AGREEMENT CONCERNING THE EXCHANGE OF SECURITIES BY AND AMONG TONE IN TWENTY AND MUSCLE PHARM, LLC AND THE SECURITY HOLDERS OF MUSCLE PHARM, LLC
EXHIBIT
2.1
AGREEMENT
CONCERNING
THE EXCHANGE OF SECURITIES
BY AND
AMONG
AND
MUSCLE
PHARM, LLC AND
THE
SECURITY HOLDERS OF MUSCLE PHARM, LLC
INDEX
Page
|
|
ARTICLE
I - Exchange of Securities
|
1
|
1.1 Issuance
of Securities
|
1
|
1.2 Exemption
from Registration
|
1
|
1.3 Corporate
Action
|
2
|
ARTICLE
II - Representations and Warranties of Muscle Pharm
|
2
|
2.1 Organization
|
2
|
2.2 Capital
|
2
|
2.3 Subsidiaries
|
2
|
2.4 Directors
and Executive Officers
|
2
|
2.5 Financial
Statements
|
2
|
2.6 Absence
of Changes
|
3
|
2.7 Absence
of Undisclosed Liabilities
|
3
|
2.8 Tax
Returns
|
3
|
2.9 Investigation
of Financial Condition
|
3
|
2.10 Intellectual
Property Rights
|
3
|
2.11 Compliance
with Laws
|
3
|
2.12 Litigation
|
3
|
2.13 Authority
|
4
|
2.14 Ability
to Carry Out Obligations
|
4
|
2.15 Full
Disclosure
|
4
|
2.16 Assets
|
4
|
2.17 Material
Contracts
|
4
|
2.18 Indemnification
|
4
|
2.19 Restricted
Securities
|
5
|
ARTICLE
III - Representations and Warranties of Tone in Twenty
|
5
|
3.1 Organization
|
5
|
3.2 Capital
|
5
|
3.3 Subsidiaries
|
5
|
3.4 Directors
and Officers
|
5
|
3.5 Financial
Statements
|
5
|
3.6 Absence
of Changes
|
6
|
3.7 Absence
of Undisclosed Liabilities
|
6
|
3.8 Tax
Returns
|
6
|
3.9 Investigation
of Financial Condition
|
6
|
3.10 Intellectual
Property Rights
|
6
|
3.11 Compliance
with Laws
|
6
|
3.12 Litigation
|
6
|
3.13 Authority
|
7
|
3.14 Ability
to Carry Out Obligations
|
7
|
3.15 Full
Disclosure
|
7
|
3.16 Assets
|
7
|
3.17 Material
Contracts
|
7
|
3.18 Indemnification
|
7
|
ARTICLE
IV - Covenants Prior to the Closing Date
|
8
|
4.1 Investigative
Rights
|
8
|
4.2 Conduct
of Business
|
8
|
4.3 Confidential
Information
|
8
|
4.4 Notice
of Non-Compliance
|
8
|
ARTICLE
V - Conditions Precedent to Tone in Twenty's Performance
|
8
|
5.1 Conditions
|
8
|
5.2 Accuracy
of Representations
|
8
|
5.3 Performance
|
9
|
5.4 Absence
of Litigation
|
9
|
5.5 Officer's
Certificate
|
9
|
5.6 Corporate
Action
|
9
|
5.7 Acceptance
of Financial Statements
|
9
|
5.8 Convertible
Notes
|
9
|
ARTICLE
VI - Conditions Precedent to Muscle Pharm's Performance
|
9
|
6.1 Conditions
|
9
|
6.2 Accuracy
of Representations
|
9
|
6.3 Performance
|
10
|
6.4 Absence
of Litigation
|
10
|
6.5 Officer's
Certificate
|
10
|
6.6 Payment
of Liabilities
|
10
|
6.7 Directors
of Tone in Twenty
|
10
|
6.8 Officers
of Tone in Twenty
|
10
|
ARTICLE
VII - Closing
|
10
|
7.1 Closing
|
10
|
ARTICLE
VIII - Covenants Subsequent to the Closing Date
|
11
|
8.1 Registration
and Listing
|
11
|
ARTICLE
IX - Miscellaneous
|
11
|
9.1 Captions
and Headings
|
11
|
9.2 No
Oral Change
|
11
|
9.3 Non-Waiver
|
11
|
9.4 Time
of Essence
|
11
|
9.5 Entire
Agreement
|
11
|
9.6 Choice
of Law
|
12
|
9.7 Counterparts
|
12
|
9.8 Notices
|
12
|
9.9 Binding
Effect
|
12
|
9.10 Mutual
Cooperation
|
12
|
9.11 Finders
|
12
|
9.12 Announcements
|
12
|
9.13 Expenses
|
12
|
9.14 Survival
of Representations and Warranties
|
13
|
9.15 Exhibits
|
13
|
9.16 Termination,
Amendment and Waiver
|
13
|
EXHIBITS
|
|
Allocation
of Securities
|
Exhibit
1.1
|
Letter
of Acceptance
|
Exhibit
1.2
|
Financial
Statements of Muscle Pharm
|
Exhibit
2.5
|
Material
Contracts of Muscle Pharm
|
Exhibit
2.17
|
Financial
Statements of Tone in Twenty
|
Exhibit
3.5
|
AGREEMENT
THIS
AGREEMENT ("Agreement") is made this 1st day of February, 2010, by and between
Tone in Twenty, a Nevada corporation ("Tone in Twenty"), Muscle Pharm, LLC, a
Colorado limited liability company ("Muscle Pharm"), and the security holders of
Muscle Pharm (the "Muscle Pharm Security Holders") who are listed on Exhibit 1.1
hereto and have executed Letters of Acceptance in the form attached in Exhibit
1.2, hereto.
WHEREAS,
Tone in Twenty desires to acquire all of the issued and outstanding equity and
voting interests of Muscle Pharm ("Muscle Pharm Interests") from the Muscle
Pharm Security Holders in exchange for newly issued unregistered shares of
common stock of Tone in Twenty;
WHEREAS,
Muscle Pharm desires to assist Tone in Twenty in acquiring all of the issued and
outstanding Muscle Pharm Interests pursuant to the terms of this Agreement;
and
WHEREAS,
all of the Muscle Pharm Security Holders, by execution of Exhibit 1.2 hereto,
agree to exchange one hundred percent (100%) of the Muscle Pharm Interests they
hold in Muscle Pharm for twenty-six million (26,000,000) shares of Tone in
Twenty common stock.
NOW,
THEREFORE, in consideration of the mutual promises, covenants and
representations contained herein, the parties hereto agree as
follows:
ARTICLE
I
Exchange
of Securities
1.1 Issuance
of Securities. Subject to the terms and conditions of this Agreement, Tone in
Twenty agrees to issue and exchange 26,000,000 shares of common stock for 100%
of the issued and outstanding Muscle Pharm Interests held by the Muscle Pharm
Security Holders. All Tone in Twenty Shares will be issued directly
to the Muscle Pharm Security Holders on the Closing Date (as hereinafter
defined), pursuant to the schedule set forth in Exhibit 1.1.
1.2 Exemption
from Registration. The parties hereto intend that all Tone in Twenty common
stock to be issued to the Muscle Pharm Security Holders shall be exempt from the
registration requirements of the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4(2) and/or Regulation D of the Act and rules and
regulations promulgated thereunder. In furtherance thereof, each of
the Muscle Pharm Security Holders will execute and deliver to Tone in Twenty on
the closing date of this Agreement (the "Closing Date") a copy of the Letter of
Acceptance set forth in Exhibit 1.2 hereto.
1.3 Corporate
Action. Tone in Twenty currently has 437,500 shares of common
stock and 83,333 shares of Series A Convertible Preferred Stock
outstanding. On the Closing Date, after the issuance of 26,000,000 to the
shareholders of Muscle Pharm, Tone in Twenty shall retire and cancel 366,666
shares of common stock to be received by it in exchange for the transfer to Xxxx
Xxxxxx of $25,000 in cash which shall have been provided by Muscle Pharm,
resulting in Tone in Twenty having outstanding a total of 26,070,834 shares of
common stock on the Closing Date.
ARTICLE
II
Representations
and Warranties of Muscle Pharm
Muscle
Pharm hereby represents and warrants to Tone in Twenty that:
1
2.1 Organization.
Muscle Pharm is a limited liability company duly organized, validly existing and
in good standing under the laws of Colorado, has all necessary corporate powers
to own its properties and to carry on its business as now owned and operated by
it, and is duly qualified to do business and is in good standing in each of the
states where its business requires qualification.
2.2 Capital.
Muscle Pharm has no outstanding subscriptions, options, rights, warrants,
debentures, instruments, convertible securities or other agreements or
commitments obligating Muscle Pharm to issue any additional Muscle Pharm
Interests of any class except for the convertible promissory notes which it has
issued since July 2009. The total amount of outstanding notes was
$902,500 as of December 31, 2009.
2.3 Subsidiaries.
Muscle Pharm does not have any subsidiaries or own any interest in any other
enterprise.
2.4 Directors
and Executive Officers. The names and titles of the directors and executive
officers of Muscle Pharm are as follows:
Name
|
Position
|
Xxxx
Xxxxx
|
President
|
Xxxx
Xxxxxxx
|
Executive
Vice President
|
Xxxx
Xxxx
|
Chief
Financial Officer
|
Xxxxxxx
X. Xxxxxxx, Xx.
|
Chief
Operating Officer
|
2.5 Financial
Statements. On the execution of this Agreement, Muscle Pharm shall provide Tone
in Twenty with audited financial statements of Muscle Pharm for the period from
inception (April 22, 2008) through December 31, 2008, and unaudited financial
statements for the nine months ended September 30, 2009 (the "Muscle Pharm
Financial Statements"). The Muscle Pharm Financial Statements will be
prepared in accordance with generally accepted accounting principles and
practices consistently followed by Muscle Pharm throughout the periods
indicated, and fairly present the financial position of Muscle Pharm as of the
dates of the balance sheets included in the Muscle Pharm Financial Statements
and the results of operations for the periods indicated
2.6 Absence
of Changes. Since September 30, 2009, there has not been any material change in
the financial condition or operations of Muscle Pharm, except as contemplated by
this Agreement. As used throughout this Agreement, "material"
means: Any change or effect (or development that, insofar as can be
reasonably foreseen, is likely to result in any change or effect) that causes
substantial increase or diminution in the business, properties, assets,
condition (financial or otherwise) or results of operations of a
party. Taken as a whole, material change shall not include changes in
national or international economic conditions or industry conditions generally;
changes or possible changes in statutes and regulations applicable to a party;
or the loss of employees, customers or suppliers by a party as a direct or
indirect consequence of any announcement relating to this
transaction.
2.7 Absence
of Undisclosed Liabilities. As of September 30, 2009, Muscle Pharm did not have
any material debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is not
reflected in the Muscle Pharm Financial Statements.
2
2.8 Tax
Returns. Except for the federal income tax return for 2008, Muscle Pharm has
filed all federal, state and local tax returns required by law and has paid all
taxes, assessments and penalties due and payable. The provisions for taxes, if
any, reflected in Exhibit 2.5 are adequate for the periods
indicated. There are no present disputes as to taxes of any nature
payable by Muscle Pharm.
2.9 Investigation
of Financial Condition. Without in any manner reducing or otherwise mitigating
the representations contained herein, Tone in Twenty, its legal counsel and
accountants shall have the opportunity to meet with Muscle Pharm's accountants
and attorneys to discuss the financial condition of Muscle Pharm during
reasonable business hours and in a manner that does not interfere with the
normal operation of Muscle Pharm's business. Muscle Pharm shall make
available to Tone in Twenty all books and records of Muscle Pharm.
2.10
Intellectual Property Rights. Muscle Pharm owns or has the right to use all
trademarks, service marks, trade names, copyrights and patents material to its
business.
2.11
Compliance with Laws. To the best of Muscle Pharm's knowledge, Muscle Pharm has
complied with, and is not in violation of, applicable federal, state or local
statutes, laws and regulations, including federal and state securities laws,
except where such non-compliance would not have a material adverse impact upon
its business or properties.
2.12
Litigation. Muscle Pharm is not a defendant in any suit, action, arbitration or
legal, administrative or other proceeding, or governmental investigation which
is pending or, to the best knowledge of Muscle Pharm, threatened against or
affecting Muscle Pharm or its business, assets or financial
condition. Muscle Pharm is not in default with respect to any order,
writ, injunction or decree of any federal, state, local or foreign court,
department, agency or instrumentality applicable to it. Muscle Pharm
is not engaged in any material litigation to recover monies due to
it.
2.13
Authority. The Managers of Muscle Pharm has authorized the execution of this
Agreement and the consummation of the transactions contemplated herein, and
Muscle Pharm has full power and authority to execute, deliver and perform this
Agreement, and this Agreement is a legal, valid and binding obligation of Muscle
Pharm and is enforceable in accordance with its terms and
conditions. By execution of Exhibit 1.2, all of the Muscle Pharm
Security Holders have agreed to and have approved the terms of this Agreement
and the exchange of securities contemplated hereby.
2.14
Ability to Carry Out Obligations. The execution and delivery of this Agreement
by Muscle Pharm and the performance by Muscle Pharm of its obligations hereunder
in the time and manner contemplated will not cause, constitute or conflict with
or result in (a) any breach or violation of any of the provisions of or
constitute a default under any license, indenture, mortgage, instrument, article
of incorporation, bylaw, or other agreement or instrument to which Muscle Pharm
is a party, or by which it may be bound, nor will any consents or authorizations
of any party other than those hereto be required, (b) an event that would permit
any party to any agreement or instrument to terminate it or to accelerate the
maturity of any indebtedness or other obligation of Muscle Pharm, or (c) an
event that would result in the creation or imposition of any lien, charge or
encumbrance on any asset of Muscle Pharm.
3
2.15
Full Disclosure. None of the representations and warranties made by Muscle Pharm
herein or in any exhibit, certificate or memorandum furnished or to be furnished
by Muscle Pharm, or on its behalf, contains or will contain any untrue statement
of material fact or omit any material fact the omission of which would be
misleading.
2.16
Assets. Muscle Pharm's assets are fully included in Exhibit 2.5 and are not
subject to any claims or encumbrances except as indicated in Exhibit
2.5.
2.17
Material Contracts. Muscle Pharm's material contracts are attached hereto as
Exhibit 2.17.
2.18
Indemnification. Muscle Pharm agrees to indemnify, defend and hold Tone in
Twenty harmless against and in respect of any and all claims, demands, losses,
costs, expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorney fees asserted by third
parties against Tone in Twenty which arise out of, or result from (i) any breach
by Muscle Pharm in performing any of its covenants or agreements under this
Agreement or in any schedule, certificate, exhibit or other instrument furnished
or to be furnished by Muscle Pharm under this Agreement, (ii) a failure of any
representation or warranty in this Article II or (iii) any untrue statement made
by Muscle Pharm in this Agreement.
2.19
Restricted Securities. Muscle Pharm and the Muscle Pharm Security
Holders, by execution of this Agreement and of Exhibit 1.2, acknowledge that all
of the Tone in Twenty Shares issued by Tone in Twenty are restricted securities
and none of such securities may be sold or publicly traded except in accordance
with the provisions of the Act.
ARTICLE
III
Representations
and Warranties of Tone in Twenty
Tone
in Twenty represents and warrants to Muscle Pharm that:
3.1 Organization.
Tone in Twenty is a corporation duly organized, validly existing and in good
standing under the laws of Nevada, has all necessary corporate powers to carry
on its business, and is duly qualified to do business and is in good standing in
each of the states where its business requires qualification.
3.2 Capital.
The authorized capital stock of Tone in Twenty consists of 195,000,000 shares of
$.001 par value common stock, of which no more than 520,700 shares will be
outstanding on the Closing Date (which includes 83,200 that may be issued on the
conversion of 416 shares of Series A Convertible Preferred Stock) and 5,000,000
shares of $.001 par value preferred stock of which 82,917 shares of Series A
Convertible Preferred Stock will be outstanding. All of the outstanding common
stock and preferred stock is duly and validly issued, fully paid and
non-assessable. Other than the Series A Convertible Preferred Stock, there are
no outstanding subscriptions, options, rights, warrants, debentures,
instruments, convertible securities or other agreements or commitments
obligating Tone in Twenty to issue any additional shares of its capital stock of
any class.
3.3 Subsidiaries.
Tone in Twenty has no subsidiaries.
3.4 Directors
and Officers. The names and titles of the directors and executive officers of
Tone in Twenty are as follows:
4
Name
|
Position
|
Xxxx
Xxxx Xxxxxx
|
President,
Secretary and Director
|
3.5 Financial
Statements. Exhibit 3.5 hereto consists of the audited financial statements of
Tone in Twenty for the two years ended August 31, 2008 and August 31, 2009 and
unaudited financials for the three months ended November 30, 2009 (the "Tone in
Twenty Financial Statements"). The Tone in Twenty Financial Statements have been
prepared in accordance with generally accepted accounting principles and
practices consistently followed by Tone in Twenty throughout the period
indicated, and fairly present the financial position of Tone in Twenty as of the
date of the balance sheets included in the Tone in Twenty Financial Statements
and the results of operations for the periods indicated.
3.6 Absence
of Changes. Since November 30, 2009, there has not been any material change in
the financial condition or operations of Tone in Twenty, except as contemplated
by this Agreement. As used throughout this Agreement, "material"
means: Any change or effect (or development that, insofar as can be
reasonably foreseen, is likely to result in any change or effect) that causes
substantial increase or diminution in the business, properties, assets,
condition (financial or otherwise) or results of operations of a
party. Taken as a whole, material change shall not include changes in
national or international economic conditions or industry conditions generally;
changes or possible changes in statutes and regulations applicable to a party;
or the loss of employees, customers or suppliers by a party as a direct or
indirect consequence of any announcement relating to this
transaction.
3.7 Absence
of Undisclosed Liabilities. As of November 30, 2009, Tone in Twenty did not have
any material debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is not
reflected in the Tone in Twenty Financial Statements.
3.8 Tax
Returns. Tone in Twenty has filed all federal, state and local tax returns
required by law and have paid all taxes, assessments and penalties due and
payable. The provisions for taxes, if any, reflected in Exhibit 3.5 are adequate
for the periods indicated. There are no present disputes as to taxes
of any nature payable by Tone in Twenty.
3.9 Investigation
of Financial Condition. Without in any manner reducing or otherwise mitigating
the representations contained herein, Muscle Pharm, its legal counsel and
accountants shall have the opportunity to meet with Tone in Twenty' accountants
and attorneys to discuss the financial condition of Tone in Twenty during
reasonable business hours and in a manner that does not interfere with the
normal operation of Tone in Twenty' business. Tone in Twenty shall
make available to Muscle Pharm all books and records of Tone in
Twenty.
3.10 Intellectual
Property Rights. Tone in Twenty has no trademarks, service marks, trade names,
copyrights or patents material to its business.
3.11 Compliance
with Laws. To the best of Tone in Twenty' knowledge, Tone in Twenty has complied
with, and is not in violation of, applicable federal, state or local statutes,
laws and regulations, including federal and state securities laws, except where
such non-compliance would not have a material adverse impact upon its business
or properties.
5
3.12 Litigation.
Tone in Twenty is not a defendant in any suit, action, arbitration or legal,
administrative or other proceeding, or governmental investigation which is
pending or, to the best knowledge of Tone in Twenty, threatened against or
affecting Tone in Twenty or its business, assets or financial
condition. Tone in Twenty is not in default with respect to any
order, writ, injunction or decree of any federal, state, local or foreign court,
department, agency or instrumentality applicable to it. Tone in
Twenty is not engaged in any material litigation to recover monies due to
it.
3.13 Authority.
The Board of Directors of Tone in Twenty has authorized the execution of this
Agreement and the consummation of the transactions contemplated herein, and Tone
in Twenty has full power and authority to execute, deliver and perform this
Agreement, and this Agreement is a legal, valid and binding obligation of Tone
in Twenty and is enforceable in accordance with its terms and
conditions.
3.14 Ability
to Carry Out Obligations. The execution and delivery of this Agreement by Tone
in Twenty and the performance by Tone in Twenty of its obligations hereunder in
the time and manner contemplated will not cause, constitute or conflict with or
result in (a) any breach or violation of any of the provisions of or constitute
a default under any license, indenture, mortgage, instrument, article of
incorporation, bylaw, or other agreement or instrument to which Tone in Twenty
is a party, or by which it may be bound, nor will any consents or authorizations
of any party other than those hereto be required, (b) an event that would permit
any party to any agreement or instrument to terminate it or to accelerate the
maturity of any indebtedness or other obligation of Tone in Twenty, or (c) an
event that would result in the creation or imposition of any lien, charge or
encumbrance on any asset of Tone in Twenty.
3.15 Full
Disclosure. None of the representations and warranties made by Tone in Twenty
herein or in any exhibit, certificate or memorandum furnished or to be furnished
by Tone in Twenty, or on its behalf, contains or will contain any untrue
statement of material fact or omit any material fact the omission of which would
be misleading.
3.16 Assets.
Tone in Twenty's assets are fully included in Exhibit 3.5 and are not subject to
any claims or encumbrances except as indicated in Exhibit 3.5.
3.17 Material
Contracts. Tone in Twenty does not have any material contracts.
3.18 Indemnification.
Tone in Twenty agrees to indemnify, defend and hold Muscle Pharm harmless
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties and reasonable attorney fees asserted by third parties
against Muscle Pharm which arise out of, or result from (i) any breach by Tone
in Twenty in performing any of its covenants or agreements under this Agreement
or in any schedule, certificate, exhibit or other instrument furnished or to be
furnished by Tone in Twenty under this Agreement, (ii) a failure of any
representation or warranty in this Article III or (iii) any untrue statement
made by Tone in Twenty in this Agreement.
6
ARTICLE
IV
Covenants
Prior to the Closing Date
4.1 Investigative
Rights. Prior to the Closing Date, each party shall provide to the other party,
and such other party's counsel, accountants, auditors and other authorized
representatives, full access during normal business hours and upon reasonable
advance written notice to all of each party's properties, books, contracts,
commitments and records for the purpose of examining the same. Each
party shall furnish the other party with all information concerning each party's
affairs as the other party may reasonably request. If during the
investigative period one party learns that a representation of the other party
was not accurate, no such claim may be asserted by the party so learning that a
representation of the other party was not accurate.
4.2 Conduct
of Business. Prior to the Closing Date, each party shall conduct its business in
the normal course and shall not sell, pledge or assign any assets without the
prior written approval of the other party, except in the normal course of
business. Neither party shall amend its Articles of Incorporation or
Bylaws or Operating Agreement (except as may be described in this Agreement),
declare dividends, redeem or sell stock or other securities. Neither
party shall enter into negotiations with any third party or complete any
transaction with a third party involving the sale of any of its assets or the
exchange of any of its common stock or Interests.
4.3 Confidential
Information. Each party will treat all non-public, confidential and
trade secret information received from the other party as confidential, and such
party shall not disclose or use such information in a manner contrary to the
purposes of this Agreement. Moreover, all such information shall be
returned to the other party in the event this Agreement is
terminated.
4.4 Notice
of Non-Compliance. Each party shall give prompt notice to the other
party of any representation or warranty made by it in this Agreement becoming
untrue or inaccurate in any respect or the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by it under this Agreement.
ARTICLE
V
Conditions
Precedent to Tone in Twenty's Performance
5.1 Conditions.
Tone in Twenty' obligations hereunder shall be subject to the satisfaction at or
before the Closing Date of all the conditions set forth in this Article
V. Tone in Twenty may waive any or all of these conditions in whole
or in part without prior notice; provided, however, that no such waiver of a
condition shall constitute a waiver by Tone in Twenty of any other condition of
or any of Tone in Twenty' other rights or remedies, at law or in equity, if
Muscle Pharm shall be in default of any of its representations, warranties or
covenants under this Agreement.
5.2 Accuracy
of Representations. Except as otherwise permitted by this Agreement, all
representations and warranties by Muscle Pharm in this Agreement or in any
written statement that shall be delivered to Tone in Twenty by Muscle Pharm
under this Agreement shall be true and accurate on and as of the Closing Date as
though made at that time.
7
5.3 Performance.
Muscle Pharm shall have performed, satisfied and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it on or before the Closing Date.
5.4 Absence
of Litigation. No action, suit or proceeding, including injunctive actions,
before any court or any governmental body or authority, pertaining to the
transaction contemplated by this Agreement or to its consummation, shall have
been instituted or threatened against Muscle Pharm on or before the Closing
Date.
5.5 Officer's
Certificate. Muscle Pharm shall have delivered to Tone in Twenty a certificate
dated the Closing Date signed by the Chief Executive Officer of Muscle Pharm
certifying that each of the conditions specified in this Article has been
fulfilled and that all of the representations set forth in Article II are true
and correct as of the Closing Date.
5.6 Corporate
Action. Muscle Pharm shall have obtained the approval of the Muscle Pharm
Security Holders for the transaction contemplated by this Agreement as evidenced
by all of the Muscle Pharm Security Holders executing Exhibit 1.2.
ARTICLE
VI
Conditions
Precedent to Muscle Pharm's Performance
6.1 Conditions.
Muscle Pharm's obligations hereunder shall be subject to the satisfaction at or
before the Closing Date of all the conditions set forth in this Article VI.
Muscle Pharm may waive any or all of these conditions in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Muscle Pharm of any other condition of or any of
Muscle Pharm's rights or remedies, at law or in equity, if Tone in Twenty shall
be in default of any of its representations, warranties or covenants under this
Agreement.
6.2 Accuracy
of Representations. Except as otherwise permitted by this Agreement, all
representations and warranties by Tone in Twenty in this Agreement or in any
written statement that shall be delivered to Muscle Pharm by Tone in Twenty
under this Agreement shall be true and accurate on and as of the Closing Date as
though made at that time.
6.3 Performance.
Tone in Twenty shall have performed, satisfied and complied with all covenants,
agreements and conditions required by this Agreement to be performed or complied
with by it on or before the Closing Date.
6.4 Absence
of Litigation. No action, suit or proceeding before any court or any
governmental body or authority, pertaining to the transaction contemplated by
this Agreement or to its consummation, shall have been instituted or threatened
against Tone in Twenty on or before the Closing Date.
6.5 SEC
filings. Within 4 business days following the execution of the
Agreement, Tone in Twenty will file: (1) a Form 8-K with the SEC in which it
will report under Item 1.01 the execution of this Agreement; (2) an Information
Statement pursuant to Section 14C relating to the desire of Muscle Pharm to
change the name of Tone in Twenty to MusclePharm Corporation and to adopt a
Stock Incentive Plan; and (3) an Information Statement under Section 14f to
report the change in control. In the event that the effectiveness of
14C Information Statement is delayed, this effectiveness is not a condition to
closing of this transaction.
8
6.6 Officer's
Certificate. Tone in Twenty shall have delivered to Muscle Pharm a certificate
dated the Closing Date signed by the Chief Executive Officer of Tone in Twenty
certifying that each of the conditions specified in this Article has been
fulfilled and that all of the representations set forth in Article III are true
and correct as of the Closing Date.
6.7 Payment
of Liabilities. On or before the Closing Date, Tone in Twenty shall have paid
any outstanding obligations and liabilities of Tone in Twenty through the
Closing Date, including obligations created subsequent to the execution of this
Agreement.
6.8 Directors
of Tone in Twenty. On the Closing Date, the Board of Directors of Tone in Twenty
shall appoint the designees of Muscle Pharm to Tone in Twenty' Board of
Directors and simultaneously resign from the Board of Directors.
6.9 Officers
of Tone in Twenty. On the Closing Date, the newly constituted Board of Directors
of Tone in Twenty shall elect the officers of Tone in Twenty as set forth in
Section 2.4, above and Tone in Twenty' existing executive officers shall
resign.
ARTICLE
VII
Closing
7.1 Closing.
The closing of this Agreement shall be held at the offices of Xxx Xxxxxxx &
Saad or at any mutually agreeable place on or prior to February 19, 2010, unless
extended by mutual agreement. At the closing:
(a) Muscle
Pharm shall deliver to Tone in Twenty (i) copies of Exhibit 1.2 executed by all
of the Tone in Twenty Security Holders, (ii) an assignment of all of the Muscle
Pharm Interests to Tone in Twenty, (iii) the officer's certificate described in
Section 5.5, and (iv) signed minutes of its managers approving this
Agreement.
(b) Tone
in Twenty shall deliver to Muscle Pharm (i) certificates representing 26,000,000
Tone in Twenty Shares issued in the names of the Muscle Pharm Security Holders,
(ii) the officer's certificate described in Section 6.5, (iii) signed minutes of
its directors approving this Agreement, and (iv) resignations of its executive
officers and directors pursuant to Sections 6.7 and 6.8.
ARTICLE
VIII
Covenants
Subsequent to the Closing Date
8.1 Registration
and Listing. Following the Closing Date, Tone in Twenty shall:
(a) Continue
Tone in Twenty' common stock quotation on the Electronic Over-the-Counter
Bulletin Board system;
(b) Comply
with the Form 8-K requirements of the Securities Act of 1934, including the
timely preparation and filing of audited financial statements as required by
Form 8-K; and
(c) Retain
Xxxxxxxxxx and Associates as its auditors within five days from the Closing
Date.
9
ARTICLE
IX
Miscellaneous
9.1 Captions
and Headings. The article and Section headings throughout this Agreement are for
convenience and reference only and shall not define, limit or add to the meaning
of any provision of this Agreement.
9.2 No
Oral Change. This Agreement and any provision hereof may not be waived, changed,
modified or discharged orally, but only by an agreement in writing signed by the
party against whom enforcement of any such waiver, change, modification or
discharge is sought.
9.3 Non-Waiver.
The failure of any party to insist in any one or more cases upon the performance
of any of the provisions, covenants or conditions of this Agreement or to
exercise any option herein contained shall not be construed as a waiver or
relinquishment for the future of any such provisions, covenants or
conditions. No waiver by any party of one breach by another party
shall be construed as a waiver with respect to any other subsequent
breach.
9.4 Time
of Essence. Time is of the essence of this Agreement and of each and every
provision hereof.
9.5 Entire
Agreement. This Agreement contains the entire Agreement and understanding
between the parties hereto and supersedes all prior agreements and
understandings.
9.6 Choice
of Law. This Agreement and its application shall be governed by the laws of the
state of Nevada and any litigation arising out of this Agreement must be filed
in the state or federal courts of Xxxxx County, Nevada.
9.7 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.
9.8 Notices.
All notices, requests, demands and other communications under this Agreement
shall be in writing and shall be deemed to have been duly given on the date of
service if served personally on the party to whom notice is to be given, or on
the third day after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed as follows:
Tone
in Twenty:
|
Tone
in Twenty
|
0000
Xxxxx Xx., Xxxxx 0
|
|
Xxx
Xxxxx, XX 00000
|
|
With
a copy to:
|
Xxxxxx
Xxxx
|
___________________
|
|
___________________
|
|
Muscle
Pharm:
|
Muscle
Pharm, LLC
|
0000
Xxxxxx Xxxxxx, Xxxx 0
|
|
Xxxxxx,
Xxxxxxxx 00000
|
|
With
a copy to:
|
Jin,
Xxxxxxx & Xxxx LLC
|
000
00xx Xxxxxx, Xxxxx 0000X
|
|
Xxxxxx,
Xxxxxxxx 00000
|
|
Attn: Xxx
X. Xxxxxx
|
10
9.9 Binding
Effect. This Agreement shall inure to and be binding upon the heirs, executors,
personal representatives, successors and assigns of each of the parties to this
Agreement.
9.10
Mutual Cooperation. The parties hereto shall cooperate with each other to
achieve the purpose of this Agreement and shall execute such other and further
documents and take such other and further actions as may be necessary or
convenient to effect the transaction described herein.
9.11
Finders. There are no finders in connection with this transaction.
9.12
Announcements. The parties will consult and cooperate with each other
as to the timing and content of any public announcements regarding this
Agreement.
9.13
Expenses. Each party will bear their own expenses, including legal fees incurred
in connection with this Agreement. The Muscle Pharm Security Holders
shall not be responsible for any costs incurred in connection with the
transaction contemplated by this Agreement.
9.14
Survival of Representations and Warranties. The representations, warranties,
covenants and agreements of the parties set forth in this Agreement or in any
instrument, certificate, opinion or other writing providing for in it, shall
survive the Closing Date.
9.15
Exhibits. As of the execution hereof, the parties have provided each other with
the exhibits described herein. Any material changes to the exhibits
shall be immediately disclosed to the other party.
9.16
Termination, Amendment and Waiver.
(a) Termination. This
Agreement may be terminated at any time prior to the Closing Date, whether
before or after approval of matters presented in connection with the share
exchange by the stockholders of Tone in Twenty or by the members of Muscle
Pharm:
(1) By
mutual written consent of Muscle Pharm and Tone in Twenty;
(2) By
either Muscle Pharm or Tone in Twenty;
(i) If
any court of competent jurisdiction or any governmental, administrative or
regulatory authority, agency or body shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or otherwise
prohibiting the transactions contemplated by this Agreement; or
(ii)
If the transaction shall not have been consummated on or before February 19,
2010, unless the failure to consummate the transaction is the result of a
material breach of this Agreement by the party seeking to terminate this
Agreement.
(3) By
Muscle Pharm, if Tone in Twenty breaches any of its representations or
warranties hereof or fails to perform in any material respect any of its
covenants, agreements or obligations under this Agreement; and
11
(4) By
Tone in Twenty, if Muscle Pharm breaches any of its representations or
warranties hereof or fails to perform in any material respect any of its
covenants, agreements or obligations under this Agreement.
(b) Effect
of Termination. In the event of termination of this Agreement by
either Tone in Twenty or Muscle Pharm, as provided herein, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of Muscle Pharm or Tone in Twenty, and such termination shall not
relieve any party hereto for any intentional breach prior to such termination by
a party hereto of any of its representations or warranties or any of its
covenants or agreements set forth in this Agreement.
(c) Extension;
Waiver. At any time prior to the Closing Date, the parties may, to
the extent legally allowed, (a) extend the time for the performance of any of
the obligation of the other acts of the other parties, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto or waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part
of a party to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party. The failure
of any party to this Agreement to assert any of its rights under this Agreement
or otherwise shall not constitute a waiver of such rights.
(d) Procedure
for Termination, Amendment, Extension or Waiver. A termination of
this Agreement, an amendment of this Agreement or an extension or waiver shall,
in order to be effective, require in the case of Muscle Pharm or Tone in Twenty,
action by its respective Board of Directors or the duly authorized designee of
such Board of Directors.
[Remainder
of Page Intentionally Blank; Signature Page Follows]
12
IN
WITNESS WHEREOF, the parties have executed this Agreement Concerning the
Exchange of Securities on the date indicated above.
TONE
IN TWENTY
|
MUSCLE
PHARM, LLC
|
By:
/s/ Xxxx
Xxxxxx
|
By:
/s/ Xxxx
Xxxxx
|
Xxxx
Xxxxxx
|
Xxxx
Xxxxx
|
President
|
President
|
13
EXHIBIT
1.1
ALLOCATION
OF TONE IN TWENTY COMMON SHARES
TO
SECURITY
HOLDERS OF MUSCLE PHARM, LLC
Name
of Muscle Pharm
|
Amount
of
|
Security
Holder Shares to be issued
|
Tone in Twenty |
Xxxx
Xxxxx *
|
14,026,668
|
Xxxx
Xxxxxxx *
|
9,351,114
|
Xxxx
Xxxxxxx
|
1,547,156
|
Xxxxx
Xxxxxx (Limbo I)
|
516,578
|
Young
Enterprises, LLC
|
258,289
|
Xxx
Xxxxxx
|
129,145
|
Xxxxxx
X. Xxxxxxx
|
48,872
|
Xxx
Journey
|
19,549
|
Xxxxxxx
Xxxx
|
48,872
|
Xxxx
Xxxx Xxxxx
|
24,435
|
Xxxxxx
and Xxxxxx XxXxxxxxx
|
9,773
|
Xxxxx
and Xxxxxx Xxxxx
|
19,549
|
Total
|
26,000,000
|
* Xx.
Xxxxx and Xx. Xxxxxxx have agreed to assign a portion of their shares to several
others.
14
EXHIBIT
1.2
TONE IN
TWENTY
EXCHANGE
OFFER FOR THE MEMBERSHIP INTERESTS OF
MUSCLE
PHARM, LLC.
LETTER OF
ACCEPTANCE
Name(s)
of Shareholder(s)
|
________
Shares of Tone in Twenty
|
Common
Stock offered for your membership
|
|
Interest
of Muscle Pharm, LLC.
|
_____________________________________________________________________________
THIS FORM
MUST BE COMPLETED AND DELIVERED ON OR BEFORE 5:00 P.M. MOUNTAIN TIME, JANUARY
20, 2010, TO MUSCLE PHARM, LLC, C/O XXX X. XXXXXX, JIN, XXXXXXX & XXXX, LLC.
000 00XX XXXXXX, XXXXX 0000 XXXXX XXXXX, XXXXXX, XXXXXXXX 00000. THIS
FORM MAY BE FAXED TO XXX X. XXXXXX AT (000) 000-0000 AND THEN
MAILED.
_____________________________________________________________________________
APPROVAL
OR NONAPPROVAL OF EXCHANGE OFFER
The
undersigned accepts ______ rejects _____ (please initial) the Exchange Offer of
Tone in Twenty for his or her membership interests of Muscle Pharm, LLC, as
specified above subject to the terms and conditions set forth in the Agreement
Concerning the Exchange of Securities to be executed between Muscle Pharm, LLC
and Tone in Twenty
The
undersigned understands that approval of the Exchange Offer constitutes (i) his
or her approval of the terms and conditions of the Exchange Offer, and the
complete transfer of all of his or her membership interest of Muscle Pharm, LLC
to Tone in Twenty, and (ii) his or her acknowledgment and agreement that the
shares of common stock of Tone in Twenty will be full payment for all of his or
her membership interest of Muscle Pharm, LLC
Date:
____________________
|
_________________________________________
|
_________________________________________
|
|
Signature(s)
of Member(s)
|
(NOTE: IF
YOU ACCEPT THE EXCHANGE OFFER, YOU MUST ALSO SIGN ON PAGE 3 OF THIS LETTER OF
ACCEPTANCE)
15
REPRESENTATIONS
AND WARRANTIES
1. The
undersigned understands and acknowledges that the shares of Common Stock
("Shares") of Tone in Twenty (the "Company"), are being offered in reliance upon
the exemptions provided in Section 4(2), of the Securities Act of 1933 as
amended (the "Act") and the Rules and Regulations adopted thereunder relating to
nonpublic offerings; and the undersigned makes the following representations and
warranties with the intent that the same may be relied upon in determining the
suitability of the undersigned as a purchaser of securities:
(a) The
Shares will be acquired solely for the account of the undersigned, for
investment purposes only, and not with a view to, or for sale in connection
with, any distribution thereof and with no present intention of distributing or
reselling any part of the Shares.
(b) The
undersigned agrees not to dispose of his or her Shares or any portion thereof
unless and until counsel for the Company shall have determined that the intended
disposition is permissible and does not violate the Act or any applicable state
securities laws, or the rules and regulations thereunder.
(c) The
undersigned acknowledges that the Company has made all documentation pertaining
to all aspects of the Exchange Offer available to him or her and has offered
such person or persons an opportunity to discuss the Exchange Offer with the
officers of the Company. The undersigned further acknowledges and
represents to the Company that he or she is a knowledgeable, sophisticated
investor who can fend for himself or herself and has adequate means to make the
investment contemplated herein; and that, in connection with this investment, he
or she has obtained the necessary investment advice from appropriate outside
sources, and had available to the undersigned all information with respect to
the Company which was deemed necessary by himself or herself and his or her
respective advisors.
2. The
undersigned represents that the membership interest of Muscle Pharm,
LLC being exchanged is owned free and clear of any liens or
encumbrances and has not been pledged or optioned to any person.
3. The
undersigned understands that he or she must bear the economic risk of an
investment in the Shares to be acquired pursuant to the Exchange Offer for an
indefinite period of time because the Shares have not been registered under the
Securities Act or any state securities laws and, therefore, cannot be sold
unless they are subsequently registered under the Securities Act and any
applicable state securities laws or unless exemptions from such registrations
are available. The current holding period requirement of Rule 144 is
one year from the date this transaction is closed. The undersigned
acknowledges that only the Company can file a registration statement, and that
the Company has no obligation to do so or to take steps necessary to make an
exemption from registration available to the undersigned.
4. The
undersigned agrees that the certificate evidencing the Shares he or she acquires
pursuant to the Exchange Offer will have a legend placed thereon stating that
the Shares have not been registered under the Securities Act or any state
securities laws and setting forth or referring to the restrictions on
transferability and sale of the Shares.
5. The
undersigned is, or is not, an "accredited investor," as that term is defined in
Regulation D under the Securities Act of 1933, as amended (the "Act"), as
checked below:
_____ YES _____ NO
16
6. The
undersigned hereby covenants and agrees to protect, indemnify and hold the
Company, and each of its officers, directors and shareholders, harmless from and
against any and all claims, demands, causes of action, judgments, orders,
decrees, damages, liabilities, court or other costs, attorney fees, reasonable
costs of investigation and other costs and expenses whatsoever (i) arising out
of or attributable to any breach or violation of, or the falsity, inaccuracy or
failure of, any representation, warranty or covenant made by the undersigned in
this letter, and (ii) arising from or related to the acquisition, ownership or
disposition by the undersigned of any or all the Shares.
7. The
undersigned's state of residence is ________________________.
____________________________________
|
_____________________________________
|
(Social
Security or Tax I.D. Number)
|
Signature(s)
of Shareholder(s)
|
____________________________________
|
_____________________________________
|
(Social
Security or Tax I.D. Number)
|
Signature(s)
of Shareholder(s)
|
____________________________________
|
|
(Mailing
Address)
|
|
____________________________________
|
Date:_______________________________
|
I would
like my shares to be issued in the following name:
____________________________________
17
EXHIBIT
2.5
FINANCIAL
STATEMENTS OF
MUSCLE
PHARM, LLC
FOR THE
NINE MONTHS ENDING SEPTEMBER 30, 2009 (Unaudited)
AND FROM
INCEPTION (APRIL 22, 2008) TO DECEMBER 31, 2008
18
TABLE OF
CONTENTS
Page
No.
|
|
Independent
Auditors Report
|
3
|
Balance
Sheets
|
4
|
Statements
of Operations
|
5
|
Statements
of Cash Flows
|
6
|
Statement
of Changes in Members' Equity (Deficit)
|
7
|
Notes
to Financial Statements
|
8-15
|
F-2
19
INDEPENDENT
AUDITOR'S REPORT
Board of
Directors and Members
Muscle
Pharm, LLC
Englewood,
Colorado
We have
audited the accompanying balance sheet of Muscle Pharm, LLC as of December 31,
2008 and the related statements of operations, changes in members' equity
(deficit) and cash flows for the period from April 22, 2008 (inception) to
December 31, 2008. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based upon our audit.
We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Muscle Pharm, LLC as of December
31, 2008, and the results of its operations and its cash flows for the period
from April 22, 2008 (inception) to December 31, 2008, in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As described in Note 3, the Company has losses
to date of approximately $393,000, which raises substantial doubt about its
ability to continue as a going concern. Management's plan in regard to this
matter is also explained in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/Xxxxxxxxxx
& Associates, Inc.
Xxxxxxxxxx
& Associates, Inc.
Certified
Public Accountants
0000 X.
Xxxxxxxx, #000
Xxxxxxxxx,
XX 00000
October
26, 2009
F-3
20
MUSCLE
PHARM, LLC
Balance
Sheets
September
30,
2009
|
December
31,
2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Cash
|
$ | 451 | $ | 32 | ||||
Accounts
receivable, net of allowance
|
||||||||
of $-0- and $812 on September 30,
|
||||||||
2009 and December 31, 2008,
|
||||||||
respectively
|
10,358 | 14,248 | ||||||
Inventory
|
1,677 | 53,246 | ||||||
Deposits
on product
|
- | 45,815 | ||||||
Prepaid
expenses and other current assets
|
2,387 | 12,368 | ||||||
Total Current Assets
|
14,873 | 125,709 | ||||||
Fixed
Assets, net of accumulated
|
||||||||
depreciation of $2,987 and $884 on
|
||||||||
September 30, 2009 and December 31,
|
||||||||
2008, respectively
|
15,932 | 12,527 | ||||||
Website,
net of accumulated amortization
|
||||||||
of $3,502 and $637 on September 30,
|
||||||||
2009
and December 31, 2008, respectively
|
7,960 | 10,825 | ||||||
Security
Deposits
|
1,207 | - | ||||||
Total
Assets
|
$ | 39,972 | $ | 149,061 | ||||
LIABILITIES
AND MEMBERS' EQUITY (DEFICIT)
|
||||||||
Accounts
payable
|
$ | 355,149 | $ | 52,576 | ||||
Accrued
interest
|
4,499 | - | ||||||
Overdrawn
bank accounts
|
17,645 | 12,002 | ||||||
Customer
deposits
|
112,731 | - | ||||||
Due
to related parties (Note 4)
|
73,528 | 2,612 | ||||||
Notes
payable (Note 5)
|
30,000 | - | ||||||
Convertible
notes payable (Note 6)
|
297,500 | - | ||||||
Total
Current Liabilities
|
891,052 | 67,190 | ||||||
Commitments
and contingencies (Notes 1,
|
||||||||
2, 3, 4, 5, 6, 7, 8, 9 and 10)
|
||||||||
Member's
Equity (Deficit) (Note 7)
|
(851,080 | ) | 81,871 | |||||
Total
Liabilities and Members' Equity
|
||||||||
(Deficit)
|
$ | 39,972 | $ | 149,061 |
The
accompanying notes are an integral part of these financial
statements
F-4
21
MUSCLE
PHARM, LLC
Statements
of Operations
From
|
From
|
|||||||||||
Inception
|
Inception
|
|||||||||||
Nine
months
|
(April
22,
|
(April
22,
|
||||||||||
ended
|
2008)
to
|
2008)
to
|
||||||||||
September
30,
|
September
30,
|
December
31,
|
||||||||||
2009
|
2008
|
2008
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Audited)
|
||||||||||
Sales
of product, net of $231,744,
|
||||||||||||
$567 and $77,440 allowances and
|
||||||||||||
discounts September 30, 2009,
|
||||||||||||
2008 and December 31, 2008,
|
||||||||||||
respectively
|
$ | 671,347 | $ | 4,561 | $ | 80,690 | ||||||
Cost
of sales
|
(663,849 | ) | (47,827 | ) | (129,815 | ) | ||||||
Gross
margin (loss)
|
7,498 | (43,266 | ) | (49,125 | ) | |||||||
Operating
Expenses:
|
||||||||||||
Advertising and promotion
|
617,968 | 110,696 | 248,999 | |||||||||
Bad debt
|
5,631 | - | 812 | |||||||||
Bank charges
|
21,046 | 369 | 1,547 | |||||||||
Salaries and labor
|
149,436 | 8,480 | 19,215 | |||||||||
Depreciation and amortization
|
4,968 | 208 | 1,521 | |||||||||
Insurance
|
11,021 | 375 | 2,649 | |||||||||
Information technology
|
13,338 | 1,713 | 12,979 | |||||||||
Travel, meetings and entertainment
|
72,138 | 15,501 | 23,845 | |||||||||
Occupancy, telephone and utilities
|
17,619 | 2,214 | 8,175 | |||||||||
Office and warehouse supplies
|
14,051 | 9,718 | 11,962 | |||||||||
Professional fees
|
90,611 | 4,040 | 9,674 | |||||||||
Repairs and maintenance
|
799 | - | - | |||||||||
Other
|
633 | 25 | 840 | |||||||||
Total
Operating Expenses
|
1,019,259 | 153,339 | 342,218 | |||||||||
Operating
(Loss)
|
(1,011,761 | ) | (196,605 | ) | (391,343 | ) | ||||||
Other
income (expense):
|
||||||||||||
Interest income
|
- | 13 | 14 | |||||||||
Interest (expense)
|
(8,690 | ) | - | (1,300 | ) | |||||||
Total
other income (expense)
|
(8,690 | ) | 13 | (1,286 | ) | |||||||
Net
(Loss)
|
$ | (1,020,451 | ) | $ | (196,592 | ) | $ | (392,629 | ) |
The
accompanying notes are an integral part of these financial
statements
F-5
22
MUSCLE
PHARM, LLC
Statements
of Cash Flows
From
|
From
|
|||||||||||
Inception
|
Inception
|
|||||||||||
Nine
months
|
(April
22,
|
(April
22,
|
||||||||||
ended
|
2008)
to
|
2008)
to
|
||||||||||
September
30,
|
September
30,
|
December
31,
|
||||||||||
2009
|
2008
|
2008
|
||||||||||
(Unaudited)
|
(Unaudited)
|
(Audited)
|
||||||||||
Operating
Activities
|
||||||||||||
Net Loss
|
$ | (1,020,451 | ) | $ | (196,592 | ) | $ | (392,629 | ) | |||
Adjustments to reconcile net loss to
|
||||||||||||
net cash provided by operating
|
||||||||||||
activities:
|
||||||||||||
Depreciation and amortization
|
4,968 | 208 | 1,521 | |||||||||
Bad debt
|
5,631 | - | 812 | |||||||||
Cash provided by (used in) changes in
|
||||||||||||
operating assets and liabilities:
|
||||||||||||
(Increase) in accounts receivable
|
(1,741 | ) | - | (15,060 | ) | |||||||
Decrease (Increase) in inventory
|
51,569 | (103,185 | ) | (53,246 | ) | |||||||
Decrease (Increase) in deposits
|
45,815 | (25,555 | ) | (45,815 | ) | |||||||
Decrease (increase) in prepaid expenses
|
9,981 | - | (12,368 | ) | ||||||||
(Increase) in security deposits paid
|
(1,207 | ) | - | - | ||||||||
Increase in accounts payable and
|
||||||||||||
accrued interest
|
307,072 | 27,100 | 52,576 | |||||||||
Increase in overdrawn bank accounts
|
5,643 | - | 12,002 | |||||||||
Increase in customer deposits
|
112,731 | - | - | |||||||||
Increase in due to related parties
|
70,916 | - | 2,612 | |||||||||
Net
cash (used in) operating activities
|
(409,073 | ) | (298,024 | ) | (449,595 | ) | ||||||
Investing
Activities
|
||||||||||||
Purchases of fixed assets and website
|
(5,508 | ) | (17,351 | ) | (24,873 | ) | ||||||
Net cash (used in) investing activities
|
(5,508 | ) | (17,351 | ) | (24,873 | ) | ||||||
Financing
Activities
|
||||||||||||
Proceeds from issuance of notes payable
|
30,000 | - | - | |||||||||
Proceeds from issuance of convertible notes
|
297,500 | - | - | |||||||||
Member contributions
|
87,500 | 324,500 | 474,500 | |||||||||
Net cash provided by financing activities
|
415,000 | 324,500 | 474,500 | |||||||||
Net increase in cash
|
419 | 9,125 | 32 | |||||||||
Beginning cash
|
32 | - | - | |||||||||
Ending cash
|
$ | 451 | $ | 9,125 | $ | 32 | ||||||
Supplemental Disclosure:
|
||||||||||||
Cash paid for interest
|
$ | 4,191 | $ | - | $ | - | ||||||
Cash paid for income tax
|
$ | - | $ | - | $ | - |
The
accompanying notes are an integral part of these financial
statements
F-6
23
MUSCLE
PHARM, LLC
STATEMENT
OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
For the
Period from
Inception
(April 22, 2008) to September 30, 2009 (Unaudited)
Balance
at inception, April 22, 2008
|
$ | - | ||
Member
contributions
|
474,500 | |||
Net
(loss) for the period ended December 31, 2008
|
(392,629 | ) | ||
Balance,
December 31, 2008
|
81,871 | |||
Member
contributions
|
87,500 | |||
Net
loss for the nine months ended September 30, 2009
|
(1,020,451 | ) | ||
Balance,
September 30, 2009 (Unaudited)
|
$ | (851,080 | ) |
The
accompanying notes are an integral part of these financial
statements
F-7
24
MUSCLE
PHARM, LLC
NOTES TO
FINANCIAL STATEMENTS
For the
Nine Months Ending September 30, 2009 and from
Inception
(April 22, 2008) to December 31, 2008
(References
to periods ended September 30, 2008 and 2009,
and
subsequent to December 31, 2008 are unaudited)
NOTE 1 -
ORGANIZATION
Muscle
Pharm, LLC (the "Company") was formed as a Colorado limited liability company on
April 22, 2008.
The
Company currently manufactures and markets six branded sports nutrition products
with the trade name: Combat, Assault, Battle Fuel, Bullet Proof,
Shred Matrix, and Recon.
NOTE 2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This
summary of significant accounting policies of Muscle Pharm, LLC (Company) is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles in the United
States of America and have been consistently applied in the preparation of the
financial statements.
UNAUDITED
INTERIM FINANCIAL INFORMATION
The
interim financial statements as of and for the nine months ended September 30,
2009, and as of and for the period April 22, 2008 (date of inception) to
September 30, 2008, have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC") for interim financial
reporting. These financial statements are unaudited and, in the
opinion of management, include all adjustments (consisting of normal reoccurring
adjustments and accruals) necessary to present fairly the financial statements
for periods presented in accordance with generally accepted accounting
principles. Operating results for the nine months ended September 30,
2009 may not be indicative of the results for the year ended December 31,
2009. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been omitted in accordance with the rules and
regulations of the SEC.
USE OF
ESTIMATES
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States requires management to make estimates
and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
materially from those estimates.
F-8
25
CASH AND
CASH EQUIVALENTS
For
purposes of reporting cash flows, the Company considers cash and cash
equivalents to include highly liquid investments with original maturities of 90
days or less. Those are readily convertible into cash and not subject to
significant risk from fluctuations in interest rates and market
trends. The recorded amounts for cash equivalents approximate fair
value due to the short-term nature of these financial instruments.
As of
September 30, 2009 and December 31, 2008, the Company had approximately $17,645
and $12,002, respectively, overdrawn in its bank accounts. These
amounts are shown as a current liability on the balance sheet.
CONCENTRATION
OF CREDIT RISK AND ACCOUNTS
Financial
instruments that potentially subject the Company to significant concentrations
of credit risk include cash equivalents, trade accounts receivable, inventory
and deposits on product. The Company maintains its cash and
investment balances in the form of bank demand deposits and money market
accounts with financial institutions that management believes to be of high
credit quality. Accounts receivable are typically unsecured and are
derived from transactions with and from customers primarily located in the
United States.
For the
nine months ended September 30, 2009, the Company had made sales to 19
customers. Four of these customers represent approximately 73% of the
Company's gross sales during the period.
Inventory
originating from two vendors accounted for 97% and 100% of the Company's
inventory purchases for the nine months ended September 30, 2009 and the period
from April 22, 2008 (inception) to December 31, 2008,
respectively. At September 30, 2009 the Company was using one vendor
to manufacture 100% of the Company's inventory.
ACCOUNTS
RECEIVABLE
The
Company performs ongoing evaluations of its clients' financial condition and
generally does not require collateral. Management reviews accounts
receivable periodically and reduces the carrying amount by a valuation allowance
that reflects management's best estimate of amounts that may not be
collectible. Allowances, if any, for uncollectible accounts
receivable are determined based upon information available and historical
experience. As of September 30, 2009 the allowance for accounts
receivable was $-0- compared to an allowance for accounts receivable of $812 as
of December 31, 2008.
INVENTORY
Inventory
is stated at the lower of cost or market. Costs are determined by the first-in
first-out or average cost methods. Cost includes all costs of
purchase, cost of conversion and other costs incurred in bringing the inventory
to its present location and condition.
F-9
26
DEPOSITS
As of
December 31, 2008 the Company paid out $45,815 as deposits on products to be
manufactured. There were no advance payments for deposits on products
to be manufactured as of September 30, 2009.
PROPERTY
AND EQUIPMENT
Property
and equipment are stated at cost less accumulated depreciation. Depreciation is
computed principally on the straight-line method over the estimated useful life
of each type of asset. Maintenance and repairs are charged to expense as
incurred; improvements and betterments are capitalized. Upon retirement or
disposition, the related costs and accumulated depreciation are removed from the
accounts, and any resulting gains or losses are credited or charged to
income. Depreciation totaled $2,103 and $884 for the periods
ended September 30, 2009 and December 31, 2008, respectively.
Below is
a summary of property and equipment:
Estimated
|
||||||||||||
Useful
|
September
30,
|
December
31,
|
||||||||||
Asset
Type
|
Life
|
2009
|
2008
|
|||||||||
Displays
|
5 | $ | 17,057 | $ | 12,500 | |||||||
Furniture
and equipment
|
5 | 1,862 | 911 | |||||||||
Subtotal
|
18,919 | 13,411 | ||||||||||
Less
accumulated depreciation
|
(2,987 | ) | (884 | ) | ||||||||
Net
|
$ | 15,932 | $ | 12,527 |
WEBSITE
DEVELOPMENT COSTS
Website
development costs representing capitalized costs of design, configuration,
coding, installation, and testing of the Company's website are capitalized until
initial implementation. Upon implementation, the Company began amortizing the
cost over its estimated useful life of three years using the straight-line
method. Accumulated amortization at September 30, 2009 and December 31, 2008
were $3,502 and $637, respectively. Amortization expense for the nine
months ended September 30, 2009 and the period ended December 31, 2008 were
$2,865 and $637, respectively. Ongoing website post-implementation costs of
operation, including training and application maintenance, are charged to
expense as incurred.
F-10
27
LONG-LIVED
ASSETS
The
Company's primary long-lived assets are property and equipment and website
development. The Company assesses the recoverability of its long-lived assets
whenever events and circumstances indicate the carrying value of an asset or
asset group may not be recoverable from estimated future cash flows expected to
result from its use and eventual disposition. Management does not believe that
its long-lived assets are impaired, and no impairment charges have been recorded
as of September 30, 2009.
FAIR
VALUE DETERMINATION
Financial
instruments consist of cash, accounts, inventory, deposits on product, prepaid
expenses, accounts payable and accrued expenses. The carrying amount of these
financial instruments approximates fair value due to their short-term nature or
the current rates at which the Company could borrow funds with similar remaining
maturities.
Unless
otherwise noted, it is management's opinion that the Company is not exposed to
significant interest, currency or credit risks arising from these financial
statements.
ADVERTISING
The
Company expenses the cost of advertising when incurred. Advertising
expenses are included with advertising and promotions in the accompanying
statements of operations.
REVENUE
RECOGNITION
The
Company recognizes revenue when persuasive evidence of a revenue arrangement
exists, delivery has occurred, the sales price is fixed or determinable, and
collectability is reasonably assured.
During
2008 and 2009, the Company has been developing its presence in the marketplace
and establishing distribution channels for its products, and therefore the
Company has incurred significant costs for sales allowances, sample expense and
discounts provided. During the nine months ended September 30, 2009, the Company
recognized gross sales of $903,091, but also granted discounts and allowances of
$231,744, for net sales of $671,347. During the period from April 22,
2008 to December 31, 2008, the Company recognized gross sales of $158,130, but
also granted discounts and allowances of $77,440, for net sales of
$80,690.
INCOME
TAXES
The
Company was formed under the limited liability laws in the State of
Colorado. No provision for income tax has been provided in the
financial statements since the Company has elected to be taxed under the rules
governing partnership taxation election, whereby all income or losses flow
through to the partner for income tax reporting purposes.
F-11
28
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
There
were various accounting standards and interpretations issued during 2009 and
2008, none of which are expected to have a material impact on the Company's
financial position, operations or cash flows.
NOTE 3 -
BASIS OF PRESENTATION - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with
generally accepted accounting principles in the United States of America, which
contemplates continuation of the Company as a going concern. However,
the Company has negative working capital and members' deficits, and has incurred
net losses for the nine months ended September 30, 2009 and from inception
(April 22, 2008) through December 31, 2008 of $1,020,451 and $392,629,
respectively, which raises substantial doubt about its ability to continue as a
going concern. In view of these matters, realization of certain of
the assets in the accompanying balance sheet is dependent upon its ability to
meet its financing requirements, raise additional capital, and the success of
its future operations. There is no assurance that future capital
raising plans will be successful in obtaining sufficient funds to assure its
eventual profitability. Management believes actions planned and
presently being taken provide the opportunity for the Company to continue as a
going concern, including:
- Increasing
prices of products;
- reducing
discounts and free samples;
- obtaining
manufacturers which have substantially decreased manufacturing costs,
and
- securing
additional working capital through additional sales of debt or equity to
investors.
The
financial statements do not include any adjustments that might result from these
uncertainties.
NOTE 4 -
DUE TO RELATED PARTIES
Certain
members of the Company have utilized personal credit cards owned by them and
immediate family members to assist in financing its operations. As of
September 30, 2009 and December 31, 2008, the Company owed $54,317 and $2,612,
respectively on these aforementioned credit cards.
During
the nine months ended September 30, 2009 an investor paid various legal and
accounting fees on behalf of the company totaling $19,211. The
advances from the investor are uncollateralized, bear no interest and are due on
demand.
NOTE 5 -
NOTES PAYABLE
At
September 30, 2009, the Company had $30,000 in short term working capital loans
represented by two uncollateralized promissory notes issued in March
2009. The notes require no periodic payments, accrue interest at 10%
per annum, and mature in March 2010, at which time all outstanding principal and
accrued interest is due and payable.
F-12
29
NOTE 6 -
CONVERTIBLE NOTES 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.
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.
All the
Notes are collateralized by all the assets of Muscle Pharm, LLC.
F-13
30
NOTE 7 -
MEMBERS' EQUITY
There
were two initial members/owners of the Company. One member received a 60%
membership interest in exchange for his contribution of formulations for
potential products, contacts with GNC Canada and other potential customers, and
contacts with professional athletes. The other initial member
received a 40% membership interest in exchange for his contacts with key
contacts including potential distributors, professional athletes and potential
investors. Neither of the two initial members contributed any cash
and no accounting value was placed on their respective contributions since it
was immaterial.
On
November 30, 2008, the Company approved the admission of four new members with a
total cash investment of $474,500 representing 9.4% ownership.
During
the nine months ended September 30, 2009, the Company approved the admission of
six new members with total cash investments of $87,500, representing 0.7%
ownership.
NOTE 8 -
COMMITMENTS AND CONTINGENCIES
As a
component of the Company's overall marketing strategy, it has entered into
various sponsorship and endorsement agreements with professional athletes and
fitness trainers. These agreements generally provide for payments to
the athletes and trainers based on pre-determined events in which the athlete or
trainer agree to provide exposure of the Company and its products through media
exposure and coverage of specific athletic events. During the period
from inception (April 22, 2008) to September 30, 2008 the Company paid out
$4,750 under these agreements. For the nine months ended September
30, 2009 the Company paid out $302,213 under these agreements. These payments
are included in the Statements of Operations in advertising and promotion
expense. At September 30, 2009 the Company estimates future
obligations under its existing sponsorship and endorsement agreements is
approximately $100,000, assuming all contingencies contained in the agreements
occur, of which there can be no assurance. This estimate does not
include amounts for reimbursements for travel and expenses that are included in
certain of the agreements. Subsequent to September 30, 2009, the
Company entered into additional agreements as further disclosed in Note 10,
Subsequent Events.
In April
2009, the Company signed a 13 month lease for warehouse space, which is
personally guaranteed by an initial member. The base rate is $818 per
month. In September 2009, a six month office lease was signed at a
base rate of $1,458 month. The office lease is also personally
guaranteed by an initial member.
NOTE 9 -
RELATED PARTY TRANSACTIONS
Muscle
Pharm, LLC was formed as a Colorado limited liability company on April 22,
2008. There were two initial members/owners of the Company. One
member received a 60% membership interest in exchange for his contribution of
formulations for potential products, contacts with GNC Canada and
other
F-14
31
potential
customers, as well as contacts with professional athletes. The other
initial member received a 40% membership interest in exchange for his contacts
including potential distributors, professional athletes and potential
investors. Neither of the two initial members contributed any cash
and no accounting value was placed on their respective
contributions. During the period from inception to September 30, 2008
a total of $7,000 was paid to the initial members, and for the nine months ended
September 30, 2009 payments of $66,041 were paid to the initial
members. The payments were made as compensation for management
services provided to the Company and are included in salaries and labor in the
accompanying Statements of Operations.
During
2008, an initial member's wife was paid $6,000 for various accounting and
bookkeeping services. No amounts were paid her during the nine months
ended September 30, 2009. In addition, during 2008 a company
controlled by the initial member's wife made a $13,000 working capital loan to
the Company. The loan was fully repaid during 2008 together with
$1,300 of accrued interest.
During
the nine months ended September 30, 2009, the Company paid two initial members'
spouses a total of $4,167 for various administrative services rendered to the
Company.
During
the nine months ended September 30, 2009, a company controlled by an initial
member purchased $1,248 of the Company's products. As of September
30, 2009, all of the product purchased had been paid for by the member's company
and no amounts were owed the Company.
NOTE 10 -
SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through January 20, 2010, the date which
the financial statements were available to be issued.
Subsequent
to September 30, 2009 the Company has raised an additional $695,000 in
convertible notes payable from various investors.
Subsequent
to September 30, 2009 the Company has entered into various sponsorship and
endorsement agreements. The Company estimates future obligations
under these agreements is approximately $913,000, assuming all contingencies
contained in the agreements occur, of which there can be no
assurance. This estimate does not include amounts for reimbursements
for travel and expenses that are included in certain of the
agreements.
F-15
32
EXHIBIT
2.17
MATERIAL
CONTRACTS OF MUSCLE PHARM
1. Agreement
with GNC
2. Agreement
with Alive Media Group
33
EXHIBIT
3.5
FINANCIAL
STATEMENTS OF TONE IN TWENTY
Refer to
Tone in Twenty's Form 10-K for the year ended August 31, 2009 and the Form 10-Q
for the three months ended November 30, 2009 which are available on the SEC's
web site.
34