todd E. Huss
    57  
Chief Financial Officer
Leonard K. Armenta, Jr.
    33  
Chief Operating Officer

The biographies of each of our executive officers and directors are as follows:


 
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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.


 
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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.

 
29

 


Greg Jackson – Director of Fight Development Mr. Jackson is an expert in mixed martial arts, representing a combination of basic Judo and wrestling.  He has trained and developed top-ranked fight teams, with several fights appearing on spike TV’s Ultimate Fighter.

Paul Dillet, Chief Bodybuilding Advisor Mr. Paul Dillet is one of the most influential bodybuilders and a legend in the bodybuilding world.  He has been instrumental in creating a new era in fitness and bodybuilding for the everyday athlete.

Executive Compensation

During the years ended December 31, 2008 and December 31, 2009, the only form of compensation paid to the executive officers of Muscle Pharm, LLC was cash.  The table below lists the aggregate amount of the cash payments that were made by Muscle Pharm LLC to executive officers during the years ended December 31, 2008 and December 31, 2009.

   
Total Cash Paid
 
Name and principal position
 
2008
   
2009
 
             
Brad Pyatt - President
  $ 16,125     $ 133,992  
Cory Gregory – Executive Vice President
    3,000       17,846  
Leonard Armenta, Jr. – Chief Operating Officer
    10,500       54,799  

The current annual salary levels of the executive officers are as follows:

Brad Pyatt
  $ 193,992  
Cory Gregory
  $ 60,000  
Leonard Armenta
  86,400  


DIRECTOR COMPENSATION

The following table sets forth Director compensation of Muscle Pharm, LLC for the fiscal year ended December 31, 2009.

                     
Non-
                   
   
Fees
               
Equity
   
Nonqualified
             
   
Earned or
               
Incentive
   
Deferred
             
   
Paid in
   
Stock
   
Option
   
Plan
   
Compensation
   
All Other
       
   
Cash
   
Awards
   
Awards
   
Comp.
   
Earnings
   
Compensation
       
Name
 
($)
   
($)
   
($)
   
($)
   
($)
   
($)(1)
   
Total ($)
 
                                           
Brad Pyatt
    -       -       -       -       -       -       0  
Cory Gregory
    -       -       -       -       -       -       0  


 
30

 

Certain Relationships and Related Transactions, and Director Independence

Muscle Pharm, LLC was formed as a Colorado limited liability company on April 22, 2008.  The initial owners of Muscle Pharm were Brad Pyatt and Cory Gregory.  Mr. Pyatt received a 60% membership interest in exchange for his contribution of formulations for potential products, contacts with GNC Canada and other potential customers, and contacts with professional athletes.  Mr. Gregory received a 40% membership interest in exchange for his contacts with Dr. Serrano, Louie Simmons, potential distributors, professional athletes and potential investors.  Neither Mr. Pyatt nor Mr. Gregory contributed any cash and no value was placed on their respective contributions.

The Company does not have any independent directors at this time, but it intends to begin seeking a potential independent director as soon as possible.

Legal Proceedings

We are not currently a party to any legal proceedings. From time to time, we may be involved in legal proceedings and claims arising out of the ordinary course of business.

Item 3.02  Unregistered Sales of Equity Securities

In connection with the reverse acquisition of Muscle Pharm, LLC, on February 18, 2010 the Company issued a total of 26,000,000 shares of its common stock to the 12 former owners of Muscle Pharm LLC in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended.

Item 5.01  Changes in Control of Registrant.

On February 18, 2010, the Company exchanged, pursuant to a Securities Exchange Agreement with Muscle Pharm, LLC, a Colorado limited liability company (“Muscle Pharm”) (“Securities Exchange Agreement”), an aggregate of 26,000,000 shares of the Company’s common stock for all of the issued and outstanding equity and voting interests of Muscle Pharm from the Muscle Pharm members (the “Share Exchange”).  As a result of this transaction, Muscle Pharm became a wholly owned subsidiary of the Company.

In addition, pursuant to the terms and conditions of the Securities Exchange Agreement, Muscle Pharm paid $25,000 to the President of the Company (John Dean Harper) for his 366,667 shares of the Company’s common stock and these shares were cancelled.

The Share Exchange with Muscle Pharm is being accounted for as a “reverse acquisition,” since the former owners of Muscle Pharm own a majority of the outstanding shares of the Company’s common stock immediately following the transaction. No arrangements or understandings exist among present or former controlling shareholders with respect to the election of members of the Company’s board of directors and, to the Company’s knowledge, no other arrangements exist that might result in a change of control in the future. As a result of the Share Exchange with Muscle Pharm and the change in the majority of the Company’s directors, a change in control occurred on the date of the consummation of the transaction.

The information set forth in Item 1.01 above is incorporated herein by reference.

 
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Item 5.02  Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers.

Upon the closing of the Share Exchange, John Dean Harper, the Company’s only director and officer resigned. See “Item 2.01 - Completion of Acquisition or Disposition of Assets - Management” for information with regard to the individuals who became officers and directors of the Company upon completion of the Share Exchange.

Item 5.06  Change in Shell Company Status

See Item 2.01above.

Item 9.01  Financial Statements and Exhibits.

(a)            Financial Statements of Businesses Acquired

Financial Statements of Muscle Pharm, LLC. are included herewith as Exhibit 99.1.

(b)            Pro Forma Financial Statements

Pro Forma Financial Information giving effect to the acquisition of Muscle Pharm, LLC and the Company is included herewith as Exhibit 99.2.

(c)            Exhibits
 
Exhibit No.  Exhibits
   
2.1
Agreement Concerning the Exchange of Securities by and Among Tone in Twenty and Muscle Pharm, LLC and the Security Holders of Muscle Pharm, LLC (1)
   
3.3
Articles of Amendment
   
3.4
Certificate of Designation relating to the Series A Convertible Preferred Stock
   
10.2
Purchasing Agreement with General Nutrition Corporation dated December 16, 2009
   
10.3
Production and Advertising Agreement with Alive Media Group dated July 23, 2009
   
99.1
Audited financial statements of Muscle Pharm, LLC for the nine months ending September 30, 2009 and from Inception (April 22, 2008) to December 21, 2008.  (1)
   
99.2
 Unaudited pro forma consolidated balance sheet as of September 30, 2009; unaudited pro forma consolidated statement of operations for the nine months ended September 30, 2009; unaudited pro forma consolidated balance sheet as of December 31, 2008; and unaudited pro forma consolidated statement of operations for the period ended December 31, 2008 (1)
 
(1)      Filed with Form 8-K on February 2, 2010


 
32

 

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
Tone in Twenty
   
 
 
 
By: / s/ Brad Pyatt
 
Name:  Brad Pyatt
 
Title:  President


Dated:   February 24, 2010
 
 
 
 
 
 

 








 
33

 

EXHIBIT 3-3
 
 
 
{State Seal}
 
Ross Miller
Secretary of State
202 North Carson Street
Carson City, Nevada 89701-4201
(775) 684-5708
Website: www.nvsos.gov
 
 
 
Certificate of Amendment
(PURSUANT TO NRS 78.385 AND 78.390)
 
 
 
 
Certificate of Amendment to Articles of Incorporation
For Nevada Profit Corporations
(Pursuant to NRS 78.385 and 78.390 - After Issuance of Stock)
 
 
1. Name of corporation:
 
  TONE IN TWENTY
 
2. The articles have been amended as follows (provide article numbers, if available):
 
Article 1 is amended to change the name of the company to:
 
MusclePharm Corporation
 
3.  The vote by which the stockholders holding shares in the corporation entitling them to exercise at least a majority of the voting power, or such greater proportion of the voting power as may be required in the case of a vote by classes or series, or as may be required by the provisions of the articles of incorporation have voted in favor of the amendment is: 366,667 shares = 83.8%
 
4. Effective date of filing:  3/1/10  
 
5. Signature: (Required):
 
/s/ Brad Pyatt
 
 
*If any proposed amendment would alter or change any preference or any relative or other right given to any class or series of outstanding shares, then the amendment must be approved by the vote, in addition to the affirmative vote otherwise required, of the holders of shares representing a majority of the voting power of each class or series affected by the amendment regardless of limitations or restrictions on the voting power thereof.
 
 
IMPORTANT: Failure to include any of the above information and remit the proper fees may cause this filing to be rejected.
 
 
 
 
 
 
 
 
 
 
 
EXHIBIT 3.4
 

Filed in the office of
 
 
Ross Miller
Secretary of State
State of Nevada
Document Number
20100100655-60
Filing Date and Time
02/17/2010 2:01 PM
Entry Number
E0580752006-0
 
  Certificate of Designation
(Pursuant to NRS 78.1955)
 

 
Certificate of Designation For
Nevada Profit Corporations
(Pursuant to NRS 78.1955)

1.  Name of corporation:

Tone in Twenty

2.  By resolution of the board of directors pursuant to a provision in the articles of incorporation this certificate establishes the following regarding the voting powers, designations, preferences, limitations, restrictions and relative rights of the following class or series of stock.

The shares of the series of preferred stock created and authorized by this Resolution shall be designated “Series A Convertible Preferred Stock” (the “ Series A Preferred Stock ”). The total number of authorized shares constituting the Series A Preferred Stock shall be 833,333. The number of shares constituting this series of preferred stock of the Corporation may be increased or decreased at any time, from time to time, in accordance with applicable law up to the maximum number of shares of preferred stock of the Corporation; provided, however, that no decrease shall reduce the number of shares of this series to a number less than that of the then-outstanding shares of Series A Preferred Stock. The stated par value of the Series A Preferred Stock shall be $0.001 per share. Shares of the Series A Preferred Stock shall be dated the date of issue.  (Continued on attachment)

3.  Effective date of filing: (optional)

(must not be later than 90 days after the certificate is filed)

4:  Signature: (required)


/s/ John Dean Harper , Secretary
Signature of Officer

Filing Fee:  $175.00

IMPORTANT:  Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
 

 
 

 

CERTIFICATE OF DESIGNATION
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
TONE IN TWENTY
________________________________________

Pursuant to Section 78.1955 of the
Nevada Revised Statutes
________________________________________

The undersigned does hereby certify that pursuant to the authority conferred upon the Board of Directors of TONE IN TWENTY, a Nevada corporation (the “ Corporation ”), by its Articles of Incorporation, as amended, and Section 78.315 of the Nevada Revised Statutes, the Board of Directors, by unanimous written consent, duly approved and adopted the following resolution (referred to herein as the “ Resolution ”):

RESOLVED , that pursuant to the authority conferred on the Board of Directors of the Corporation (“ Board of Directors ”) by  the Articles of Incorporation of the Corporation (the “ Articles ”), and in recognition of the fact that the Certificate of Amendment filed on February 23, 2007 designated the Series A Convertible Preferred Stock, the Board of Directors hereby confirms and further defines and, authorizes the issuance of a series of preferred stock, par value $0.001 per share, of the Corporation, consisting of up to 833,333 shares (after adjusting for the 1 for 6 reverse split which was effected on June 25, 2009, and hereby fixes the voting powers, designations, preferences, and relative, optional and other special rights, and qualifications, limitations, and restrictions thereof, of the shares of such series, in addition to those set forth in the Articles, as follows:

SECTION 1. DESIGNATION OF SERIES A CONVERTIBLE PREFERRED STOCK. The shares of the series of preferred stock created and authorized by this Resolution shall be designated “Series A Convertible Preferred Stock” (the “ Series A Preferred Stock ”). The total number of authorized shares constituting the Series A Preferred Stock shall be 833,333. The number of shares constituting this series of preferred stock of the Corporation may be increased or decreased at any time, from time to time, in accordance with applicable law up to the maximum number of shares of preferred stock authorized under the Articles, less all shares at the time authorized of any other series of preferred stock of the Corporation; provided, however, that no decrease shall reduce the number of shares of this series to a number less than that of the then-outstanding shares of Series A Preferred Stock. The stated par value of the Series A Preferred Stock shall be $0.001 per share. Shares of the Series A Preferred Stock shall be dated the date of issue.

SECTION 2. DIVIDEND RIGHTS.    The holders of shares of Series A Preferred Stock shall not be entitled to receive any dividends

SECTION 3. LIQUIDATION RIGHTS.    The holders of shares of Series A Preferred Stock shall not have any liquidation rights.
 

 
2

 


SECTION 4. VOTING RIGHTS. The holders of Series A Preferred Stock shall not be entitled to (a) any voting rights with respect to the Series A Preferred Stock or (b) notice of any meeting of the shareholders of the Corporation, except in each case to the extent specifically required by Nevada law.

SECTION 5.  CONVERSION RIGHTS.
 
 
5.1             Conversion of Series A Preferred Stock Into Common Stock. At any time and from time to time after the issuance of the Series A Preferred Stock, any holder thereof may convert any or all of the shares of Series A Preferred Stock held by such holder at the ratio of two hundred (200) shares of Common Stock for every one (1) share of Series A Preferred Stock converted (the “ Conversion Rate ”), provided, however, the Company shall not effect any conversion of the Series A Preferred Stock or any other preferred stock or warrant held by a holder of Series A Preferred Stock (a “ Holder ”), and no such Holder shall have the right to convert any Series A Preferred Stock or any other preferred stock or warrant held by such Holder, to the extent that after giving effect to such conversion, the beneficial owner of such shares (together with such beneficial owner’s affiliates) would beneficially own in excess of 4.9% of the shares of the Common Stock outstanding immediately after giving effect to such conversion or exercise. For purposes of the foregoing sentence, the aggregate number of shares of Common Stock beneficially owned by a beneficial owner of Series A Preferred Stock held by such beneficial owner and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Series A Preferred Stock, any other preferred stock and warrant held by such Holder with respect to which the determination of such sentence is being made, but shall exclude shares of Common Stock which would be issuable upon (i) conversion of the remaining, nonconverted Series A Preferred Stock beneficially owned by such beneficial owner and its affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company beneficially owned by such beneficial owner and its affiliates (including, without limitation, any convertible notes or convertible preferred stock or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained herein. Except as set forth in the preceding sentence, for purposes of this paragraph, beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 5.1, in determining the number of outstanding shares of Common Stock a Holder may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-Q, Form 10-K or other public filing with the Securities and Exchange Commission, as the case may be, (2) a more recent public announcement by the Company or (3) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written or oral request of any Holder, the Company shall within two business days confirm orally and in writing to any such Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Series A Preferred Stock, any other preferred stock and warrant held by a Holder, by such Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported.
 
 

 
3

 


5.2           Conversion Procedure.

(a)             Notice and Surrender of Certificates. Any holder of shares of Series A Preferred Stock desiring to convert any portion thereof into shares of Common Stock shall give written notice that such holder elects to convert a stated number of Series A Preferred Stock into Common Stock (the “ Conversion Notice ”) and shall surrender each certificate representing the Series A Preferred Stock to be converted, duly executed in favor of the Corporation or in blank accompanied by proper instruments of transfer, at the principal business office of the Corporation (or at such other place as may be designated by Corporation). The Conversion Notice shall set forth the name or names (with the address or addresses) in which the certificate or certificates for shares of the Common Stock shall be issued.

(b)             Effective Time of Conversion. To the extent permitted by law, the conversion of the Series A Preferred Stock pursuant to this Section 5.2 into Common Stock shall be deemed to have been effected immediately prior to the close of business on the date on which all the conditions in Section 5.2(a) of this Resolution have been satisfied, and at such time the rights of the holder of such shares of Series A Preferred Stock so converted shall cease, and the person or persons in whose name any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the share of Common Stock represented thereby. The date on which the conversion of the Series A Preferred Stock pursuant to this Section 5.2 into Common Stock shall be deemed to have been effected is hereinafter referred to as the “ Effective Conversion Date ”.  Except as otherwise provided herein, no payment or adjustment shall be made in respect of the Common Stock delivered upon conversion of the Series A Preferred Stock.

(c)             Issuance of Common Stock Certificates. As soon as practicable after the Effective Conversion Date, the Corporation shall issue and deliver, or cause to be issued and delivered, to the converting holder a certificate or certificates for the number of whole shares of Common Stock issuable by reason of the conversion of such shares of Series A Preferred Stock, registered in such name or names and such denominations as the converting holder has specified, subject to compliance with applicable laws to the extent such designation shall involve a transfer. In case the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered for conversion pursuant to this Section 5.2 exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder thereof a new certificate for the number of shares of Series A Preferred Stock represented by the certificate or certificates surrendered that are not to be converted.


 
4

 

5.3           Adjustments to Conversion Rate.

(a)             Subdivision or Combination of Common Stock. If the Corporation at any time: (i) pays a dividend or makes a distribution on its Common Stock in shares of Common Stock, (ii) subdivides (by stock split, recapitalization, or otherwise) its outstanding Common Stock into a greater number of shares, or (iii) combines (by reverse stock split or otherwise) its outstanding Common Stock into a smaller number of shares, then the Conversion Rate in effect at the time of the record date for such dividend or distribution, or the effective date of such subdivision or combination, shall be proportionately adjusted immediately thereafter so that the holder of any shares of the Series A Preferred Stock surrendered for conversion after such event will receive the kind and amount of shares that such holder would have received if the Series A Preferred Stock had been converted immediately prior to the happening of the event. Such adjustment shall be made successively whenever any of the events referred to in this Section 5.3(a) occur.

5.4             Reservation of Shares of Common Stock. The Corporation shall at all times reserve and keep available out of its authorized and unissued shares of Common Stock, such number of shares of its Common Stock as shall from time to time be sufficient to effect the conversion of all shares of the Series A Preferred Stock from time to time outstanding, but shares of Common Stock held in the treasury of the Corporation may, at the discretion of the Corporation, be delivered upon any conversion of the Series A Preferred Stock.

RESOLVED FURTHER , that the President and the Secretary of the Corporation hereby are authorized and directed to prepare, execute, verify, file and record a certificate of designation of preferences in accordance with the foregoing resolutions and the provisions of the Nevada Revised Statutes.




[Remainder of page intentionally left blank.]
 
 



 
5

 

IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by its President and attested by its Secretary this 16th day of February, 2010.
 
 
 
TONE IN TWENTY
   
   
 
By: /s/ John Dean Harper
 
       John Dean Harper, President
   
 
 
 
Attested to by:
   
   
 
By: /s/ John Dean Harper
 
       John Dean Harper, Secretary













 
6

 

EXHIBIT 10.2


CONTRACT NUMBER: 4205
Cambar Vendor Number: 4463


PURCHASING AGREEMENT

BUYER:
 
 
SELLER:
General Nutrition Corporation
300 Sixth Avenue
Pittsburgh, PA 15222
Attention:  Purchasing Department
 
Muscle Pharm, LLC
3390 Peoria St # 307
Auros, CO 80010
Phone:   412/288/2096
Phone: 303/564/7432
Fax:   412/338/8865
Fax:  800/490/7165
E-mail:  frank-pernice@gnc-hq.com
E-mail:
Contact Person:  Frank Pernice
Contact Person:  Leonard Armenta

In consideration of the mutual promises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, and intending to be legally bound hereby, Buyer and Seller (individually a “ Party ” and collectively the “ Parties ”) agree as follows:

SUMMARY OF CERTAIN KEY TERMS

1.            Supply of Product .  During this Agreement, (i) Buyer shall purchase from Seller the products listed on Exhibit 1 (the “ Products ”) at the prices listed on Exhibit 1 (the “ Prices ”)and (ii) Seller shall sell, fulfill and deliver those Products, all pursuant to this Agreement and Buyer’s vendor book (the “ Vendor Book ”), which, among other requirements, includes Buyer’s standard purchase order (the “ Purchase Order ”).  Seller shall also provide the information regarding the Products requested on Exhibit 1 .

2.            Lead Time .   Unless otherwise stated in a Purchase Order from Buyer, all delivery   transportation terms of sale will be FOB Destination—FREIGHT COLLECT, unless Buyer’s transportation department (the “ Transportation Department ”) designates FOB Destination—PREPAID (the “ Shipment Terms ”).  The Shipment Terms pertain to the cost and delivery point of shipment of the Products from Seller’s facility located within the United States of America and shall not affect allocation of the risk of loss, passage of title, acceptance, payment, or Buyer’s right to return Products, which are addressed elsewhere in this Agreement.   Seller shall contact the Transportation Department, in accordance with Paragraph B of the General Terms below, before making any shipping arrangements.  All Product deliveries will be made by Seller within 3 weeks after Buyer places the order (the “ Lead Time ”).  If Buyer designates that the Transportation Department will arrange pick up of the Products, then the Lead Time for such shipment is shortened by one week.

 
 

 


3.            Product Payment .  Buyer shall pay Seller for Products received by Buyer:
Pay on Scan
Within ten days after on-scan or entry into the cash register at a Buyer-owned  store and within ten days after wholesale delivery from Buyer’s distribution center to Buyer franchisees or unaffiliated purchasers.

Shrink Allowance for Pay on Scan Products .  “ Shrink ” means lost, stolen, or damaged Product after Acceptance.  "Shrink" does not include concealed damage discovered after Acceptance while in Buyer's distribution center. For each unit of Product purchased by Buyer via pay-on-scan only, Seller shall credit Buyer 1% of the Product purchase price to account for Shrink related to the Product.  The shrink allowance shall be deducted by Buyer against each invoice paid to Seller.

4.            Reverse Logistics .  Seller agrees to the General Nutrition Returns Agreement (the “ Returns Agreement ”)   attached as Exhibit 4 .

5.            Term .  This Agreement shall be in effect for one year from the date signed by Buyer (the “ Effective Date ”); thereafter, the Agreement will automatically renew on an annual basis.  Either Party may terminate this Agreement at any time without cause on 30 days advanced written notice.

6.            Advertising and Promotion .  Seller agrees to the total annual advertising commitment for the Products as set forth on Exhibit 6 (the "Committed Advertising").  Upon request from Buyer, Seller agrees to provide Buyer with proof of placements for the Committed Advertising for the months committed as set forth on Exhibit 6.  In the event that Seller fails to (a) conduct the Committed Advertising for any committed month or (b) provide Buyer with proof of placement showing Seller conducted the Committed Advertising for any committed month, Buyer may discontinue any or all of the Products and such Product(s) will be subject to the reverse logistics terms set forth in Exhibit 4.  Seller shall support Buyer's sale of the Products by Product advertising and promotion as set forth on Exhibit 6.

7.            Customer Return Pledge .  Seller shall comply with Buyer’s customer return program as described in the Vendor Book.  All Product returned by Buyer’s customers will be charged back to Seller   at cost plus 18% of such cost in addition to any inbound freight cost incurred by Buyer. The chargeback amount, structured to compensate for all expenses incurred by Buyer in carrying the Product, will be either paid in cash to Buyer or   deducted from Seller’s account when invoice payments are issued.

8.            Insurance .  Seller shall maintain a comprehensive General/ Products Liability occurrence policy, $2,000,000 per occurrence/$2,000,000 aggregate for bodily injury, and property damages with the following coverage; Premises/Operations, Products/Completed Operations, Contractual Liability and Independent Contractors; or General/Products Liability claims made policy, $2,000,000 per occurrence/$2,000,000 aggregate for bodily injury and property damages with the following coverage:  Premises/Operations, Products/Completed Operations, Contractual Liability and Independent Contractors.  The retroactive date of the

 
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policy must be prior to the Effective Date and must be specified on the certificate of insurance for such policy.  Further details for each policy are contained in the Vendor Book.  Seller shall name Buyer and Buyer’s subsidiaries and   affiliates as an additional insured under such coverage as described in the Vendor Book.  Seller shall deliver to Buyer a certificate of insurance evidencing the required coverage to Buyer prior to any delivery of Product.  Seller shall provide Buyer at least 60 days prior written notice of any cancellation, change, or reduction of such coverage (a “ Change in Insurance ”) and any such Change in Insurance shall   constitute a material breach of the Agreement.  In addition, Seller shall provide indemnification to Buyer and Buyer’s affiliates as more fully described in the Vendor Book.

9.            Indemnity .  Seller shall defend, indemnify, and hold Buyer and Buyer’s affiliates and Buyer’s and Buyer’s affiliates’ franchisees and licensees harmless from and against all claims, expenses, liabilities, losses, and damage, including reasonable attorney’s fees, resulting from, or arising in connection with, (i) the failure of the Products to conform in any respect to the representations and warranties contained in any part of this Agreement, (ii) the failure of the Products to meet label claims or Buyer’s quality control standards, (iii) the promotion, sale, purchase, resale, or use of the Products or any litigation or threatened litigation based thereon, and (iv) all intellectual property infringement and misappropriation claims based on the Products.  Such right of indemnity shall exist in favor of the Buyer even though the negligence, gross negligence, strict liability, common law or statutory fault of the Buyer, or any of them, was the sole cause, a producing cause or a concurring cause of the claim, demand, controversy or cause of action in question.  This indemnity and defense shall be in addition to other remedies afforded to Buyer or Buyer’s affiliates at law or in equity.  This indemnity and defense shall survive acceptance of the Products and payment therefore by Buyer.  Seller shall assume Buyer’s contractual obligations to defend and indemnify Buyer’s affiliates and Buyer’s affiliates’ franchisees and licensees from all claims, expenses, liabilities, losses, and damages, including reasonable attorney’s fees, resulting from the promotion, sale, purchase, resale, or use of the Products.

10.            Limitation .  IN NO EVENT SHALL BUYER BE LIABLE TO SELLER UNDER THIS AGREEMENT (WHETHER IN TORT, IN STRICT LIABILITY, IN CONTRACT, OR OTHERWISE) FOR ANY (i) INDIRECT, INCIDENTAL, SPECIAL, EXEMPLARY, OR CONSEQUENTIAL DAMAGES, INCLUDING DAMAGES FOR LOST PROFITS, EVEN IF BUYER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, OR (ii) AMOUNT THAT EXCEEDS THE AGGREGATE FEES PAID BY BUYER TO SELLER UNDER THIS AGREEMENT FOR THE IMMEDIATELY PRECEDING SIX MONTHS.  THE EXISTENCE OF MORE THAN ONE CLAIM WILL NOT ENLARGE OR EXTEND THESE LIMITS.

11.            Margin Neutrality .  A Product's margin percentage is calculated by subtracting the Buyer's Product cost from the Product's retail price and dividing that result by the Product's retail price.  A margin percentage is established with the initial sale of the Product at Buyer's corporate stores.  If Buyer wishes to promote the Product thereafter by lowering the retail price of the Product, the Seller agrees to lower the cost of the Product for each unit sold during the promotion such that the Buyer’s originally calculated margin percentage remains neutral (i.e, the same as it was before Buyer lowered the retail price).  The difference between the original Product cost and

 
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the reduced Product cost during the promotion multiplied by the units sold during the promotion period equal the markdown monies ("Markdown Monies") owed to Buyer from Seller.  The units of Product sold during the promotion period will be based on (a) for franchise sales, units sold by Buyer to franchisees and (b) for corporate sales, units sold at corporate retail stores.  All promotions will be available to franchise stores.  Solely with regard to sales of the Product from the Buyer to franchisees, the promotional pricing for the Product will start two weeks prior to the start date of the promotion in corporate retail stores and end two weeks prior to the end date of the promotion in corporate retail stores.  Markdown Monies will be paid by Seller based on units sold at the end of each month during the promotion.  Payment will be automatically deducted by Buyer from Seller’s account via credit memo.  If there is not an open balance to deduct against, Seller will issue a check payment in full within 30 days of Buyer's written notification.


GENERAL TERMS

A.            Pricing Terms .   Seller guarantees   that the Prices are the lowest currently available.  Should lower prices become applicable for any of Seller’s customers, the Prices will automatically and immediately become applicable for Buyer.  Upon request of Buyer, Seller shall confirm in writing that the Prices are Seller’s lowest offered price.  Seller shall work continuously on achieving cost savings and improvements in raw materials, specifications, packaging, and production efficiencies to the benefit of both Parties and those savings and improvements shall be promptly passed on to Buyer in the form of lower Prices and improved Products.

B.            Ordering and Delivery .  The Transportation Department shall determine and arrange all transportation requirements for FOB Destination—FREIGHT COLLECT deliveries.  If Seller is to arrange transportation, Seller shall provide estimates to the Transportation Department for verification of reasonableness and approval of selected carrier before shipment is made.   Each Purchase Order received from Buyer shall be confirmed by Seller within 24 hours   following receipt to Buyer’s contact person by fax or electronic confirmation of receipt.  All   Products must be shipped to the distribution center designated by Buyer.

C.            “Sale or Return” Purchase .  Seller and Buyer agree that all Products shall be sold on a “sale or return” basis subject to the terms of this Agreement, including this Paragraph C and Exhibit 4 of the Returns Agreement.

D.            Confidentiality .  During the term of this Agreement and after the expiration or termination of this Agreement, each Party shall keep confidential, and shall require such Party’s officers, directors, employees, and agents to keep confidential, all proprietary information of the other Party, including (i) any information specifically identified by either Party prior to disclosure as being confidential information, (ii) plans and data concerning products, prices, marketing, sales, customers, and (iii) technical or business matters.  Disclosure of such confidential information shall be made by either Party only to those of such Party’s employees and agents who have need to know such information in order to carry on the purposes of this Agreement and who have agreed in writing to abide by confidentiality requirements at least as restrictive as those set forth in this Agreement.  Seller shall not disclose the terms of this

 
4

 

Agreement to any person or entity that is not a Party.  A breach or threatened breach of this Paragraph D by the receiving Party may cause irreparable harm and injury to the disclosing Party for which money damages are inadequate.  In the event of such breach or threatened breach, the disclosing Party shall be entitled to seek injunctive relief, in addition to all other available remedies, without the requirement of posting a bond or any other security.

E.            Notices .  All demands, notices, and other communications to be given under this Agreement by a Party to the other Party shall be deemed to have been duly given if given in writing and (i) personally delivered, (ii) sent by nationally recognized overnight courier, or (iii) sent by mail, certified, postage prepaid with return receipt requested, in each case, at the address set forth in this Agreement for such other Party.  Notices delivered personally or by courier shall be deemed communicated as of actual receipt.  Mailed notices shall be deemed communicated as of 10:00 a.m. on the third business day after mailing.  Any Party may change such Party’s address for notice under this Agreement by giving prior written notice to the other Party of such change in the manner provided in this Paragraph E .

F.            Entire Agreement and Modification .  This Agreement (including the Vendor Book, the Purchase Order, and all exhibits) contains the entire agreement of the Parties relating to the subject matter of this Agreement, and the Parties agree that this Agreement supersedes all prior written or oral agreements, representations, and warranties relating to the subject matter of this Agreement.   In the event of any conflict between the terms of this Agreement and the Vendor Book, the terms of this Agreement shall control.  Except for changes to the Vendor Book made by Buyer,   no modification of this Agreement shall be valid unless made in writing and signed by the Parties.  The terms contained in Seller’s invoices, acknowledgments, or other writings are not binding on Buyer and are of no force or effect.  The individuals signing this Agreement each represents to the other that such individual has the full right and authority to enter into this Agreement and to perform the obligations set forth in this Agreement of such Party.  The terms and conditions of the Vendor Book may, from time to time, be unilaterally amended by Buyer.  In the event of such an amendment, Buyer shall send Seller a written notification describing the amendment via registered mail, postage prepaid, to the address listed above at least 30 days prior to the amendment’s effective date.  Acceptance by Seller of a Purchase Order (or any Buyer order) after receiving notice of the amendment to the Vendor Book shall constitute acceptance by Seller of the amended terms and conditions of the Vendor Book.   Sections 4, 7, 8, 9, and 10 of this Agreement and Paragraphs C through F and Paragraphs H and I of the General Terms shall survive the termination of this Agreement.

G.            Termination .   Either Party may terminate this Agreement upon notice to the other Party if such other Party becomes insolvent or bankrupt or files or permits to be filed any petition in bankruptcy.

H.            Waiver, Assignment, and Severabililty .  The waiver of a breach of any term or condition of this Agreement shall not be deemed to constitute the waiver of any further breach of such term or condition or the waiver of any other term or condition of this Agreement.  Neither Party shall assign this Agreement or any right or interest in or to this Agreement, in whole or in part, without the prior written consent of the other Party, except that Buyer may assign this Agreement to a purchaser of all or substantially all of Buyer’s assets.  The invalidity, in whole or

 
5

 

in part, of any provision in this Agreement shall not affect the validity of any other provision.   The Parties exclude the application of the United Nations Convention on Contracts for the International Sale of Goods if otherwise applicable.   This Agreement shall be interpreted, construed, and enforced in all respects in accordance with the laws of the Commonwealth of Pennsylvania.  Venue of any action relating to, or arising out of, this Agreement shall lie exclusively in the courts located in Allegheny County, Pennsylvania.  All disputes, claims, and controversies, whether statutory, contractual, or otherwise, between the Parties arising under, or relating to, this Agreement shall be governed by the Vendor Book.

I.            Interpretation .  In the interpretation of this Agreement, except where the context otherwise requires, (i) “including” or “include” does not denote or imply any limitation, (ii) “or” has the inclusive meaning “and/or,” (iii) “and/or” means “or” and is used for emphasis only, (iv) “$” refers to United States dollars, (v) the singular includes the plural, and vice versa, and each gender includes each other gender, (vi) captions or headings are only for reference and are not to be considered in interpreting this Agreement, (vii) “Section” refers to a section of this Agreement, unless otherwise stated in this Agreement, (viii) “Exhibit” refers to an exhibit to this Agreement (which is incorporated by reference), unless otherwise stated in this Agreement, (ix) “Schedule” refers to a schedule to this Agreement (which is incorporated by reference), unless otherwise stated in this Agreement, (x) all references to times are times in Allegheny County, Pennsylvania, (xi) “day” refers to a calendar day unless expressly identified as a business day, and (xii) the Vendor Book is incorporated by reference.

J.            Counterparts .  This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  Faxed copies of manually executed signature pages to this Agreement will be fully binding and enforceable without the need for delivery of the original manually executed signature page.

The Parties have executed this Agreement on the date first set forth above.

BUYER
SELLER
   
GENERAL NUTRITION CORPORATION
MUSCLE PHARM, LLC
   
By:  /s/ Stephen B. Cherry
By:  /s/ Leonard K. Armenta
   
Name: Stephen B. Cherry
Name: Leonard K. Armenta
   
Title:  VP Purchasing
Title:  COO
   
Date:  12-18-09
Date:  12/16/09

Seller acknowledges that Seller has received a copy of the Vendor Book incorporated into this Agreement.

MUSCLE PHARM, LLC

By:  /s/ Leonard K. Armenta
Name:  Leonard K. Armenta
Title: COO
Date:  12/16/09

 
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EXHIBIT 1

LIST OF PRODUCTS

BUYER ITEM  NO.
UPC
CODE
DESCRIPTION
UNIT PRICE
FOB DESTINATION PREPAID
UNIT PRICE FOB DESTINATION FREIGHT COLLECT
OVERALL
INVENTORY
TURN RATE IN BUYER-OWNED STORES
BUYER’S
MINIMUM
SALES IN BUYER-OWNED STORES
MINIMUM ORDER QUANTITY
446301
 
Berry combat powder 5lb
$21.90
 
NA
NA
NA
446302
 
Battle fuel
$21.90
 
NA
NA
NA
446304
 
Chocolate combat powder
$21.90
 
NA
NA
NA
446305
 
Chocolate Pntbtr combat powder
$21.90
 
NA
NA
NA
446306
 
Fruit punch assault
$21.00
 
NA
NA
NA
446307
 
Fruit punch recon
$21.90
 
NA
NA
NA
446308
 
Grape bullet proof
$20.98
 
NA
NA
NA
446309
 
Orange raspberry bullet proof
$20.98
 
NA
NA
NA
446310
 
Raspberry lemon assault
$21.00
 
NA
NA
NA
446312
 
Shredded matrix
$19.48
 
NA
NA
NA
446317
 
Blue raspberry assault
$21.00
 
NA
NA
NA
446318
 
Banana combat powder
$21.90
 
NA
NA
NA




 
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EXHIBIT 4

GENERAL NUTRITION RETURNS AGREEMENT

Buyer has a Reverse Logistics Program that allows Buyer to return to Seller for credit (or for a cash payment at Buyer’s sole option) any and all of the Products purchased by Buyer under the Purchasing Agreement to which this Returns Agreement (this “ Agreement ”) is an Exhibit (the “ Purchasing Agreement ”), any units of any Products that are (i) defective, (ii) outdated, (iii) discontinued by Buyer (pursuant to the criteria set forth in this Agreement), or (iv) recalled using a centralized returns system.  A “recalled product” is a Product or ingredient in a Product for which a recall has been requested by Seller or any government entity.   A “defective product” is a Product that contains latent defects relating to the quality of the Product or the Product’s packaging.

Seller agrees that Buyer’s designated reclamation center (the “ Reclamation Center ”) shall process all Products and provide detailed reporting services.  The Products will be returned to the Reclamation Center.  Buyer reserves the right to change the Reclamation Center at any time.  All Products returned via this Agreement to the Reclamation Center shall be held for Seller’s review for 21 days after notice of return is provided to Seller; at that time if not reviewed or no decision has been provided to Buyer by Seller, the Product may be disposed of at the discretion of Buyer.

Retail and wholesale sales of the Products will be evaluated by Buyer on a rolling eight week basis as per agreed full distribution to Buyer’s stores, and Buyer may elect to discontinue any Products and return such Products to Seller   if, during such eight week period, either sales of such Product (i) fall below the minimum sales threshold in Buyer-owned stores as set forth on Exhibit 1 of the Purchasing Agreement for such Product (the “ Minimum Sales Threshold ”) or (ii) do not meet the minimum overall inventory Turn Rate (as defined below) in Buyer-owned stores   as set forth on Exhibit 1 of the Purchasing Agreement for such Product (the “ Minimum Overall Inventory Turn Rate ”).

A “ Turn Rate ” means the quotient of (i) the aggregate of the last eight weeks of Buyer’s cost of the individual Product sold resulting from retail sales of the individual Product in Buyer-owned stores divided by (ii) the average cost of the aggregate individual Product in inventory at Buyer-owned stores and 70% of distribution centers inventory during the same eight week period. The calculated value of 70% of distribution centers inventory accounts for Product inventory allocated to Buyer-owned stores. For clarity purposes, the term “ individual Product ” in the preceding sentence refers to one specific Product listed on Exhibit 1 to the Purchasing Agreement and not all of the Products collectively listed on Exhibit 1 to the Purchasing Agreement.   Seller agrees that any of the Products previously delivered to Buyer and that are in Buyer’s inventory prior to execution of this Agreement are subject to the terms of this Agreement.

Seller agrees to provide Buyer with a letter of credit to satisfy any amounts Seller owes Buyer under this Agreement.


 
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Buyer’s   objectives under this Agreement are:

 
·
Fairness to all parties
 
·
Total accountability
 
·
Supplier designated disposition of products
 
·
Thorough, accurate, and timely communication with Buyer’s suppliers

Buyer shall receive a credit (or at Buyer’s option, a cash payment) for each unit of any Product returned based on Buyer Standard Cost (as defined below) per unit, plus the accepted factors from the Joint Industry Report (JIR) for handling returns.  These accepted factors include:
 
·
Direct Product Cost (“DPC”): $0.085
 
·
Post Damage Handling (“PDH”): $0.190
 
·
Operations Through Scan (“OTS”): $0.101
 
·
Disposition Cost (as selected below)
 
Please indicate the method of disposition and corresponding Disposition Cost for the Products by placing an “X” on the appropriate choice below (if no method of disposition is chosen by Seller within seven days following the notification to return Product, the COPT code will apply):

CODE
DESCRIPTION (DISPOSITION COST)
   
COPT______
Scan and disposition left up to the discretion of Buyer   ($0.020)*
DONA_____
Scan and Donate ($0.030)
DEST______
Scan and DESTROY ($0.040)*
ROPT______
Scan, Hold, Seller Review/Center Option ($0.127)
RDON_____
Scan, Hold, Seller Review, DONATE ($0.137)
RDES______
Scan, Hold, Seller Review, DESTROY ($0.147)*
RTAK______
Scan, Hold, Seller Review, TAKE ($0.174)
RSHP______
Scan, Hold, Seller Review, Ship ($0.186)
SHBK______
Scan and Ship back to Seller   ($0.180)* Open RA# Required:_________

*NON-TOXIC/NON-HAZARDOUS MATERIAL ONLY

Handling of hazardous materials (as determined by Buyer) will require Seller to supply material safety data sheets (“ MSDS ”) before a Product is returned.  Fees for hazardous materials will be in addition to the above costs.  Failure to provide MSDS may result in additional charges and possible fines, which Seller shall pay in full and as to which Seller shall fully indemnify Buyer.

With regard to Product located in Buyer stores in Alaska, Hawaii, and/or Puerto Rico, in addition to the Disposition Costs set forth above, at Seller’s option, Buyer will either destroy, at Seller’s expense, all Product at the store level or bill Seller for all shipping charges associated with sending Product to the Reclamation Center.  Buyer will provide an estimate of the shipping charges associated with returning the Products to the Reclamation Center, but Buyer’s recovery for shipping charges shall not be limited to such estimate but shall be based on Buyer’s actual cost.

 
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Buyer may increase any costs set forth in this Agreement 30 days after written notification of such increase is sent to Seller by Buyer.

Buyer’s unit count and dollar value determinations so made shall govern unless proved to be in error by Seller as determined by Buyer.

With regard to Products that are recalled, all recalled Products shall be returned to Seller via the SHBK Code ( i.e. , scanned and shipped back to Seller) regardless of whether Seller has chosen a different method of disposition.  An open RA# number must be established with Buyer’s purchasing department prior to the initiation of a recall.  Pallets shipped with recalled Products will be billed to Seller at the cost of $6.50 per pallet.  Itemized pallet charges will also appear on a future invoice.

All shipments of Product ( i.e. , those from Buyer stores to the Reclamation Center as well as from the Reclamation Center to Seller) shall be prepaid by Buyer to be reimbursed by Seller as set forth in this Agreement.  Title and risk of loss to any Products shall revert to Seller once the Products are removed from Buyer’s stores or warehouse for delivery to the Reclamation Center.

Explanations of Phrases and Abbreviations

BUYER STANDARD COST: Buyer’s cost for the Product charged by Seller plus the freight cost from  Seller to Buyer warehouses, if paid by Buyer.

JIR REPORT:   In 1989, a Joint Industry Committee conducted a study, measuring the costs of handling unsaleable products all the way back through the distribution channel.  Membership on the Committee was drawn from the following trade organizations: FMI, GMA, NAWGA, NGA, NFBA, and NACDS.  The resulting JIR Guidelines were issued in the form of recommended good business practices.

DPC: Direct Product Cost ” is the cost associated with transporting a Product from Buyer’s distribution centers to the retail store shelf.

PDH:   Post Damage Handling ” is the cost of removing a Product from the stores and shipping to the Reclamation Center.

OTS:   Operations Through Scan ” is cost of receiving, scanning, and preparing for   disposition of Product and associated costs at the Reclamation Center.

DISPOSITION COSTS:   Costs   associated with the disposition of the Product, as selected by Seller by code.

CODES: COPT, DONA, DEST, ROPT, RDON, RDES, RTAK, RSHP, SHBK.


 
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EXAMPLE of how an item under Disposition Cost   code COPT will be billed:

ITEMS STANDARD COST
  $ 2.900  
DPC COST
  $ 0.085  
POST DAMAGE COST
  $ 0.190  
OTS
  $ 0.101  
DISPOSITION COST
  $ 0.020  
TOTAL
  $ 3.296  

If Buyer returns 12 pieces of this item, the credit memo deduction will be: 12 X $3.296 = $ 39.552.

EXAMPLE of how an item under Disposition Cost code RSHP will be billed:
 
 
ITEMS STANDARD COST
  $ 2.900  
DPC COST
  $ 0.085  
POST DAMAGE COST
  $ 0.190  
OTS
  $ 0.101  
DISPOSITION COST
  $ 0.186  
TOTAL
  $ 3.462  

If Buyer returns 12 pieces of this item, the credit memo deduction will be: 12 X $3.462 = $41.544.

EXAMPLE of how recalled Product   will be billed:

ITEMS STANDARD COST
  $ 2.900  
DPC COST
  $ 0.085  
POST DAMAGE COST
  $ 0.190  
OTS
  $ 0.101  
DISPOSITION COST
  $ 0.180  
TOTAL
 
$3.456 + Pallet Charges
 
 
If Buyer returns 12 pieces of this item, the credit memo deduction will be 12 x $3.456 = $41.472 + Pallet Charges



 
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EXHIBIT 6
ADVERTISING AND PROMOTION

The Parties agree to the following advertising and promotion commitments as set forth below:

A.
Seller Commitments .

 
1.
Advertising Commitment


Product:
Medium:
Outlet:
Month(s) Committed:
$ Committed:
         
         
         
         

2.            Media and Promotional Plan
________________________________________________________________

3.            Promotional Money (“ PM ”) Support .

Buyer will charge an extra 10% over the total PM value to cover extra taxes and charges.  

4.            Category Drives .
________________________________________________________________

5.            Franchising Specific .
 
6.            Other .
_________________________________________________________________


 
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B.
Buyers Commitments .

 
1.
Initial Plan-O-Gram or Shelf Space Commitment .
__________________________________________________________________

 
2.
Product Introduction, Store Commitment .
__________________________________________________________________

 
3.
Franchising Specific .
 

































 
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EXHIBIT 10.3
 
 
ALIVE MEDIA GROUP
Television | Media | Marketing
 

Production and Advertising Agreement – Alive & Well TV  / Vitamin Shoppe TV

Company: MusclePharm (Client)

Represented By:  Leonard Armenta

Address: 3390 Peoria St, #307, Aurora, Colorado 80010 USA

Phone and/or E-Mail: Leonard@musclepharm.com

This agreement is between Alive Media Group, Inc., hereinafter referred to as “Company”, producers of the television show “Alive & Well”as well as the “Alive & Well at The Vitamin Shoppe” in-store program, and the above named company, hereinafter referred to as “Client”, for the purposes of television / video production and advertising on Alive & Well and/or Alive & Well at The Vitamin Shoppe. Client’s advertising shall begin on January 1, 2010 and shall be aired through Dec 31, 2010 (the Term). This agreement is made and in effect from this day, July 21, 2009 and is non-cancellable unless otherwise specifically noted herein.

Company owns and produces the Alive & Well TV series and the in-store TV program currently known as  Alive & Well at The Vitamin Shoppe. Client herein wishes to participate in the program and shall receive the following inclusive package:

 
·
Company shall produce FOUR “advertorial” feature segment(s), each @ 1 to 1 ½ minutes in length, featuring Client’s products. Segment(s) will be provided to The Vitamin Shoppe to play daily on the in-store TV program in Vitamin Shoppe stores (two segments per quarter for four quarters).
 
·
Client’s feature segment(s) will also be provided to The Vitamin Shoppe for placement on www.vitaminshoppe.com and for use in one or more direct sales e-mailers per quarter.
 
·
A second version of the segment(s) shall be edited specifically for airing on the Alive & Well cable TV series, with a built in call to action to The Vitamin Shoppe. These spots shall be @ 30 to 60 seconds in length and shall air weekly (1x60 or 2x30) on Alive & Well as a bonus at no additional cost.
 
·
Each of Client’s featured products shall be specially merchandised on the TV “end-caps” for at least one (or more) months of each quarter.
 
·
Client’s feature segment(s) will be placed on the Alive & Well website with a direct link to www.vitaminshoppe.com .
 
·
Client shall receive a free DVD or digital file of Client’s feature segment(s).
 
·
Client shall receive an all-inclusive discounted rate of $15,000.00 per month , which includes all production costs, airtime and promotional features listed above (payment terms below).


In order for Company to begin Client’s production, Client’s first monthly payment shall be due immediately upon the signing of this agreement. Thereafter, Client’s monthly payments in the amount of $15,000.00 , shall be due to be received by Alive Media Group, Inc. no later than the 1st day of each broadcast month (example: payment for August airings shall be due by August 1). If payment is 30 days past due, Company shall have the right to remove Client’s segment from airing in all media outlets and collect payment of the remainder of the contract in full and any lost airtime will be forfeited by Client. Please Note: All checks should be made payable to: “Alive Media Group, Inc.” and sent to 2129 Via Teca, San Clemente, CA 92673

If Client’s production is delayed because of Client’s failure to provide any information, materials or spokespersons by Company’s production deadlines, Client’s reserved airtime for that production may be forfeited at Client’s expense. Since the airtime can not be resold after deadline, Client shall remain responsible for payment in full. In this event, Client shall have the right to substitute a previously completed Company-produced production (if one exists) or negotiate to air the production at a later date at Client’s expense.

XXX All Parties Initial Here: Company X   MH     Client X   LA      

 
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Client shall be responsible for providing product samples, packaging, logos and/or any graphic materials that Client wishes to include in the production. Any materials, including products, samples, artwork, logos, digital media, videos and/or photography provided by Client, are only accepted upon the representation that Client and/or Client’s agency has full ownership and/or the right to publish the materials thereof. Client hereby grants full permission to Company and/or Company’s affiliates to use said materials relative to the production, reproduction and/or promotion of the show and/or Client’s production. Client represents that any and all claims, comments and representations made in any of Client’s materials and/or by Client’s on-camera representative(s), are fully legal and in compliance with Federal DSHEA guidelines and all regulations and laws in the United States. Client agrees to hold Company and it’s affiliates and The Vitamin Shoppe harmless in any legal action or liability related to Client’s production, including but not limited to Client’s materials, claims, products or copyright and trademark issues.

Client has chosen an advertising package which includes the production costs for Client’s television feature segment(s). Company’s production value for the segment(s) is @ $15K each. Should Client default or fail to pay for the contracted advertising as agreed herein in full, Client shall be liable for all production costs incurred on Client’s behalf and any remaining contracted airtime that can not be resold. Company and Client hereby represent that the production elements have been discussed and that no special elements requiring additional expense have been requested unless specified and agreed to herein. Client may request one round of production revisions as long as revisions are limited to minor editing, deletions or graphic elements not requiring additional on-camera production. Any additional production beyond the standard revisions may be subject to additional costs. Any expenses related to an appearance in the production by Client’s designated spokesperson(s), such as a celebrity, expert or representative of Client’s company, shall be the sole responsibility of Client, including travel, accommodations and compensation. If Client opts to provide Client’s own expert/spokesperson footage for use in the production, footage must meet Company’s specifications and Client must make footage available to Company for review within 6 weeks prior to production. Company reserves the right to decline or reject any of Client’s materials deemed unsuitable at any time without liability. Company reserves the right to alter any materials that do not meet the specifications or requirements of Company. Client’s feature segment may not be altered or edited in any way by Client or any third parties without Company’s written approval. The content of Alive & Well® and Alive & Well at The Vitamin Shoppe™ are the sole property of Company. The participation of Michelle Harris and the use of her image and name as well as the use of the Alive & Well® name is only granted for the uses herein as described in the terms of this agreement. If Client wishes to air Client’s feature segment beyond the initial schedule/term herein, Client must negotiate rates and a new agreement with Company at such time.

As the future cannot be predicted, no specific future viewership figures or results can be guaranteed herein. At the time of this agreement there are @ 335 Vitamin Shoppe stores airing the program. Due to the nature of possible equipment malfunction, power outages and human error, it is impossible to guarantee or predict the exact number of stores continuously airing the program during the Term, however, Company, in conjunction with The Vitamin Shoppe, will make every effort to ensure that the program is playing as agreed upon herein. Conditions are subject to change by Company. No conditions other than those set forth in this agreement shall be binding upon Company unless agreed to in writing by Company. In the event that Company is compelled to institute collection procedures or legal action to enforce any of it’s rights under this Agreement, Company shall be entitled to recover from Client any and all costs thereof, including, but not limited to reasonable legal, investigative, collection and attorney’s fees. Client shall receive notices at the address listed in this agreement. Company shall receive notices c/o Alive Media Group, Inc., 1001-K Avenida Pico, Suite C-207 San Clemente, CA 92673 (this is not a billing address).

In witness whereof, the parties have willingly executed this Agreement as of the date first above written.


X     /s/ Mark Harris              Date: 07/22/09
Sign & Date: For Company: Mark Harris                                                                     

X   /s/ Leonard Armenta      Date: 07/23/09
Sign & Date: For Client: Leonard Armenta   
 
(Print, Sign & Date)

 
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