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MusclePharm Corp

Date Filed : Feb 14, 2012

S-11v302579_s1.htmFORM S-1

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM S-1

 

REGISTRATION STATEMENT UNDER

THE SECURITIES ACT OF 1933

 

MUSCLEPHARM CORPORATION

(Exact name of registrant as specified in itscharter)

 

Nevada 2834 77-0664193
(State or other jurisdiction of incorporation) (Primary Standard Industrial Classification Code Number)

(I.R.S. Employer

Identification No.)

 

4721 Ironton Street, Building A

Denver, CO 80239

Tel: (303) 396-6100

(Address and telephone number of registrant’sprincipal

executive offices and principal place of business)

 

Brad Pyatt

5348 Vegas Dr.

Las Vegas, NV 89108

Tel: (702) 953-1890

(Name, address and telephone number of agentfor service)  

 

Communication Copies to:

 

Lucosky Brookman LLP

33 Wood Avenue South, 6th Floor

Iselin, New Jersey 08830

Tel No.: (732) 395-4400

Fax No.: (732) 395-4401

 

Approximate date of commencement of proposedsale to the public: As soon as practicable after this Registration Statement becomes effective.

 

If any of the securities being registered onthis Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the followingbox. x

 

If this Form is filed to register additionalsecurities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list theSecurities Act registration Statement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendmentfiled pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the same offering. ¨

 

If this Form is a post-effective amendmentfiled pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registrationstatement number of the earlier effective registration statement for the same offering. ¨

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitionsof “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule12b-2 of the Exchange Act.

 

Large accelerated filer   ¨   Non-accelerated filer ¨
Accelerated filer ¨   Smaller reporting company   x

 
 

 

 

CALCULATION OF REGISTRATION FEE

 

Securities to be Registered  Amount to be
Registered
(1)
   Proposed
Maximum
Aggregate
Offering Price
per share
   Proposed
Maximum
Aggregate
Offering Price
   Amount of
Registration fee
 
                 
Common Stock, $0.001 par value per share, issuable upon the exercise of certain outstanding warrants   119,833,333   $0.015(2)  $1,797,499.99   $205.99 
                     
Common Stock, $0.001 par value per share, issuable upon the exercise of certain outstanding warrants   75,000,000   $0.012(3)  $900,000   $103.14 
                     
Total   194,833,333   $-   $2,697,499.99   $309.13 

  

(1)The shares of our common stock underlying warrants being registered hereunder are being registeredfor sale by the selling stockholders named in the prospectus.

 

(2)This offering price per share of $0.015 is calculated based upon the price at which the warrantsor rights may be exercised pursuant to Rule 457(g)(1) of the Securities Act of 1933, as amended.

 

(3)This offering price per share of $0.012 is calculated based upon the price at which the warrantsor rights may be exercised pursuant to Rule 457(g)(1) of the Securities Act of 1933, as amended.

 

 
 

 

THE REGISTRANT HEREBY AMENDS THIS REGISTRATIONSTATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENTWHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OFTHE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TOSUCH SECTION 8(a), MAY DETERMINE.

 

 
 

 

The information in this preliminaryprospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with theU.S. Securities and Exchange Commission (“SEC”) is effective. This preliminary prospectus is not an offer to sell thesesecurities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY PROSPECTUS

 

Subject to completion, dated February14, 2012

 

MUSCLEPHARM CORPORATION

 

194,833,333 SHARES OF COMMON STOCK

 

This prospectus relates to the resale of 194,833,333shares of our common stock, par value $0.001 per share, by the selling security holders (the “Selling Security Holders”),underlying outstanding common stock purchase warrants, including (i) 119,833,333 shares underlying warrants held by certain shareholderswho purchased common stock purchase warrants in private transactions (the “Investor Warrants”) and (ii) 75,000,000shares underlying warrants issued to a consultant for services rendered pursuant to a consulting agreement (the “ConsultantWarrants”, and together with the shares underlying the Investor Warrants, the “Warrant Shares”).

 

We are not selling any shares of common stockin this offering and, as a result, will not receive any proceeds from this offering. All of the net proceeds from the sale of ourcommon stock will go to the Selling Security Holders.

 

Our common stock is quoted on the OTCBB underthe symbol “MSLP.OB.” On February 13, 2012, the closing bid price of our common stock was $0.01 per share. These priceswill fluctuate based on the demand for our common stock.

 

This investment involves a highdegree of risk. You should purchase shares only if you can afford a complete loss. See “Risk Factors” beginningon page 6.

 

Neither the SEC nor any state securitiescommission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representationto the contrary is a criminal offense.

 

The date of this prospectus is          , 2012

 

 
 

 

TABLE OF CONTENTS

 

  PAGE
   
Prospectus Summary 3
Summary of Financial Information 5
Risk Factors 6
Use of Proceeds 12
Determination of Offering Price 12
Selling Security Holders 12
Plan of Distribution 14
Description of Securities to be Registered 16
Interests of Named Experts and Counsel 18
Description of Business 18
Description of Property 26
Legal Proceedings 26
Market for Common Equity and Related Stockholder Matters 26
Penny Stock Rules 27
Management Discussion and Analysis of Financial Condition and Results of Operation 29
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36
Directors, Executive Officers, Promoters and Control Persons 36
Executive Compensation 40
Security Ownership of Certain Beneficial Owners and Management 44
Transactions with Related Persons, Promoters and Certain Control Persons 45
Disclosure of Commission Position on Indemnification of Securities Act Liabilities 46

 

You should rely only on the information containedin this prospectus. We have not authorized anyone to provide you with information different from that which is contained in thisprospectus. This prospectus may be used only where it is legal to sell these securities. The information in this prospectus mayonly be accurate on the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of securities.This prospectus contains important information about us that you should read and consider carefully before you decide whether toinvest in our common stock. If you have any questions regarding the information in this prospectus, please contact Brad Pyatt,our Chief Executive Officer, at: MusclePharm Corporation, 4721 Ironton Street, Denver, CO 80239, or by phone at (303) 396-6100.

 

2
 

 

PROSPECTUS SUMMARY

 

This summary highlights certaininformation contained elsewhere in this prospectus. Because it is a summary, it may not contain all of the information thatis important to you.  Before investing in our common stock, you should read this entire prospectus carefully,especially the sections entitled “Risk Factors” beginning on page 6 and “Management’s Discussion andAnalysis of Financial Condition and Results of Operations” beginning on page 29, as well our financial statements andrelated notes included elsewhere in this prospectus. In this prospectus, the terms “MusclePharm,”“Company,” “we,” “us” and “our” refer to MusclePharm Corporation.

 

Overview

 

MusclePharm Corporation was initially incorporatedin the State of Nevada on August 4, 2006, under the name Tone in Twenty, for the purpose of engaging in the business of providingpersonal fitness training using isometric techniques (“Tone in Twenty”).  Tone in Twenty was never able toraise the level of funding necessary to commence operations.  On February 18, 2010, the Company acquired all of the issuedand outstanding equity and voting interests of Muscle Pharm, LLC, a Colorado limited liability company, in exchange for 26,000,000shares of the Company’s common stock.  The shares were issued pursuant to that certain Securities Exchange Agreement,dated February 1, 2010 (the “Securities Exchange Agreement”).  As a result of this transaction, Muscle Pharm,LLC became a wholly owned subsidiary of the Company.  The 26,000,000 shares represented approximately 99.7% of the commonstock outstanding following the closing of this transaction.  As part of this transaction, the Company’s formerPresident sold his 366,662 shares to Muscle Pharm, LLC for $25,000 and these shares were then cancelled.

 

As part of the Securities Exchange Agreement,the Company agreed to seek shareholder approval of an amendment to the Company’s Articles of Incorporation changing the nameof the Company to “MusclePharm Corporation.”  This amendment was approved by a majority of the Company’sshareholders and the name change became effective on March 1, 2010.

 

MusclePharm currently manufactures and marketsseven branded, high-quality sports nutrition products: Assault™, Battle Fuel™, Bullet Proof®, Combat Powder®,Shred Matrix®, and Re-con®.  These products are comprised of amino acids, herb, and proteins scientifically testedand proven as safe and effective for the overall health of athletes.  These nutritional supplements were created to enhancethe effects of workouts, repair muscles, and nourish the body for optimal physical fitness.

 

Sales & Recent Developments

 

MusclePharm is an expanding healthy life-stylecompany that develops and distributes a full line of National Sanitation Foundation International and scientifically approved,nutritional supplements that are 100% free of any banned substances.  Based on years of research, MusclePharm productsare developed through an advanced six-stage research process involving the expertise of top nutritional scientists and field testedby more than 100 elite professional athletes from various sports including the National Football League, mixed martial arts, andMajor League Baseball.  The Company’s propriety and award winning products address all categories of an activelifestyle, including muscle building, weight loss, and maintaining general fitness through a daily nutritional supplement regimen.  MusclePharmproducts are sold in over 120 countries and available in over 5,000 U.S. retail outlets, including GNC, Vitamin Shoppe, and VitaminWorld.  The Company also sells its products in over 100 online stores, including bodybuilding.com, amazon.com and vitacost.com.

 

In 2010, our three largest customers accountedfor approximately 42%, 12% and %, respectively, of the Company’s sales.  For the nine months ended September 30,2011, our two largest customers accounted for approximately 39% and 14%, respectively, of the Company’s sales.

 

Where You Can Find Us

 

Our principal executive office is locatedat 4721 Ironton Street, Denver, CO 80239, and our telephone number is (303) 396-6100. Our Internet address iswww.musclepharm.com.

 

3
 

 

The Offering

 

Common Stock Offered by the Selling Security Holders   194,833,333 shares of common stock underlying common stock purchase warrants.
     
Common Stock Outstanding Before the Offering   709,111,792 shares of common stock as of February 13, 2012.
     
Common Stock Outstanding After the Offering   709,111,792 shares of common stock (1).
     
Terms of the Offering   The selling security holder will determine when and how they will sell the common stock offered in this prospectus.
     
Termination of the Offering   The offering will conclude upon such time as all of the common stock has been sold pursuant to the registration statement.
     
Use of Proceeds   We are not selling any shares of common stock in this offering and, as a result, will not receive any proceeds from this offering. See “Use of Proceeds.”
     
Risk Factors   The common stock offered hereby involves a high degree of risk and shouldnot be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginningon page 6.
     
OTCBB Symbol   MSLP.OB

 

(1)This total does not include the 194,833,333 shares being offered underlying unexercised common stock purchase warrants.

 

4
 

 

SUMMARY OF FINANCIAL INFORMATION

 

The following selected financial informationis derived from the Company’s Financial Statements appearing elsewhere in this Prospectus and should be read in conjunctionwith the Company’s Financial Statements, including the notes thereto, appearing elsewhere in this Prospectus.

 

Summary of Statements of Operations

 

For the Three Months Ended September 30, (unaudited):

 

   2011   2010 
Sales  $5,756,426   $1,409,016 
Loss from operations  $(2,412,344)  $(2,277,643)
Other income (expense)  $2,528,653   $(596,211)
Net income (loss)  $116,309   $(2,873,854)
Net income (loss) per common share - basic and diluted  $0.00   $(0.08)
Weighted average number of common shares outstanding - basic and diluted   326,088,629    35,923,947 

 

For the Nine Months Ended September 30, (unaudited):

 

   2011   2010 
Sales  $13,077,006   $3,135,712 
Loss from operations  $(5,393,337)  $(7,404,676)
Other expense  $(6,938,899)  $(1,270,554)
Net loss  $(12,332,236)  $(8,675,230)
Net loss per common share - basic and diluted  $(0.05)  $(0.28)
Weighted average number of common shares outstanding - basic and diluted   225,410,157    30,473,190 

 

For the Years Ended December 31, (audited):

 

   2010   2009 
Sales  $4,047,295   $1,017,916 
Loss from operations  $(18,251,836)  $(1,811,082)
Other expense  $(1,317,500)  $(102,390)
Net loss  $(19,569,337)  $(1,913,472)
Net loss per common share - basic and diluted  $(0.48)  $(0.07)
Weighted average number of common shares outstanding - basic and diluted   41,141,549    25,914,615 

 

Statement of Financial Position

 

At September 30, 2011 compared to December 31, 2010:

 

   September 30,
2011
   December 31,
2010
 
   (unaudited)   (audited) 
Cash  $-   $43,704 
Total assets  $5,717,368   $2,720,981 
Working Capital (Deficit)  $(5,392,491)  $(2,809,339)
Long term debt  $792,941    $ 250 000 
Stockholders’ deficit  $(5,141,634)  $(1,744,667)

 

5
 

 

RISK FACTORS

 

The following discussion and analysis shouldbe read in conjunction with the other financial information and consolidated financial statements and related notes appearing inthis prospectus.  This discussion contains forward-looking statements that involve risks and uncertainties.  Ouractual results will depend upon a number of factors beyond our control and could differ materially from those anticipated in theforward-looking statements.  Some of these factors are discussed below and elsewhere in this prospectus.

 

OUR INDEPENDENT AUDITORS HAVE EXPRESSEDSUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN, WHICH MAY HINDER OUR ABILITY TO OBTAIN FUTURE FINANCING.

 

In their report dated March 31, 2011, our independentauditors stated that our financial statements for the year ended December 31, 2010, were prepared assuming that we would continueas a going concern.  Our ability to continue as a going concern is an issue raised as a result of recurring losses fromoperations and cash flow deficiencies since our inception.  Our ability to continue as a going concern is subject toour ability to generate a profit and/or obtain necessary funding from outside sources, including obtaining additional funding fromthe sale of our securities, increasing sales or obtaining loans from various financial institutions or individuals where possible.

 

WE WILL NEED TO RAISE ADDITIONAL CAPITALTO CARRY OUT OUR BUSINESS PLAN.

 

We will need to raise additional capital tofund the growth of our business.  There is no guarantee that we will be able to access additional capital at rates and onterms which are attractive to us, if at all.  Without the additional funding needed to fund our growth we may not be ableto grow as planned.

 

OUR FAILURE TO APPROPRIATELY RESPONDTO COMPETITIVE CHALLENGES, CHANGING CONSUMER PREFERENCES AND DEMAND FOR NEW PRODUCTS COULD SIGNIFICANTLY HARM OUR CUSTOMER RELATIONSHIPSAND PRODUCT SALES.

 

The nutritional sports supplement industryis characterized by intense competition for product offerings and rapid and frequent changes in consumer demand.  Our failureto 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; and

 

·develop and/or acquire new products.

 

Products often have to be promoted heavilyin stores or in the media to obtain visibility and consumer acceptance. Acquiring distribution for products is difficult and oftenexpensive due to slotting and other promotional charges mandated by retailers. Products can take substantial periods of time todevelop consumer awareness, consumer acceptance and sales volume. Accordingly, some products fail to gain or maintain sufficientsales volume and as a result have to be discontinued. 

 

6
 

 

OUR INDUSTRY IS HIGHLY COMPETITIVE, AND OUR FAILURE TOCOMPETE EFFECTIVELY COULD ADVERSELY AFFECT OUR MARKET SHARE, FINANCIAL CONDITION AND FUTURE GROWTH.

 

The sports supplement industry is highly competitivewith respect to:

 

·Brand and product recognition;

 

·shelf space;

 

·price;

 

·new product introductions; and

 

·raw materials.

 

Several of our competitors are larger, moreestablished and possess greater financial, personnel, distribution and other resources.  We face competition in the healthfood channel from a limited number of large nationally known manufacturers, private label brands and many smaller manufacturersof dietary supplements.

 

WE RELY ON A LIMITED NUMBER OF CUSTOMERSFOR A SUBSTANTIAL PORTION OF OUR SALES, AND THE LOSS OF OR MATERIAL REDUCTION IN PURCHASE VOLUME BY ANY OF THESE CUSTOMERS WOULDADVERSELY AFFECT OUR SALES AND OPERATING RESULTS.

 

In 2009, four customers accounted for approximately66% of our sales.  The largest customer in 2009 accounted for 20% of our sales.  In 2010, our three largestcustomers accounted for approximately 42%, 12% and 9%, respectively, of the Company’s sales.  For the nine monthsended September 30, 2011, two of our largest customers accounted for approximately 39% and 14% of our sales.  The lossof any of our major customers, a significant reduction in purchases by any major customer, or, any serious financial difficultyof a major customer, could have a material adverse effect on our sales and results of operations.

 

ADVERSE PUBLICITY OR CONSUMER PERCEPTIONOF 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 consumerperceptions of the safety and quality of our products as well as similar products distributed by other sports nutrition supplementcompanies.  Consumer perception of sports nutrition supplements and our products in particular can be substantially influencedby scientific research or findings, national media attention and other publicity about product use.  Adverse publicity fromsuch sources regarding the safety, quality or efficacy of dietary supplements and our products could harm our reputation and resultsof operations.  The mere publication of reports asserting that such products may be harmful or questioning their efficacycould have a material adverse effect on our business, financial condition and results of operations, regardless of whether suchreports are scientifically supported or whether the claimed harmful effects would be present at the dosages recommended for suchproducts.

 

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 J. Pyatt,Cory Gregory, Jeremy Deluca, Lawrence Meer, John Bluher and certain other individuals.  These key management employeesare primarily responsible for our day-to-day operations, and we believe our success depends in large part on our ability to retainthem and to continue to attract additional qualified individuals to our management team.  The loss or limitation of theservices of any of our key management employees or the inability to attract additional qualified personnel could have a materialadverse effect on our business and results of operations.

 

7
 

 

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 resultof a number of factors, many outside of our control.  As a result, comparing our operating results on a period-to-period basismay 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 operatingresults:

 

·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; and;

 

·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 ECONOMICCRISIS MAY IMPACT OUR BUSINESS, OPERATING RESULTS, OR FINANCIAL CONDITION.

 

The recent global economic crisis has causeddisruptions and extreme volatility in global financial markets and increased rates of default and bankruptcy, and has impactedlevels of consumer spending.  These macroeconomic developments could negatively affect our business, operating results, orfinancial condition.  For example, if consumer spending continues to decrease, this may result in lower sales.

 

OUR BUSINESS AND OPERATIONS ARE EXPERIENCINGRAPID GROWTH.  IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS AND OPERATING RESULTS COULD BE HARMED.

 

We have experienced and expect to continueto 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 productsto our customers in sufficient volume or the quality of our products could suffer, which could negatively affect our operatingresults.  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 managementresources.  Failure to implement these improvements could hurt our ability to manage our growth and our financial position.

 

WE MAY BE EXPOSED TO MATERIAL PRODUCTLIABILITY CLAIMS, WHICH COULD INCREASE OUR COSTS AND ADVERSELY AFFECT OUR REPUTATION AND BUSINESS.

 

As a marketer and distributor of products designedfor 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 mostcases are not subject to pre-market regulatory approval in the United States or internationally.  Previously unknown adversereactions resulting from human consumption of these ingredients could occur.

 

We have not had any product liability claimsfiled against us, but in the future we may be, subject to various product liability claims, including among others that our productshad 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 highcost to defend or settle product liability claims could have a material adverse effect on our business and operating results.

8
 

 

OUR INSURANCE COVERAGE OR THIRD PARTYINDEMNIFICATION 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.  Inthe future, insurance coverage may not be available at adequate levels or on adequate terms to cover potential losses, includingon terms that meet our customer’s requirements.  If insurance coverage is inadequate or unavailable, we may face claimsthat exceed coverage limits or that are not covered, which could increase our costs and adversely affect our operating results.

 

OUR INTELLECTUAL PROPERTY RIGHTS AREVALUABLE, AND ANY INABILITY TO PROTECT THEM COULD REDUCE THE VALUE OF OUR PRODUCTS AND BRAND.

 

We have invested significant resources to protectour brands and intellectual property rights.  However, we may be unable or unwilling to strictly enforce our intellectualproperty rights, including our trademarks, from infringement.  Our failure to enforce our intellectual property rights coulddiminish the value of our brands and product offerings and harm our business and future growth prospects.

 

IN THE FUTURE WE MAY BE SUBJECT TO INTELLECTUALPROPERTY RIGHTS CLAIMS, WHICH ARE COSTLY TO DEFEND, COULD REQUIRE US TO PAY DAMAGES AND COULD LIMIT OUR ABILITY TO SELL SOME OFOUR PRODUCTS.

 

Although we have not been subject to any intellectualproperty litigation or infringement claims, we may be in the future, which could cause us to incur significant expenses to defendsuch 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 onboth a retrospective and prospective basis, and/or cease our manufacturing and sale of certain products that are alleged to beinfringing.  Future infringement claims against us by third parties may adversely impact our business, financial conditionand 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 talentsand 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.  Competitionin our industry for qualified employees is intense.  In addition, our compensation arrangements, such as our equity awardprograms, may not always be successful in attracting new employees and retaining and motivating our existing employees.  Ourcontinued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existingemployees.

 

A SHORTAGE IN THE SUPPLY OF KEY RAW MATERIALSCOULD INCREASE OUR COSTS OR ADVERSELY AFFECT OUR SALES AND REVENUES.

 

We obtain all of our raw materials from third-partysuppliers with whom we do not have significant long-term supply contracts.  Since all of the ingredients in our products arecommonly used, we have not experienced any shortages or delays in obtaining raw materials.  If things changed, shortages couldresult in materially higher raw material prices or adversely affect our ability to manufacture a product.  Price increasesfrom a supplier would directly affect our profitability if we are not able to pass price increases on to customers.  Our inabilityto obtain adequate supplies of raw materials in a timely manner or a material increase in the price of our raw materials couldhave a material adverse effect on our business, financial condition and results of operations.

 

9
 

 

BECAUSE WE ARE SUBJECT TO NUMEROUS LAWSAND REGULATIONS, AND WE MAY BECOME INVOLVED IN LITIGATION FROM TIME TO TIME, WE COULD INCUR SUBSTANTIAL JUDGMENTS, FINES, LEGALFEES AND OTHER COSTS.

 

Our industry is highly regulated.  Themanufacturing, labeling and advertising for our products are regulated by various federal, state and local agencies as well asthose 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 FDArequirements may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminalprosecutions.  Our advertising is subject to regulation by the FTC under the FTCA.  In recent years the FTC has initiatednumerous investigations of dietary supplement and weight loss products and companies.  Additionally, some states also permitadvertising and labeling laws to be enforced by private attorney generals, who may seek relief for consumers, seek class actioncertifications, seek class wide damages and product recalls of products sold by us.  Any of these types of adverse actionsagainst us by governmental authorities or private litigants could have a material adverse effect on our business, financial conditionand results of operations.

 

Other Risks Factors

 

WE MAY, IN THE FUTURE, ISSUE ADDITIONALCOMMON SHARES OR CONVERTIBLE PREFERRED SHARES, WHICH WOULD REDUCE INVESTORS’ PERCENT OF OWNERSHIP AND MAY DILUTE OUR SHAREVALUE.

 

Our Articles of Incorporation authorize theissuance of 1,000,000,000 shares of common stock, 5,000,000 shares of Series A Convertible Preferred Stock, 51 shares of SeriesB Preferred Stock, 500 shares of Series C Convertible Preferred Stock.  The Company currently has 9,999,449 shares of blackcheck preferred stock authorized but undesignated.  The future issuance of common stock may result in substantial dilutionin the percentage of our common stock held by our then existing shareholders.  We may value any common stock issued in thefuture on an arbitrary basis.  The issuance of common stock for future services or acquisitions or other corporate actionsmay have the effect of diluting the value of the shares held by our investors, and might have an adverse effect on any tradingmarket for our common stock.

 

OUR COMMON STOCK IS QUOTED ON THE OTCBB,WHICH MAY HAVE AN UNFAVORABLE IMPACT ON OUR STOCK PRICE AND LIQUIDITY.

 

Our common stock is quoted on the OTCBB.  TheOTCBB is a significantly more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares onthe OTCBB may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock,could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital inthe future.

 

OUR COMMON SHARES ARE SUBJECT TO THE“PENNY STOCK” RULES OF THE SEC AND THE TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OURSTOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.

 

The U.S. Securities and Exchange Commissionhas adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as anyequity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subjectto certain exceptions.

 

For any transaction involving a penny stock,unless exempt, the rules require:

 

(a)that a broker or dealer approve a person’s account for transactions in penny stocks; and

 

(b)the broker or dealer receive from the investor a written agreement to the transaction, settingforth the identity and quantity of the penny stock to be purchased.

 

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In order to approve a person’s account for transactions inpenny stocks, the broker or dealer must: (a) obtain financial information and investment experience objectives of the person; and(b) make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficientknowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also deliver, priorto any transaction in a penny stock, a disclosure schedule prescribed by the Commission relating to the penny stock market, which,in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination; and (b) that thebroker or dealer received a signed, written agreement from the investor prior to the transaction. Generally, brokers may be lesswilling to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult forinvestors to dispose of our Common shares and cause a decline in the market value of our stock.

 

Disclosure also has to be made about the risksof investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealerand the registered representative, current quotations for the securities and the rights and remedies available to an investor incases of fraud in penny stock transactions.  Finally, monthly statements have to be sent disclosing recent price informationfor the penny stock held in the account and information on the limited market in penny stocks.

 

LIABILITY OF DIRECTORS FOR BREACH OFDUTY OF CARE IS LIMITED.

 

According to Nevada law (NRS 78.138(7)), allNevada corporations limit the liability of directors and officers, including acts not in good faith. Our stockholders’ abilityto recover damages for fiduciary breaches may be reduced by this statute.  In addition, we are obligated to indemnify ourdirectors and officers regarding stockholder suits which they successfully defend (NRS 78.7502).

 

BECAUSE WE DO NOT INTEND TO PAY ANY CASHDIVIDENDS ON OUR COMMON STOCK, OUR STOCKHOLDERS WILL NOT BE ABLE TO RECEIVE A RETURN ON THEIR SHARES UNLESS THEY SELL THEM.

 

We intend to retain any future earnings tofinance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in theforeseeable future.  Unless we pay dividends, our stockholders will not be able to receive a return on their shares unlessthey sell them.  There is no assurance that stockholders will be able to sell shares when desired.

 

WE WILL INCUR ONGOING COSTS AND EXPENSESFOR SEC REPORTING AND COMPLIANCE, AND WITHOUT REVENUE WE MAY NOT BE ABLE TO REMAIN IN COMPLIANCE WITH THE SEC, MAKING IT DIFFICULTFOR INVESTORS TO SELL THEIR SHARES, IF AT ALL.

 

To remain eligible for quotation on the OTCBB,issuers must remain current in their filings with the SEC. Market Makers are not permitted to begin quotation of a security whoseissuer does not meet this filing requirement.  Securities already quoted on the OTCBB that become delinquent in their requiredfilings will be removed following a 30 or 60 day grace period if they do not make their required filing during that time. In order for us to remain in compliance we will require future revenues to cover the cost of these filings, which could comprisea substantial portion of our available cash resources.  If we are unable to generate sufficient revenues to remain in complianceit may be difficult for you to resell any shares you may purchase, if at all.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

The information contained in this report, includingin the documents incorporated by reference into this report, includes some statements that are not purely historical and that are“forward-looking statements.”  Such forward-looking statements include, but are not limited to, statementsregarding our and our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, includingour financial condition and results of operations. In addition, any statements that refer to projections, forecasts or other characterizationsof future events or circumstances, including any underlying assumptions, are forward-looking statements.  The words “anticipates,”“believes, “continue,” “could,” “estimates,” “expects,” “intends,”“may,” “might,” “plans,” “possible,” “potential,” “predicts,”“projects,” “seeks,” “should,” “will,” “would” and similar expressions,or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statementis not forward-looking.

 

The forward-looking statements contained inthis report are based on current expectations and beliefs concerning future developments and the potential effects on the partiesand the transaction.  There can be no assurance that future developments actually affecting us will be those anticipated.  Thosethat may cause actual results or performance to be materially different from those expressed or implied by these forward-lookingstatements, including the following forward-looking statements, involve a number of risks, uncertainties (some of which are beyondthe Company’s control) or other assumptions.

 

USE OF PROCEEDS

 

We will not receive any proceeds from the saleof common stock by the Selling Security Holders. All of the net proceeds from the sale of our common stock will go to the SellingSecurity Holders as described below in the sections entitled “Selling Security Holders” and “Plan of Distribution”.We may, however, receive proceeds in the event that some or all of the warrants held by a selling stockholder are exercised forcash. There can be no assurance that any of the Selling Security Holders will exercise their warrants or that we will receive anyproceeds therefrom. We intend to use any net proceeds received for working capital or general corporate needs.

 

DETERMINATION OF OFFERING PRICE

 

Our common stockcurrently trades on the OTCBB under the symbol “MSLP.OB”. The offering price of the Investor Warrants is $0.015, basedupon the price at which the warrants or rights may be exercised pursuant to Rule 457(g)(1) of the Securities Act. Theoffering price of the Consultant Warrants is $0.012, based upon the price at which the warrants or rights may be exercisedpursuant to Rule 457(g)(1) of the Securities Act. The Selling Security Holders may sell shares in anymanner at the current market price.

 

SELLING SECURITY HOLDERS

 

The 194,833,333 Warrant Shares being offeredfor resale in this registration statement include (i) 119,833,333 shares underlying warrants held by certain shareholders who purchasedcommon stock purchase warrants in private transactions and (ii) 75,000,000 shares underlying warrants issued to a consultant forservices rendered pursuant to a consulting agreement.

 

All expenses incurred with respect to the registrationof the common stock will be borne by us, but we will not be obligated to pay any underwriting fees, discounts, commission or otherexpenses incurred by the Selling Security Holders in connection with the sale of such shares.

 

Except as indicated below, neither the SellingSecurity Holders nor any of their associates or affiliates has held any position, office, or other material relationship with usin the past three years.

 

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The following table sets forth the name ofthe Selling Security Holders, the number of shares of common stock beneficially owned by each of the Selling Security Holders asof the date hereof and the number of share of common stock being offered by each of the Selling Security Holders.  Theshares being offered hereby are being registered to permit public secondary trading, and the selling stockholders may offer allor part of the shares for resale from time to time. However, the selling stockholder is under no obligation to sell all or anyportion of such shares nor is the selling stockholders obligated to sell any shares immediately upon effectiveness of this prospectus.All information with respect to share ownership has been furnished by the Selling Security Holders.  The “Numberof Shares Beneficially Owned After the Offering” column assumes the sale of all shares offered.

 

Name  Shares
Beneficially
Owned Prior to
Offering
   Shares to be
Offered
   Amount
Beneficially
Owned After
Offering (1)
   Percent
Beneficially
Owned After the
Offering
 
                 
Iconic  Hospitality, Ltd. (2)   0    6,666,667(3)   0    *% 
                     
Village Square S.C., LLC (4)   0    3,333,333(5)   0    *% 
                     
Suanna Singlehurst   0    6,666,667(6)   0    *% 
                     
Ben Harrison   0    800,000(7)   0    *% 
                     
Jim Sjoerdsma   12,666,667    6,666,667(8)   6,000,000    *% 
                     
Mike McShane   0    1,333,333(9)   0    *% 
                     
Alphonso Rendon Abud   0    4,533,333(10)   0    *% 
                     
Jose Miguel Ramirez Rodriguez   0    2,000,000(11)   0    *% 
                     
Antionio Moreno Quijano   0    3,000,000(12)   0    *% 
                     
Jose Ramon Moreno Quijano   0    5,333,333(13)   0    *% 
                     
Neil Ayervais   0    1,666,666(14)   0    *% 
                     
David Allan Ponto   0    16,666,667(15)   0    *% 
                     
Terry Ganey   0    16,666,667(16)   0    *% 
                     
Mark Burr   0    666,667(17)   0    *% 
                     
Lincoln Trust, FBO Patricia Taylor, IRA (18)   0    16,666,666(19)   0    *% 
                     
Randy Taylor   0    16,666,667(20)   0    *% 
                     
Gordon Burr   100,000,000    75,000,000(21)   25,000,000    *% 

 

(1)This number assumes each Selling Security Holder sells all of its shares being offered pursuant to this prospectus.

 

(2)Iconic Hospitality, Ltd. (“Iconic Hospitality”) is a limited liability company organized and existing under the laws of Canada. Farzin Ferdosi is the Managing Member of Iconic Hospitality and has voting and investment power over the shares beneficially owned by Iconic Hospitality.

 

(3)Includes 6,666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(4)Village Square, S.C., LLC (“Village Square”) is a limited liability company organized and existing under the laws of the State of Colorado. Tim Brasel is the Managing Member of Village Square and has voting and investment power over the shares beneficially owned by Village Square.

 

(5)Includes 3,333,333 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(6)Includes 6,666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

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(7)Includes 800,000 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(8)Includes 6,666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(9)Includes 1,333,333 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(10)Includes 4,533,333 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(11)Includes 2,000,000 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(12)Includes 3,000,000 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(13)Includes 5,333,333 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(14)Includes 1,666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(15)Includes 16,666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(16)Includes 16,666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(17)Includes 666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(18)Lincoln Trust Company, of Denver, Colorado, is the trustee. Patricia Taylor is the sole beneficiary.

 

(19)Includes 16,666,666 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(20)Includes 16,666,667 warrants to purchase shares of common stock at an exercise price of $0.015.

 

(21)Includes 75,000,000 warrants to purchase shares of common stock at an exercise price of $0.015.

 

PLAN OF DISTRIBUTION

 

This prospectus relates to the resale of 194,833,333Warrant Shares, including (i) 119,833,333 shares underlying warrants held by certain shareholders who purchased common stock purchasewarrants in private transactions and (ii) 75,000,000 shares underlying warrants issued to a consultant for services rendered pursuantto a consulting agreement.

 

The Selling Security Holders and any of itsrespective pledges, donees, assignees and other successors-in-interest may, from time to time, sell any or all of their sharesof our common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions.  TheSelling Security Holders may use any one or more of the following methods when selling shares:

 

·ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

·block trades in which the broker-dealer will attempt to sell the shares as agent, but may positionand resell a portion of the block as principal to facilitate the transaction;

 

·purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

·an exchange distribution in accordance with the rules of the applicable exchange;

 

·privately negotiated transactions;

 

·broker-dealers may agree with the Selling Security Holders to sell a specified number of such sharesat a stipulated price per share;

 

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·through the writing of options on the shares;

 

·a combination of any such methods of sale; and

 

·any other method permitted pursuant to applicable law.

 

The Selling Security Holders or their respectivepledgees, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principalsand/or broker-dealers acting as agents for themselves or their customers.  Such broker-dealers may receive compensationin the form of discounts, concessions or commissions from the Selling Security Holders and/or the purchasers of shares for whomsuch broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealermight be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their ownaccount and at their own risk.  It is possible that a Selling Security Holder will attempt to sell shares of Common Stockin block transactions to market makers or other purchasers at a price per share which may be below the then market price.  TheSelling Security Holders cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by,the Selling Security Holders.  In addition, the Selling Security Holders and any brokers, dealers or agents, upon effectingthe sale of any of the shares offered in this prospectus are “underwriters” as that term is defined under the SecuritiesAct or the Exchange Act, or the rules and regulations under such acts.  In such event, any commissions received by suchbroker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissionsor discounts under the Securities Act.

 

Discounts, concessions, commissions and similarselling expenses, if any, attributable to the sale of shares will be borne by a Selling Security Holder. The Selling Security Holdersmay agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilitiesare imposed on that person under the Securities Act.

 

The Selling Security Holders may from timeto time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default inthe performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock fromtime to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or any other applicableprovision of the Securities Act amending the list of Selling Security Holders to include the pledgee, transferee or other successorsin interest as a Selling Security Holder under this prospectus.

 

The Selling Security Holders also may transferthe shares of common stock in other circumstances, in which case the transferees, pledgees or other successors in interest willbe the selling beneficial owners for purposes of this prospectus and may sell the shares of common stock from time to time underthis prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the SecuritiesAct amending the list of Selling Security Holders to include the pledgee, transferee or other successors in interest as a SellingSecurity Holder under this prospectus.

 

We are required to pay all fees and expensesincident to the registration of the shares of common stock.  Otherwise, all discounts, commissions or fees incurred inconnection with the sale of our common stock offered hereby will be paid by the Selling Security Holders.

 

The Selling Security Holders acquired the securitiesoffered hereby in the ordinary course of business and have advised us that they have not entered into any agreements, understandingsor arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriteror coordinating broker acting in connection with a proposed sale of shares of common stock by any Selling Security Holder.  Wewill file a supplement to this prospectus if a Selling Security Holder enters into a material arrangement with a broker-dealerfor sale of common stock being registered.  If the Selling Security Holders use this prospectus for any sale of the sharesof common stock, they will be subject to the prospectus delivery requirements of the Securities Act.

 

Pursuant to a requirement by the FinancialIndustry Regulatory Authority, or FINRA, the maximum commission or discount to be received by any FINRA member or independent broker/dealermay not be greater than eight percent (8%) of the gross proceeds received by us for the sale of any securities being registeredpursuant to SEC Rule 415 under the Securities Act.

 

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The anti-manipulation rules of Regulation Munder the Exchange Act, may apply to sales of our common stock and activities of the Selling Security Holders.  The SellingSecurity Holders will act independently of us in making decisions with respect to the timing, manner and size of each sale.

 

We will pay all expenses incident to the registration,offering and sale of the shares of our common stock to the public hereunder other than commissions, fees and discounts of underwriters,brokers, dealers and agents.  If any of these other expenses exists, we expect Southridge to pay these expenses.  Wehave agreed to indemnify Southridge and its controlling persons against certain liabilities, including liabilities under the SecuritiesAct. We estimate that the expenses of the offering to be borne by us will be approximately $30,000.  We will not receiveany proceeds from the resale of any of the shares of our common stock by Southridge.  We may, however, receive proceedsfrom the sale of our common stock under the Equity Purchase Agreement.

 

DESCRIPTION OF SECURITIES TO BE REGISTERED

 

General

 

Our authorized capital stock consists of 1,000,000,000shares of common stock, par value $0.001 (709,111,792 of which are issued and outstanding as of February 13, 2012), 5,000,000 Sharesof Series A Convertible Preferred Stock (of which none are issued and outstanding as of February 13, 2012), 51 shares of SeriesB Preferred Stock (51 of which are issued and outstanding as of February 13, 2012), 500 shares of Series C Preferred Stock (190of which are issued and outstanding as of February 13, 2012). The Company also has 10,000 shares of blank check preferred stockauthorized, 9,449 shares of which are undesignated as of February 13, 2012. Our preferred stock and/or common stock may be issuedfrom time to time without prior approval by our stockholders. Our preferred stock and/or common stock may be issued for such considerationas may be fixed from time to time by our board of directors.  Our board of directors may issue such shares of our preferredstock and/or common stock in one or more series, with such voting powers, designations, preferences and rights or qualifications,limitations or restrictions thereof as shall be stated in the resolution or resolutions.

 

Common Stock

 

The Company, a Nevada corporation, is authorizedto issue 1,000,000,000 shares of common stock, $0.001 par value. The holders of common stock: (i) have equal rights to dividendsfrom funds legally available therefore, ratably when as and if declared by the Company’s Board of Directors; (ii) are entitledto share ratably in all assets of the Company available for distribution to holders of common stock upon liquidation, dissolution,or winding up of the affairs of the Company; (iii) do not have preemptive, subscription or conversion rights and there are no redemptionor sinking fund provisions applicable thereto; (iv) are entitled to one non-cumulative vote per share of common stock, on all matterswhich shareholders may vote on at all meetings of shareholders; and (v) the holders of common stock have no conversion, preemptiveor other subscription rights.  There is no cumulative voting for the election of directors.  As of February13, 2012, there were 709,111,792 shares of common stock outstanding.  Each holder of our common stock is entitled toone vote for each share of our common stock held on all matters submitted to a vote of stockholders.

 

Series A Convertible Preferred Stock

 

As of February 13, 2012, there were 5,000,000shares of Series A Convertible Preferred Stock designated and 0 shares of Series A Convertible Preferred Stock issued and outstanding.According to the Certificate of Designation filed with the Nevada Secretary of State, these shares are non-voting, and have nodividend or liquidation rights. Each share is convertible into two hundred (200) shares of common stock, provided, however, noholder of the Series A Convertible preferred stock will have the right to convert any of such shares to the extent that after givingeffect to such conversion, the beneficial owner of such shares would beneficially own in excess of 4.9% of the shares of the commonstock outstanding immediately after giving effect to such conversion.

 

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Series B Preferred Stock

 

As of February 13, 2012, there were 51 sharesof Series B Preferred Stock designated and 51 shares of Series B Preferred Stock issued and outstanding. According to the Certificateof Designation filed with the Nevada Secretary of State, these shares have no dividend rights, liquidation rights on a pro ratabasis, no conversion rights and rank senior to the Company’s common stock. Each one (1) share of Series B Preferred Stockshall have voting rights equal to (x) 0.019607 multiplied by the total issued and outstanding common stock eligible to voteat the time of the respective vote (the “Numerator”) divided by (y) 0.49, minus (z) the Numerator.

 

Series C Convertible Preferred Stock

 

As of February 13, 2012, there were 500 sharesof Series C Preferred Stock and 190 shares of Series C Preferred Stock issued and outstanding. According to the Certificate ofDesignation filed with the Nevada Secretary of State, these shares have the following rights, designations and preferences:

 

·Stated Value: The stated value per share of the Series C Convertible Preferred Stock is$1,000.00.

 

·Voting Rights: The holders of the Series C Convertible Preferred Stock are not entitledto vote with the Company’s common stockholders.

 

·Protective Provisions: As long as any Series C Convertible Preferred Stock is outstanding,we are prohibited from taking any of the following actions without the consent of a majority of the then outstanding Series C ConvertiblePreferred Stock.

 

o(i) alter or change adversely the powers, preferences or rights given to the Series C ConvertiblePreferred Stock;

 

o(ii) alter or amend the certificate of designation;

 

o(iii) authorize or create any class of stock ranking as to dividends or distribution of assetsupon a liquidation or otherwise senior to or pari passu with the Series C Convertible Preferred Stock;

 

o(iv) amend its certificate of incorporation, bylaws or other charter documents so as to affectadversely any rights of any holders of the Series C Convertible Preferred Stock;

 

o(v) increase the authorized or designated number of shares of Series C Convertible Preferred Stock;

 

o(vi) issue any additional shares of Series C Convertible Preferred Stock; or

 

o(vii) enter into any agreement with respect to the foregoing.

 

·Voluntary Conversion: A holder of Series C Convertible Preferred Stock can elect to convertits Series C Convertible Preferred Stock into shares of our common stock at any time from and after the Original Issue Date (asdefined in the certificate of designation). Each share of Series C Convertible Preferred Stock is convertible into that numberof shares of our common stock determined by dividing the stated value of such share of Series C Convertible Preferred Stock (asincreased for accrued dividends) by the conversion price.

 

·Conversion Price: The conversion price is the higher of (i) $0.01 and (ii) such price thatis a 50% discount to the average of the low 2 closing bid prices for the Company’s common stock for the five trading daysimmediately prior to such day that a holder delivers a notice of conversion to the Company, subject to adjustment.

 

The summary of the rights, privileges and preferencesof the Series C Convertible Preferred Stock described above is qualified in its entirety by reference to the certificate of designation,a copy of which is attached as an exhibit to this report and is incorporated herein by reference.

 

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INTERESTS OF NAMED EXPERTS AND COUNSEL

 

No expert or counsel named in this prospectusas having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities beingregistered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingencybasis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrantor any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiariesas a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

 

The financial statements of the Company includedin this prospectus and in the registration statement have been audited by Schumacher and Associates, Inc., Certified Public Accountantsfor the year ended December 31, 2009, and Berman & Company, P.A., Certified Public Accountants, to the extent and for the periodset forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance upon suchreport given upon the authority of said firm as experts in auditing and accounting.

 

The validity of the issuance of the common stock hereby will bepassed upon for us by Lucosky Brookman LLP.

 

DESCRIPTION OF BUSINESS

 

General

 

Headquartered in Denver, Colorado, MusclePharmis a rapidly expanding healthy life-style company that develops and manufactures a full line of National Sanitation FoundationInternational and scientifically approved, nutritional supplements that are 100% free of any banned substances. Based on yearsof research, MusclePharm products are created through an advanced six-stage research protocol involving the expertise of top nutritionalscientists and field tested by more than 100 elite professional athletes from various sports including the National Football League,mixed martial arts, and Major League Baseball. The Company’s propriety and award winning products address all categoriesof an active lifestyle including muscle building, weight loss, and maintaining general fitness through a daily nutritional supplementregimen. MusclePharm is sold in over 120 countries and available in over 5,000 U.S. retail outlets, including GNC and Vitamin Shoppe.The Company also sells its products in over 100 online stores, including bodybuilding.com, amazon.com and vitacost.com.

 

Business Strategy

 

Our primary focus at the current time is onthe following:

 

1.Increase our distribution and sales;

 

2.Conduct additional testing of the safety and efficacy of our products; and

 

3.Hire additional key employees to continue to strengthen the company.

 

The Sports Nutrition and High Energy SupplementMarket

 

The Sports Nutrition and High Energy SupplementMarket is comprised of sports beverages, sports food and sports supplements. According to BCC Research’s 2008 Global ResearchReport, sports beverages maintain the largest market share with $24.9 billion in annual sales in 2007, the sports food segmenthad $1.2 billion in annual sales and the sports supplement segment had 2007 annual sales of $1.1 billion. BCC projected that thesports supplement sales would reach $2.3 billion by 2013.

 

According to BCC Research, the United Statesis the largest consumer market for sports nutrition products, with annual sales reaching $22 billion in 2007, and projected salesof $29 billion in 2013. Western Europe and Japan are the second and third largest consumers of sports nutrition products. The keymarket drivers for sports nutrition products are taste, price, and variety and brand loyalty. In recent years, the consumptionof sports nutrition products has shifted to mainstream consumers who have become the key drivers of growth within the industry.

 

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Current Products

 

We currently offer twelve products: Assault™,Battle Fuel™, Bullet Proof™, Combat Powder®, MuscleGel®, Shred Matrix®, Re-con™, Armor-V™,BCAA 3:1:2™, ZMA Max™, Glutamine and Creatine.  Our products are comprised of amino acids, herbs and proteinsscientifically tested and proven as safe and effective for the overall health of athletes.  These nutritional supplementswere created to enhance the effects of workouts, repair muscles, and nourish the body for optimal physical fitness.  Followingis a brief description of each of our products:

 

Assault™

 

Pre-Performance Amplifier

 

·Fuels power for long-lasting energy;

 

·Enhances focus; and

 

·Builds lean muscle mass.

 

Assault™ helps fight fatigue, boost performance,build muscle, increase intensity, hydrate muscles and feed muscles valuable, clinically-proven nutrients such as ConCrete, BetaAlanine, BCAAs and Cinnulin.  Assault™ is a safe pre-workout formula that increases strength, aerobic and anaerobicperformance, reduces stomach fat and meets NFS and Informed Choice product standards for being free of banned substances.

 

Battle Fuel™

 

Maximizes Workout Performance with No SideEffects

 

·Increases Aggression and Focus;

 

·Boosts Testosterone and Feeds Anabolism; and

 

·Promotes Cellular Health and Recovery.

 

Battle Fuel helps you increase lean mass andstrength, improve endurance and energy levels, naturally detoxify and enhance aggressive mental focus. For many athletes, BattleFuel delivers that edge that their workout has been missing. The herbal formula enhances and supports all things masculine to drivestrength, power and lean muscle mass development. Battle Fuel also assists with recovery through an intense combination of cleansingagents and natural elements that reduce fatigue and improve cellular immunity.

 

Bullet Proof

 

Advanced Nighttime Recovery System

 

·Promotes Deep Sleep To Maximize Repair;

 

·Optimizes Anabolic/Anti-Catabolic Environment; and

 

·Stimulates Growth Hormone/Testosterone Output.

 

Bullet Proof™ helps increase recoveryeffectiveness and hormonal up-regulation, improve lean muscle tissue growth and help relieve some forms of pain. Deep nourishingsleep is the athlete’s best friend for the long-term building of strength, mass and speed. During this rest period, key ingredientslike our proprietary blend of essential amino acids, beta alanine and ZMA MAX™ are hard at work repairing tissue and stavingoff muscle breakdown. Other ingredients boost your immune system and reduce swelling, preparing the body for that next hard workout.

 

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Combat Powder®

 

Feeds Muscle Up To 8 Hours

 

·Technologically Advanced Protein Superfood;

 

·Enhances Digestion of Nutrients; and

 

·Maximizes Adaptive Response to Hard Training.

 

Combat helps the body receive 25 grams of highquality protein, fuel fat loss, support healthy body composition, nourish lean muscle and speed up recovery. Combat is designedto help fill the gap in nutrition that athletes and super-active people may experience, to ensure their bodies are growing andrecovering. The staggered absorption rate of the five different protein components guarantees a complete eight-hour nutrient infusion.

 

MuscleGel®

 

Delicious On-The-Go Protein and Nutrition

 

·Stay Leaner and Be Healthier;

 

·Proteins Absorb Into Body Easier; and

 

·Nutritious and Easy To Enjoy.

 

MuscleGel® helps you receive more of thenutrients your body needs every day, shed pounds and fat and enjoy the convenience of the ready-to-eat packs. Packed full of differentproteins like “building block” amino acids, MuscleGel’s patented Pro-Fusion Technology gel format yields a fast-absorbing,highly bio-available source of next generation fitness food. For protein, carbohydrates and vitamins, MuscleGel delivers. It workson-the-go, fills athletes up quickly and streams right to those parts of an athletes’ body where nutrients are needed most.

 

SHRED Matrix®

 

Multi-Level Weight Loss System

 

·Ramps up your metabolism;

 

·Suppresses hunger and cravings; and

 

·Burns fat through all-natural herbs.

 

SHRED Matrix is superior for burning fat naturally,counteracting mood swings and helping athletes stay focused on weight loss and quick results. This 8-Stage Weight Loss System wasspecifically made for athletes and people who exercise regularly. As a total body diet, it sheds pounds, burns fat cells and attacksfat loss from every angle. While natural fat burners are at work, proven ingredients like Sugar Stop™ and the enzyme aidmatrix keep athletes’ appetites in check. Additionally, the formula is tuned so users won’t experience jitters or acrash.

 

Re-con®

 

Post-Workout Recharger

 

·Optimize your “anabolic window”;

 

·Promote Post Workout Growth & Repair; and

 

·Replenish Vital Nutrients.

 

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Re-con helps athletes recover quicker and moreeffectively, repair muscle cells, feed the body nutrients and grow stronger with ingredients like BCAAs, EAAs, cellular detoxifiers,muscle-loading carbohydrates and stress hormone regulators. This maximizes an athlete’s anabolic window, the post-workoutphase where the body repairs and rebuilds tissue. Re-con nourishes and promotes growth from every angle, delivering proteins andnutritious elements in their ideal forms.

 

Armor-V™

 

Advanced Multi-Vitamin Complex

 

·Complete Source of Vitamins and Minerals;

 

·Total Immune System Support; and

 

·Added B Vitamins and Probiotics.

 

Armor-V helps athletes receive a full doseof important vitamins and minerals, keeps vital organs such as the liver clean of toxins, recover faster and keep the body’shormones balanced. This system was designed to meet the standards of high-performance athletes, who need a dedicated source ofvitamins and minerals. Loaded with anti-oxidants and system optimizers derived from fruits and vegetables, Armor-V brings togetherorganic, herbal and natural ingredients into a multi-nutrient complex that benefits active bodies.

 

BCAA 3:1:2™

 

Rapidly Absorbed Branched Chain Amino Acid Complex

 

·Delivers BCAAs Before and After Workout;

 

·Minimizes Muscle Damage; and

 

·100% Pharmaceutical Grade.

 

BCAA helps athletes receive ideal amounts ofthe Branched Chain Amino Acids (BCAA) Leucine, Isoleucine and Valine, from this patented ratio of 3:1:2, promote muscle developmentand maintenance, increase lean body mass and spur weight loss. BCAAs are part of the group of essential amino acids a body needs.Our patented 3:1:2 ratio is designed to release the ideal amounts of each amino acid both before and after a workout. This preventsmuscle breakdown and leads to gains in body mass without losing weight.

 

ZMA Max™

 

Anabolic Mineral Support Formula with Fenugreek®

 

·Increases Testosterone;

 

·Increases Testosterone;

 

·Supports Healthy Libido Function.

 

MusclePharm ZMA Max supports muscle growthand recovery, promotes deeper and more efficient sleep to maximize healing, tissue repair, anabolic hormone production and testosteronelevels. It delivers the benefits of precise dosages and ZMA ingredient ratios and adds the synergistic effects of clinically-provenFenugreek to support the balance of cholesterol levels, as well as increase of healthy libido function in women and men.

 

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MP Glutamine

 

Rapidly Absorbed Glutamine Complex

 

·Increase Recovery Time;

 

·Enhance Muscle Growth; and

 

·100% Pharmaceutical Grade.

 

MusclePharm Core Series MP Glutamine supplementincreases whole body glutamine status by enhancing an athlete’s uptake, bioavailability and digestion.  Feedingthe body a dedicated source of glutamine ultimately provides optimal muscle-tissue saturation through an exclusive array of threepure yet diverse nutritional glutamine complexes that deliver a substantial range of benefits.  MP Glutamine helps athletesrehydrate, rebuild and recover from even the toughest of workouts quicker and more efficiently.

 

Creatine

 

Five Superior Blends of Creatine

 

·Promote Strength, Power and Endurance;

 

·No Loading; and

 

·100% Pharmaceutical Quality.

 

MusclePharm MP Core Series Creatine increasescreatine status by enhancing uptake and bioavailability while fueling stamina, strength and lean muscle growth. Many athletes whoengage in high-intensity/short duration exercises like weightlifting use creatine. The clinically-proven ingredient Cinnulin heightensabsorption, which assists our five pure and diverse creatine complexes, delivering a range of benefits will launch directly intomuscles. MP Creatine increases explosive energy, ATP energy and overall power.

 

We sell our products both domestically andinternationally. With respect to our domestic sales, we started selling our products in the summer of 2009, in approximately 485of The Vitamin Shoppes outlets. Currently, we sell our products into over 2500 GNC stores and we expect to launch our productsin up to 400 Vitamin World retail stores by the end of 2011. In addition to the foregoing retail stores, we also sell domesticallythrough several distributors and over 100 Internet sites. The primary domestic Internet site thought which we sell our productsis Bodybuilding.com (“Body Building”), which is the largest online retailer of sports nutrition products in the UnitedStates. Body Building awarded MusclePharm the title of the “best new brand for 2009,” and MusclePharm is now one oftheir top 10 best-sellers. We also work with other large distributors who have begun to place the Company’s product in smallretail stores and gyms across the United States.

 

With respect to international sales, we startedselling our products to GNC Canada during the third quarter of 2009. We use several other international distributors, and we alsojust started working with a large international distributor which covers approximately 120 countries, selling primarily to largerstores.

 

Marketing Strategy

 

Our core marketing strategy is to brand MusclePharmas the “must have” nutritional supplement line for high performance athletes. We want to be known as the athlete’scompany, run by athletes with products for athletes. We have endorsements from over 50 UFC fighters, several well-known NFL players,as well as top X-Game and fitness athletes. Athletes are considered role models and many people strive to emulate their fitnessand well-being regimen. The objective of these athletic endorsements is to build both consumer awareness and confidence and todrive consumer demand for our products in the market.

 

The fighters we sponsor wear our brand on theiruniforms and we also advertise at the Ultimate Fighting Championship events. In 2011, we launched a website that will tap intothe social networking world and we believe, further expand our brand and consumer awareness.

 

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The Company is also currently engaged in variousin-store promotions, including point-of-purchase stands, aisle displays in our retail outlets, as well as sample demonstrationsand athlete appearances in GNC and Vitamin Shoppe locations.

 

Research and Development

 

Each and every product sold by MusclePharmis the end result of a long development process involving leading nutrition scientists, doctors, and top professional athletes.

 

We utilize our state-of-the-art Sports ScienceCenter to evaluate and perfect each of our unique supplement formulas. Our facility is complete with a full testing-lab, physicaltherapy rooms, HydroWorx® pool, astro-turf field and full workout facility. The Company believes this hands-on approach toresearch and development helps us to deliver consumers superior, safe and more effective products than those of our competitors.

 

Manufacturing and Product Quality

 

We are committed to produce and sell highlyefficacious products that can be trusted for their quality and safety. To date, our products have been outsourced to a third partymanufacturer where the products are manufactured in full compliance with the Good Manufacturing Practice standards set by the Food& Drug Administration.

 

Trademarks and Patents

 

We regard our trademarks and other proprietaryrights as valuable assets and we believe that protecting our key trademarks is crucial to our business strategy of building strongbrand name recognition and that such trademarks have significant value in the marketing of our products.

 

Our policy is to pursue registrations for allof the trademarks associated with our products. Federally registered trademarks have a perpetual life, provided that they are maintainedand renewed on a timely basis and used correctly as trademarks, subject to the rights of third parties to attempt to cancel a trademarkif 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 UnitedStates federal registration of a trademark enables the registrant to stop the unauthorized use of the trademark by any third partyanywhere in the United States. Furthermore, the protection available, if any, in foreign jurisdictions may not be as extensiveas the protection available to us in the United States.

 

Although we seek to ensure that we do not infringeon the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual propertyinfringement 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: Optimum Nutrition, Inc. (“Optimum”), Iovate Health Sciences, Inc.(“IHS”), and Bio-Engineered Supplements and Nutrition, Inc. (“BSN”). Optimum is a wholly owned subsidiaryof Glanbia Nutritionals, Inc., an international nutritional ingredients group. Optimum owns and operates two brands of nutritionalsupplements (Optimum Nutrition and American Body Building), providing a line of products across multiple categories. IHS is a nutritionalsupplement company that delivers a range of products to the nutritional marketplace. Headquartered in Oakville, Ontario, Canada,IHS’s line of products can be found in major retail stores and include such brands as Hydroxy-Cut™, Cell-Tech™,Six Star Nutrition™. BSN is also a sports nutrition leader whose top products include No-Explode™ and Syntha Six Protein™.

 

MusclePharm intends to compete by aggressivelymarketing our brand, emphasizing our relationships with professional athletes, and utilizing our relationships with those athletes,retail outlets and industry publications and relying on the strength of the science behind MusclePharm products.

 

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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 aresubject to regulation by, among other regulatory entities, the Consumer Product Safety Commission (CPSC), the U.S. Department ofAgriculture (USDA), the Environmental Protection Agency (EPA) and the U.S. Food and Drug Administration (FDA). Advertising andother 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 ourproducts are also regulated by various state and local agencies as well as those of each foreign country to which we distributeour products.

 

The Dietary Supplement Health and EducationAct of 1994 (DSHEA) revised the provisions of the Federal Food, Drug, and Cosmetic Act (FFDC Act) concerning the regulation ofdietary 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 describethe relationship between a nutrient or dietary ingredient and a disease or health related condition and can be made on the labelingof dietary supplements if supported by significant scientific agreement and authorized by the FDA in advance via notice and commentrulemaking. Nutrient content claims describe the nutritional value of the product and may be made if defined by the FDA throughnotice and comment rulemaking and if one serving of the product meets the definition. Statements of nutritional support or productperformance, which are permitted on labeling of dietary supplements without FDA pre-approval, are defined to include statementsthat: (i) claim a benefit related to a classical nutrient deficiency disease and disclose the prevalence of such disease in theUnited 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 isfor a dietary ingredient that does not provide traditional nutritional value, prominent disclosure of the lack of FDA review ofthe relevant statement and notification to the FDA of the claim is required. Drug claims are representations that a product isintended to diagnose, mitigate, treat, cure or prevent a disease. Drug claims are prohibited from use in the labeling of dietarysupplements.

 

Claims made for our dietary supplement productsmay include statements of nutritional support and health and nutrient content claims when authorized by the FDA or otherwise allowedby law. The FDA’s interpretation of what constitutes an acceptable statement of nutritional support may change in the futurethereby 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 reasonablyexpected to be safe. The manufacturer must notify the FDA at least 75 days before marketing products containing new dietary ingredientsand provide the FDA the information upon which the manufacturer based its conclusion that the product has a reasonable expectationof safety. There is no assurance that the FDA will accept the evidence of safety for any new dietary ingredients that we may wishto market, and the FDA’s refusal to accept that evidence could prevent the marketing of the new dietary ingredients and dietarysupplements containing a new dietary ingredient.

 

Our dietary supplements must comply with theDietary Supplement and Nonprescription Drug Consumer Protection Act, which became effective on December 22, 2007. This Act amendsthe FFDC Act to mandate the reporting of serious adverse events received by us to the FDA.

 

The FDA has also announced its intention topromulgate new GMPs specific to dietary supplements, to fully enforce DSHEA and monitor compliance with the Bioterrorism Act of2002.

 

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Our failure to comply with applicable FDA regulatoryrequirements could result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines and criminalprosecutions. We intend to comply with the new GMPs once they are adopted. The new GMPs, predicted to be finalized shortly, wouldbe more detailed and stringent than the GMPs that currently apply to dietary supplements and may, among other things, require dietarysupplements 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 newregulations without incurring a substantial expense.

 

As a result of our efforts to comply with applicablestatutes and regulations in the United States and elsewhere, we have from time to time reformulated, eliminated or relabeledcertain of our products and revised certain advertising claims. We cannot predict the nature of any future laws, regulations, interpretationsor 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 documentationof the properties of certain products, expanded or different labeling, and/or scientific substantiation. Any or all of such requirementscould have a material adverse effect on our business, financial condition and results of operations.

 

Our advertising of dietary supplement productsis subject to regulation by the FTC under the FTCA. Section 5 of the FTCA prohibits unfair methods of competition and unfair ordeceptive acts or practices in or affecting commerce. Section 12 of the FTCA provides that the dissemination or the causing tobe disseminated of any false advertisement pertaining to drugs or foods, which would include dietary supplements, is an unfairor deceptive act or practice.  Under the FTC’s Substantiation Doctrine, an advertiser is required to have a “reasonablebasis” for all objective product claims before the claims are made. Failure to adequately substantiate claims may be consideredeither deceptive or unfair practices. Pursuant to this FTC requirement, we are required to have adequate substantiation for allmaterial advertising claims made for our products.

 

On November 18, 1998, the FTC issued “DietarySupplements: An Advertising Guide for Industry.” This guide provides marketers of dietary supplements with guidelines onapplying FTC law to dietary supplement advertising. It includes examples of the principles that should be used when interpretingand substantiating dietary supplement advertising. Although the guide provides additional explanation, it does not substantivelychange the FTC’s existing policy that all supplement marketers have an obligation to ensure that claims are presented truthfullyand to verify the adequacy of the support behind such claims. Our outside counsel reviews our advertising claims for compliancewith FTC requirements.

 

The FTC has a variety of processes and remediesavailable to it for enforcement, both administratively and judicially, including compulsory process, cease and desist orders andinjunctions. 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 violationof such orders could have a material adverse effect on our business, financial condition and results of operations.

 

Advertising and labeling for dietary supplementsand conventional foods are also regulated by state, county and other local governmental authorities. Some states also permit theselaws to be enforced by private attorney generals. These private attorney generals may seek relief for consumers, seek class actioncertifications, seek class-wide damages, seek class-wide refunds and product recalls of products sold by us. There can be no assurancethat state and local authorities will not commence regulatory action, which could restrict the permissible scope of our productadvertising claims, or products that can be sold in the future.

 

Governmental regulations in foreign countrieswhere we plan to or expand sales may prevent or delay entry into the market or prevent or delay the introduction, or require thereformulation, of certain of our products. Compliance with such foreign governmental regulations is generally the responsibilityof our distributors for those countries. These distributors are independent contractors over whom we have limited control.

 

Number of Total Employees and Number ofFull Time Employees

 

We believe that our success will depend greatlyon our ability to identify, attract, and retain capable employees. As of February 13, 2012, we had 19 full time employees. Ouremployees are not represented by any collective bargaining unit, and we believe our relations with our employees are good.

 

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DESCRIPTION OF PROPERTY

 

MusclePharm’s corporate headquartersis located in Denver, Colorado. This commercial office building is 30,320 sq. ft. with 5,000 sq. ft. being used for offices andthe other 25,000 sq. ft. utilized for research and development. The space includes a full performance training center, medicallaboratory, and a 50 seat theatre room. The term of the lease is 65 months, expiring on December 31, 2015.

 

LEGAL PROCEEDINGS

 

We are currently not involved in any litigationthat we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit,proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or bodypending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affectingour company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors intheir capacities as such, in which an adverse decision could have a material adverse effect.

 

MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDERMATTERS

 

(a) Market Information

 

Our shares of common stock were cleared fortrading under the symbol “TTWZ.OB” on the OTCBB on November 24, 2008, and later began trading on the OTCBB under thesymbol “MSLP.OB” on April 27, 2010. Prior to this period, there was minimal trading in our common stock. The high andlow prices for our common stock during the calendar quarters ended were:

 

Quarter ended  High   Low 
December 31, 2011  $0.026   $0.007 
September 30, 2011  $0.039   $0.014 
June 30, 2011  $0.081   $0.025 
March 31, 2011  $0.130   $0.036 
December 31, 2010  $0.900   $0.050 
September 30, 2010  $1.030   $0.410 
June 30, 2010  $1.180   $0.950 
March 31, 2010  $-   $- 
December 31, 2009  $-   $- 
September 30, 2009  $-   $- 
June 30, 2009  $-   $- 
March 31, 2009  $-   $- 

 

Quotations on the OTCBB reflect bid and ask quotations, may reflectinter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.

 

(b) Holders

 

As of February 13, 2012, we estimate that therewere approximately 4,000 holders of record of our common stock. This figure does not take into account those shareholders whosecertificates are held in the name of broker-dealers, “street name,” or other nominees.

 

(c) Dividends

 

We have not declared or paid dividends on ourcommon stock since our formation, and we do not anticipate paying dividends in the foreseeable future. Declaration or payment ofdividends, if any, in the future, will be at the discretion of our Board of Directors and will depend on our then current financialcondition, results of operations, capital requirements and other factors deemed relevant by the board of directors. There are nocontractual restrictions on our ability to declare or pay dividends.

 

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(d) Securities Authorized for Issuance under Equity CompensationPlan

 

As of December 31, 2010, we had an employeestock option plan under which 5,000,000 shares had been reserved for issuance. The following table shows information with respectto this plan as of the fiscal year ended December 31, 2010.

 

 

Equity Compensation Plan Information
Plan category  Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights
(a)
   Weighted-average exercise
price of outstanding options,
warrants and rights (b)
   Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a)) (c)
 
Equity compensation plans approved by security holders   2,767,500   $0.50    2,232,500 
Equity compensation plans not approved by security holders   -    -    - 
Total   2,767,500   $0.50    2,232,500 

 

Transfer Agent

 

Our stock transfer agent is Empire Stock Transfer, Inc., 1859 WhitneyMesa Dr., Henderson, NV 89014.

 

PENNY STOCK RULES

 

The U.S. Securities and Exchange Commissionhas also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks aregenerally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchangesor quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securitiesis provided by the exchange or system).

 

A purchaser is purchasing penny stock, whichlimits the ability to sell the stock.  The shares offered by this prospectus constitute penny stock under the ExchangeAct. The shares will remain penny stocks for the foreseeable future.  The classification of penny stock makes it moredifficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidatehis/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subjectto Rules 15g-1 through 15g-10 of the Exchange Act. Rather than creating a need to comply with those rules, some broker-dealerswill refuse to attempt to sell penny stock.

 

The penny stock rules require a broker-dealer,prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document,which:

 

·Contains a description of the nature and level of risk in the market for penny stock in both public offerings and secondary trading;

 

·Contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the Securities Act;

 

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·Contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” price for the penny stock and the significance of the spread between the bid and ask price;

 

·Contains a toll-free number for inquiries on disciplinary actions;

 

·Defines significant terms in the disclosure document or in the conduct of trading penny stocks; and

 

·Contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation.

 

The broker-dealeralso must provide, prior to effecting any transaction in a penny stock, to the customer:

 

·The bid and offer quotations for the penny stock;

 

·The compensation of the broker-dealer and its salesperson in the transaction;

 

·The number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

 

·Monthly account statements showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules requirethat prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special writtendetermination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgementof the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and datedcopy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity inthe secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficultyselling their securities.

 

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MANAGEMENT’S DISCUSSION AND ANALYSISOF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Special Note Regarding Forward-Looking Statements

 

This registration statement and other reportsfiled by our Company from time to time with the U.S. Securities and Exchange Commission (collectively the “Filings”)contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently availableto, our management as well as estimates and assumptions made by our management. Readers are cautioned not to place undue relianceon these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings,the words “anticipate,” “believe,” “estimate,” “expect,” “future,”“intend,” “plan,” or the negative of these terms and similar expressions as they relate to us or our managementidentify forward-looking statements. Such statements reflect our current view with respect to future events and are subject torisks, uncertainties, assumptions, and other factors, including those set forth in the Risk Factors on page 5. Should one or moreof these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantlyfrom those anticipated, believed, estimated, expected, intended, or planned.

 

Although we believe that the expectations reflectedin the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements.Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of theforward-looking statements to conform these statements to actual results.

 

Our financial statements are prepared in accordancewith accounting principles generally accepted in the United States (“GAAP”). These accounting principles require usto make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we relyare reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. Theseestimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financialstatements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements wouldbe affected to the extent there are material differences between these estimates and actual results. In many cases, the accountingtreatment of a particular transaction is specifically dictated by GAAP and does not require management’s judgment in itsapplication. There are also areas in which management’s judgment in selecting any available alternative would not producea materially different result. The following discussion should be read in conjunction with our consolidated financial statementsand notes thereto appearing elsewhere in this report.

 

Plan of Operation

 

Headquartered in Denver, Colorado, MusclePharmis a rapidly expanding healthy life-style company that develops and distributes a full line of National Sanitation Foundation Internationaland scientifically approved, nutritional supplements that are 100% free of any banned substances. Based on years of research, MusclePharmproducts are created through an advanced six-stage research protocol involving the expertise of top nutritional scientists andfield tested by more than 100 elite professional athletes from various sports including the National Football League, mixed martialarts, and Major League Baseball. The Company’s propriety and award winning products address all categories of an active lifestyleincluding muscle building, weight loss, and maintaining general fitness through a daily nutritional supplement regimen. MusclePharmis sold in over 120 countries and available in over 5,000 U.S. retail outlets, including GNC, Vitamin Shoppe, and Vitamin World.The Company also sells its products in over 100 online stores, including bodybuilding.com, amazon.com and vitacost.com.

 

Our primary focus at the current time is onthe following:

 

1.Increase our distribution and sales;

 

2.Continue aggressive marketing campaign to further build upon our brand and market awareness;

 

3.Conduct additional testing of the safety and efficacy of our products; and

 

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4.Hire additional key employees to continue to strengthen the Company.

 

Results of Operations

 

For the Nine Months Ended September 30, 2011 and 2010 (unaudited):

 

   Nine months ended 
   September
30,
2011
   September
30,
2010
 
Sales  $13,077,006   $3,135,712 
Gross profit  $4,433,106   $1,015,599 
General and administrative expenses  $(9,826,443)  $(8,420,275)
Loss from operations  $(5,393,337)  $(7,404,676)
Other expenses  $(6,938,899)  $(1,270,554)
Net Loss  $(12,332,236)  $(8,675,230)
Net loss per common share – basic and diluted  $(0.05)  $(0.28)

 

Sales

 

Sales were $13,077,006 for the nine monthsended September 30, 2011, as compared to $3,135,712 for the comparable nine months ended September 30, 2010. The increase in saleswas primarily attributable to increased brand awareness. Since inception, the Company has focused on an aggressive marketing planto penetrate the market. As a direct result of the aggressive marketing plan, our products are currently being offered in moreretail stores, both domestic and international, and our products are receiving better shelf placement.

 

Gross Profit

 

Gross profit percentage strengthened from 32%during the nine months ended September 30, 2010, to 34% during the nine months ended September 30, 2011. The increase in the grossprofit percentage is primarily attributable to the Company’s ability to negotiate more favorable terms at the retail leveldue to the increased volume in product sales.

 

General and Administrative Expenses

 

General and administrative expenses for thenine months ended September 30, 2011, were $9,826,443, as compared to $8,420,275 for the comparable nine months ended September30, 2010. The $1,406,168 increase is attributable to increases in customer store support of approximately $1,427,000, $506,000for product samples and giveaways, trade show related expenses of approximately $97,000, research and development fees of approximately$330,000 and travel expenses of $96,500, offset by decreases in professional fees of approximately $1,202,000.

 

Loss from Operations

 

The loss from operations for the nine monthsended September 30, 2011, was $5,393,337 as compared to $7,404,676 for the comparable nine months ended September 30, 2010. Thedecrease in the net operating loss for the period is primarily attributable an aggressive marketing plan and the Company’sability to gain brand recognition resulting in increased sales during the nine months ended September 30, 2011, as compared tothe nine months ended September 30, 2010. Margins on our product sales remained relatively stable between the comparable periods.

 

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Other Expenses

 

Other expenses for the nine months ended September30, 2011, were $6,938,899, as compared to $1,270,554 for the comparable nine months ended September 30, 2010. The increase in otherexpenses of $5,668,345 is primarily attributable to the financing transactions the Company entered into during the nine monthsended September 30, 2011. The Company issued $3,798,733 in convertible notes during the nine months ended September 30, 2011. Thesenotes bore interest at rates ranging from 6% to 12% per annum. Interest expense during the nine months ended September 30, 2011,increased $2,101,703 as compared to the comparable nine months ended September 30, 2010. In addition, the convertible notes containedembedded derivatives, due to the Company not being able to determine the number of shares needed to settle the conversion privilege.As a result, on the commitment date of each financing, the Company recorded aggregate derivative expenses of $3,576,192 and onthe date of re-measurement, which is September 30, 2011, a gain on the change in fair market value of $2,181,955. There were noderivative liabilities recorded as of September 30, 2010.

 

The Company also issued shares of the Company’scommon stock to satisfy aged accounts payable, accrued expenses and debt. The Company recorded a loss on settlement in the amountof $2,542,073 as a result of these transactions.

 

Net Loss

 

Net loss for the nine months ended September30, 2011, was $12,332,236 or loss per share of $(0.05), as compared to $8,675,230 or loss per share of $(0.28) for the comparablenine months ended September 30, 2010.

 

Inflation did not have a material impact onthe Company’s operations for the period. Other than the foregoing, management knows of no trends, demands, or uncertaintiesthat are reasonably likely to have a material impact on the Company’s results of operations.

 

For the Three Months Ended September 30, 2011 and 2010 (unaudited):

 

   Three months ended 
   September
30,
2011
   September
30,
2010
 
Sales  $5,756,426   $1,409,016 
Gross profit  $1,918,391   $481,510 
General and administrative expenses  $4,330,735   $2,759,153 
Loss from operations  $2,412,344   $2,277,643 
Other (income) expenses - net  $(2,528,653)  $596,211 
Net Income (Loss)  $116,309   $(2,873,854)
Net Income (loss) per common share – basic and diluted  $0.00   $(0.08)

 

Sales

 

Sales were $5,756,426 for the three monthsended September 30, 2011, as compared to $1,409,016 for the comparable three months ended September 30, 2010. The significant increasein sales was primarily attributable to increased brand awareness. Since inception, the Company has focused on an aggressive marketingplan for market penetration. As a direct result of the aggressive marketing plan, our products are currently being offered in moreretail stores, both domestic and international, and our products are receiving better shelf placement.

 

Gross Profit

 

A gross profit percentage decreased from 34%during the three months ended September 30, 2010, to 33% during the three months ended September 30, 2011 is primarily attributableto the product mixed sold during the 2011 period. Our product mix may vary from quarter to quarter.

 

General and Administrative Expenses

 

General and administrative expenses for thethree months ended September 30, 2011, were $4,330,735, as compared to $2,759,153 for the comparable three months ended September30, 2010. The $1,571,582 increase is attributable to increases in; advertising of approximately $1,532,000, research and developmentfees of approximately $53,000 and salaries of $260,124. The Company’s employee headcount increased from 12 employees duringthe three months ended September 30, 2010, to 21 employees during the three months ended September 30, 2011. These increases wereoffset by a significant decrease in professional fees of $680,000 during the 2011 period.

 

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Loss from Operations

 

Loss from operations for the three months endedSeptember 30, 2011, was $2,412,344 as compared to $2,277,643 for the comparable three months ended September 30, 2010. The increasein operating loss is primarily attributable to an aggressive marketing plan and the Company’s ability to gain brand recognitionresulting in increased sales during the three months ended September 30, 2011, as compared to the three months ended September30, 2010.

 

Other (Income) Expenses - Net

 

Other expenses for the three months ended September30, 2011, were ($2,528,653), as compared to $596,211 for the comparable three months ended September 30, 2010. The decrease inother expenses of $3,124,864 is primarily attributable to features associated with the financing transactions the Company enteredinto during the three months ended September 30, 2011. Interest expense during the three months ended September 30, 2011, decreasedapproximately $731,539 as compared to the comparable three months ended September 30, 2010. In addition, the convertible notescontained embedded derivatives, due to the Company not being able to determine the number of shares needed to settle the conversionprivilege. As a result, on the commitment date of each financing, the Company recorded aggregate derivative expenses of ($481,667)and on the date of re-measurement, which is September 30, 2011, a change in fair market value of ($1,547,185). There were no derivativeliabilities recorded for the three months ended September 30, 2010.

 

The Company also issued shares of the Company’scommon stock to satisfy aged accounts payable, accrued expenses and debt. The Company recorded a loss on settlement in the amountof $-0- as a result of these transactions.

 

Net Income (Loss)

 

Net income for the three months ended September30, 2011, was $116,309 or income per share of $0.00, as compared to a net loss of $2,873,854 or loss per share of $(0.08) for thecomparable three months ended September 30, 2010.

 

Inflation did not have a material impact onthe Company’s operations for the period. Other than the foregoing, management knows of no trends, demands, or uncertaintiesthat are reasonably likely to have a material impact on the Company’s results of operations.

 

For the Year Ended December 31, 2010versus December 31, 2009

 

Sales

 

Revenues from the sale of products, net wereapproximately $4.0 million for the year ended December 31, 2010, as compared to revenue from the sale of product of approximately$1.0 million for the year ended December 31, 2009.  Sales activities during the year ended December 31, 2010, increaseddue to the increase in advertising and promotion efforts and the change in manufacturers which provided more consistent shipmentsto customers.

 

Cost of Sales

 

Cost of sales for the year ended December 31,2010 were approximately $2.8 million or 70% of revenue as compared to approximately $0.9 million or 91% of revenue for the yearended December 31, 2009.  The cost of sales as percent of revenue decreased due to the change in manufacturers as werealize savings offered by quantity discounts.

 

32
 

 

Operating Expenses

 

Operating Expenses for the year ended December31, 2010 were approximately $19.5 million as compared to approximately $1.9 million for the year ended December 31, 2009.  The$17.6 million increase is primarily due to an increase in adverting and promotion of approximately $6.01 million, an increase inprofessional fees of approximately $2.9 million and an increase in salaries and benefits of approximately $6.7 million.

 

Operating Loss

 

Operating loss for the year ended December31, 2010 was approximately $18.3 million as compared to approximately $1.8 million for the year ended December 31, 2009.

 

Interest Expense

 

Interest expense for the year ended December31, 2010 was approximately $0.5 million as compared to approximately $0.1 million for the year ended December 31, 2009. The increasein interest expense primarily relates to amortization of the debt discounts of $0.4 million.

 

Other Expenses

 

Other expenses for the year ended December31, 2010 was approximately $1.3 million as compared to $0.1 million for the year ended December 31, 2009. The increase inother expenses is primarily due to derivative expenses of $0.1 million and to loss on settlement of accounts payable of $0.4 million.

 

Net Loss

 

Net loss for the year ended December 31, 2010was approximately $19.6 million or loss per share of $0.48 as compared to the net loss of approximately $1.9 million or loss pershare of $0.07 for the year ended December 31, 2009.

 

Inflation did not have a material impact onthe Company’s operations for the period. Other than the foregoing, management knows of no trends, demands, or uncertaintiesthat are reasonably likely to have a material impact on the Company’s results of operations.

 

Liquidity and Capital Resources

 

The following table summarizes total currentassets, liabilities and working capital at September 30, 2011, compared to December 31, 2010.

 

   September
30,
2011
(unaudited)
   December
31,
2010
   Increase/Decrease 
Current Assets  $4,673,570   $1,406,310   $3,267,260 
Current Liabilities  $10,066,061   $4,215,649   $5,850,412 
Working Capital (Deficit)  $(5,392,491)  $(2,809,339)  $(2,583,152)

 

At September 30, 2011, we had a working capitaldeficit of $5,392,491, as compared to a working capital deficit of $2,809,339, at December 31, 2010, an increase of $(2,583,152).The increase is primarily attributable to the Company issuing $3,798,733 in convertible notes during the nine months ended September30, 2011. The Company continues to devote significant resources to continue aggressively market the product line.

 

Net cash used for operating activities forthe nine months ended September 30, 2011 and 2010, was $(4,075,448) and $(2,368,247), respectively. The changes in net cash usedin operating activities are attributable to our net loss adjusted for non-cash charges as presented in the consolidated statementsof cash flows and changes in working capital as discussed above.

 

Net cash used for investing activities forthe nine months ended September 30, 2011 and 2010, was $(771,652) and $(30,395), respectively. Increases in cashed used in investingactivities relates to purchases of gym and office equipment during the nine months ended September 30, 2011.

 

33
 

 

Net cash obtained through all financing activitiesfor the nine months ended September 30, 2011, was $4,803,396, as compared to $2,409,299 for the nine months ended September 30,2010.

 

Going Concern

 

As reflected in the accompanying unauditedinterim consolidated financial statements, the Company had a net loss of $12,332,236 and net cash used in operations of $4,075,448for the nine months ended September 30, 2011, and a working capital deficit and stockholders’ deficit of $5,392,491 and $5,141,634,respectively, at September 30, 2011. These factors raise substantial doubt about the Company’s ability to continue as a goingconcern.

 

The ability of the Company to continue itsoperations is dependent on management's plans, which include the raising of capital through debt and/or equity markets with someadditional funding from other traditional financing sources, including term notes, sale of aged debt to third parties in exchangefor free trading stock, until such time that funds provided by operations are sufficient to fund working capital requirements.The Company may need to incur liabilities with certain related parties to sustain the Company’s existence.

 

The Company will require additional fundingto finance the growth of its current and expected future operations as well as to achieve its strategic objectives. The Companybelieves its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future.There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.

 

In response to these problems, management hastaken the following actions:

 

·seeking additional third party debt and/or equity financing;

 

·continue with the implementation of the business plan;

 

·generate new sales from international customers; and

 

·allocate sufficient resources to continue with advertising and marketing efforts.

 

Financings

 

Our primary source of operating cash has beenthrough the sale of equity and through the issuance of convertible secured promissory notes.

 

The Company continues to explore potentialexpansion opportunities in the industry in order to boost sales, while leveraging distribution systems to consolidate lower costs.The Company needs to continue to raise money in order execute the business plan.

 

Off-Balance Sheet Arrangements

 

Other than the operating leases, as of September30, 2011, the Company did not have any off-balance sheet arrangements. We are obligated under an operating lease for the rentalof office space. Future minimum rental commitments with a remaining term in excess of one year as of September 30, 2011 are asfollows:

 

PERIODS ENDING DECEMBER 31,    
     
2011  $6,692 
2012   87,560 
2013   93,448 
2014   99,576 
2015   105,704 
Total minimum lease payments  $392,980 

 

34
 

 

Critical Accounting Policies

 

The preparation of financial statements inconformity with U.S. GAAP requires management to make estimates and assumptions. These estimates and assumptions affect the reportedamounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported period. Actual results could differ materially from those estimates.The Company believes the following accounting policies are critical to the judgments and estimates used in the preparation of itsfinancial statements:

 

Accounts Receivable and Allowance for DoubtfulAccounts

 

Accounts receivable represents trade obligationsfrom customers that are subject to normal trade collection terms. The Company periodically evaluates the collectability of itsaccounts receivable and considers the need to establish an allowance for doubtful accounts based upon historical collection experienceand specific customer information. Accordingly, the actual amounts could vary from the recorded allowances.

 

The Company does not charge interest on pastdue receivables. Receivables are determined to be past due based on the payment terms of the original invoices.

 

Revenue Recognition

 

The Company records revenue when all of thefollowing have occurred: (1) persuasive evidence of an arrangement exists, (2) product has been shipped or delivered, (3) the salesprice to the customer is fixed or determinable, and (4) collectability is reasonably assured.

 

Depending on individual customer agreements,sales are recognized either upon shipment of products to customers or upon delivery. The Company records sales allowances and discountsas a direct reduction of sales.

 

Beneficial Conversion Feature

 

For conventional convertible debt where therate of conversion is below market value, the Company records a “beneficial conversion feature” (“BCF”)and related debt discount.

 

When the Company records a BCF, the relativefair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discountwould be amortized to interest expense over the life of the debt.

 

Derivative Liabilities

 

Fair value accounting requires bifurcationof embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of theirfair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricingmodel. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventionalconvertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not consideredconventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.

 

Once determined, derivative liabilities areadjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded inresults of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instrumentssuch as warrants, are also valued using the Black-Scholes option-pricing model.

 

35
 

 

Debt Issue Costs and Debt Discount

 

The Company may pay debt issue costs, and recorddebt discounts in connection with raising funds through the issuance of convertible debt. These costs are amortized over the lifeof the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amountsis immediately expensed.

 

Original Issue Discount

 

For certain convertible debt issued, the Companyprovides the debt holder with an original issue discount. The original issue discount is recorded to debt discount and additionalpaid in capital at an amount not to exceed gross proceeds raised, reducing the face amount of the note and is amortized to interestexpense over the life of the debt.

 

Share-Based Payments

 

Generally, all forms of share-based payments,including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair valueon the awards’ grant date, based on estimated number of awards that are ultimately expected to vest. Share-based compensationawards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fairvalue of the share-based payment, whichever is more readily determinable.

 

Recent Accounting Pronouncements

 

There are no recent accounting pronouncementsthat are expected to have an effect on the Company’s consolidated financial statements.

 

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON ACCOUNTING

AND FINANCIAL DISCLOSURE

 

There have been no changes in or disagreementswith accountants on accounting or financial disclosure matters.

 

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERSAND CONTROL PERSONS

 

Directors and Executive Officers

 

The following table and text sets forth thenames and ages of all our directors and executive officers and our key management personnel as of February 13, 2012. All of ourdirectors serve until the next annual meeting of stockholders and until their successors are elected and qualified, or until theirearlier death, retirement, resignation or removal. Executive officers serve at the discretion of the Board of Directors, and areelected or appointed to serve until the next Board of Directors meeting following the annual meeting of stockholders. Also providedis a brief description of the business experience of each director and executive officer and the key management personnel duringthe past five years and an indication of directorships held by each director in other companies subject to the reporting requirementsunder the Federal securities laws.

 

Name   Age   Position
Brad J. Pyatt   31   Chief Executive Officer and Director
Cory Gregory   33   Senior President and Director
Jeremy DeLuca   32   President and Chief Marketing Officer
Lawrence S. Meer   50   Chief Financial Officer
John H. Bluher   53   Chief Operating Officer

 

The biographies of each of our executive officersand directors are as follows:

 

Brad J. Pyatt, age 31, Chief Executive Officer,Director

 

36
 

 

Mr. Pyatt has served as the Chief ExecutiveOfficer and Director of the Company since February 18, 2010, and as President and Chief Executive Officer of Muscle Pharm, LLC,since its inception in April 2008.  His background includes seven years of experience as a professional athlete, andmore than five years of experience in the sports nutrition arena.  Mr. Pyatt played in National Football League (NFL)for the Indianapolis Colts during the 2003, 2004, and 2005 NFL seasons as well for the Miami Dolphins during the 2006 NFL season.  MrPyatt also played in the Arena Football League (AFL) for the Colorado Crush during the 2007 and 2008 AFL seasons.  Mr.Pyatt attended the University of Kentucky from 1999 to 2002, where he studied kinesiology exercise science, as well the Universityof Northern Colorado, from 2002 to 2003.

 

The Company believes that Mr. Pyatt’sexperience in the sports nutrition sector over the past five plus years, along with his background as a former professional athlete,give him an unique perspective on the nutrition industry as a whole and makes him a valuable member to the Company’s boardof directors.

 

Cory Gregory, age 33, Senior President,Director

 

Mr. Gregory is currently the Senior Presidentand member of the Company’s board of directors, roles he has served in since May 2010.  Prior to joining the Company,Mr. Gregory served as the President, managing member, and owner of T3 Personal Training LLC (“T3”) from April 2009until November 2000.  T3 was a personal training service that managed and oversaw over 40 clients using 7 trainers overa ten year period.  During the same period, Mr. Gregory served as President of the Ohio Natural Bodybuilding Federation,a federation founded by Mr. Gregory in 2004 which hosted 14 bodybuilding competitions over a six year period.  In 2004,Mr. Gregory purchased the Old School Gym, located in Pataskala, OH, which he continues to own at present day.

 

The Company believes that Mr. Gregory’sextensive bodybuilding and personal training experience provide him with the insight necessary to understand the ongoing demandsand changes to the nutrition industry and as such, makes him a valuable member to the Company’s board of directors.

 

Jeremy DeLuca, age 32, President and ChiefMarketing Officer

 

Mr. DeLuca is the Company’s Presidentand Chief Marketing Officer.  Prior to joining the Company, from April 1999 to November 2010, Mr. DeLuca served as thePresident of Bodybuilding.com, an online sports nutrition and supplements company which he co-founded in 1999 (“Bodybuilding.com”).  AsPresident, Mr. DeLuca was actively involved in all aspects of Bodybuilding.com’s business, with a focus on marketing, sales,and e-commerce.  Mr. DeLuca’s responsibilities also included managing all vendor relations, marketing strategies,sales promotions, store content and store site development.  During Mr. DeLuca’s tenure, Bodybuilding.com grewtremendously, achieving annual sales of over $200,000,000 in 2010.

 

Lawrence S. Meer, age 50, Chief FinancialOfficer

 

Mr. Meer has served as Chief Financial Officerof the Company since July 2010.  Prior to becoming the Chief Financial Officer he was the Director of Finance at MusclePharm, LLC from October 2009 to July 2010.  His other past experience includes daily cash management and treasury functions,including the establishment of credit and collection procedures to maximize cash flow, reduce corporate debt and enhance shareholdervalue.  He previously served as President and Chief Financial Officer in Miami, FL, at Color It, Inc., a textile finishingbusiness, from March 2002 to December 2008.  Mr. Meer also previously served as Executive Vice President at CustomerAssets in Denver, CO, an India-based call center, from 2000 to 2002.  Prior to joining Customer Assets, he was ChiefFinancial Officer and Chief Operating Officer at GS Sportswear in Denver, CO, a sportswear promotional company, from 1998 to 2000.  Mr.Meer also served as Chief Financial Officer at Davis Audio-Visual, Inc., a retailer of audio-visual equipment, from 1996 to 1998;and Vice President of Finance at Pacer Cats in Englewood, CO., a ticketing and concession software provider from 1991 to 1996.  Mr.Meer earned a BS in accounting from the University of Colorado at Boulder.

 

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John H. Bluher, age 53, Chief OperatingOfficer

 

Mr. Bluher is a specialist in corporate governancefor growing companies.  He is also a specialist in investment management, capital structuring, merger and acquisition,private equity and valuations of public and private companies.  He has significant experience working with corporatestructuring, corporate boards and committees, risk management, and public company corporate governance.  His experiencealso includes negotiating transactions and purchases, and sales of assets and properties on a global basis.  He has deepexperience in creating and implementing corporate governance plans, working in the corporate board room, and as director of risk,developing internal audit programs and insurance programs for public companies.  Since September 2010, Mr. Bluher hasprovided consulting services as a managing director of AFH Holding & Advisory LLC, a financial advisory and management consultantfirm (“AFH”).  At AFH, Mr. Bluher is responsible for managing transactions, business development, developingcorporate governance standards and corporate structuring for companies.  Since December 2009, Mr. Bluher assisted inraising capital, marketing and co-managed Coachman Energy Funds at Caddis Capital, LLC, a private equity portfolio focused on oiland gas investments.  From February 2010 to August 2010, Mr. Bluher acted as investment banker and special financialadvisor to the AARP Mutual Fund Board of Trustees in a platform divestiture.  From December 2007 to May 2009, Mr. Bluherserved as managing director and general counsel at Lehman Brothers, Inc.’s (NYSE:LEH) investment management division.  Mr.Bluher also served as global chief legal and compliance officer and managing director of Neuberger Berman during this period.  FromAugust 2004 to June 2007, Mr. Bluher served as general counsel and director of risk and Janus Capital, Inc. (NYSE:JNS).  FromJune 2002 to July 2004, Mr. Bluher served as executive vice president, general counsel and corporate secretary and director ofrisk management of Knight Trading Group (NASDAQ:NITE).  From January 2001 to May 2002, Mr. Bluher served as senior vicepresident and global chief compliance officer for Prudential Securities, Inc. (NYSE:PRU).  From October 1997 to January2001, Mr. Bluher served as general counsel and chief compliance officer of Sun America, Inc. (NYSE:SAI) later (NYSE:AIG).  From1992 – 1997, Mr. Bluher served as senior vice president, regional and divisional Counsel at Prudential Securities,Inc.  From 1987 to 1992, Mr. Bluher was senior counsel for the Division of Enforcement at the Securities and ExchangeCommission.  Mr. Bluher holds a Bachelor of Science and a J.D. degree from the University of Wyoming and holds FINRASeries 7, Series 24 and Series 14 licenses.  He has served on the boards of ICI Mutual Insurance Company, the NASDAQChairman’s Advisory Board, Cherry Hills Founders Group, Inc., Targeted Medical Pharma, Inc. and Safe Communications, Inc.,and the University of Wyoming Foundation Board, and College of Law Advisory Board. Mr. Bluher is a frequent speaker at financialservices industry meetings and conferences.

 

The Board of Directors currently does not haveany committees.  During 2011, we intend to establish audit and compensation committees and such other committees as determinedadvisable by our Board.

 

Advisory Board

 

We have established an Advisory Board currentlyconsisting of nine members, which serves to advise management with respect to product formulations, product ideas, marketing andrelated matters.  Members of the Advisory Board do not meet on a formal or regular basis.  Our management team consultswith 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 backgroundof our advisory board members:

 

Dr. Eric Serrano – Chief MedicalAdvisor.  Dr. Serrano has been practicing medicine in the State of Ohio for over 12 years and is consideredone 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 StateUniversity, where he was awarded Professor of The Year and Preceptor of The Year.  Dr. Serrano currently lectures across thecountry to universities, medical groups and health & fitness conferences on the topics of sports nutrition, performance enhancement,and injury prevention. Dr. Serrano’s expertise in blood analysis, sports nutrition, and injury prevention gives athletesthe advantage over the competition. He has formulated numerous nutritional supplements for some of the leading nutritional companieson the market and also been a contributing writer for some of the leading health and fitness magazines.  Dr. Serrano has beeninvolved in the final formulations for each of our products.  Dr. Serrano received his B.A. from Kansas State University inBiology, his M.A. from Kansas State University in Exercise Physiology, and his M.D. from the University of Kansas Medical School.

 

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Roscoe M. Moore, Jr. – ChiefScientific Director.  A Former U.S. Assistant Surgeon General, Dr. Roscoe M. Moore, Jr. served with the United StatesDepartment of Health and Human Services (HHS) and was for the last twelve years of his career the principal person responsiblefor global development support within the Office of the Secretary, HHS, with primary emphasis on Continental Africa and other lessdeveloped countries of the world (e.g. Indonesia, Malaysia, and Vietnam).  He was the principal liaison person between theHHS and Ministries of Health in Africa with regard to the development of infrastructure and technical support for the deliveryof preventive and curative health needs for the continent. Dr. Moore represented the HHS in cooperative international efforts withAfrican nations in addressing continued health and human resource problems.  Dr. Moore received his undergraduate and Doctorof Veterinary Medicine degrees from Tuskegee Institute; his Master of Public Health degree in Epidemiology from the Universityof Michigan; and his Doctor of Philosophy degree in Epidemiology from the Johns Hopkins University. He was awarded the Doctor ofScience degree (Honoris Causa) in recognition of his distinguished public health career by Tuskegee University.  Dr. Moorewas a career officer within the Commissioned Corps of the United States Public Health Service (USPHS) entering with the U.S. NationalInstitutes of Health and rising to the rank of Assistant United States Surgeon General (Rear Admiral, USPHS) within the ImmediateOffice of the Secretary, HHS. He was selected as Chief Veterinary Medical Officer, USPHS, by Surgeon General C. Everett Koop.

 

Dr. Richard Ogden PHD, (CSCS) –Medical Advisor

 

Dr. Odgen's career in clinical research anddevelopment spans nearly forty years. After earning a Ph.D. from Cambridge University, his career started with postdoctoral researchstudying RNA transcription and processing.  Following that, he undertook independent research, funded by the NationalScience Foundation.  In 1984, he joined Agouron Pharmaceuticals, Inc. as one of its founding scientists. Following Agouron'smerger with Pfizer, he served as a Senior Director and was the scientific liaison for the Agouron/Pfizer commercial and corporateorganizations. In this role, he worked with organizations all over the world.  In 2006, Dr. Ogden, co-founded RORR Inc.,a medical, scientific Consulting and Education company with clients in the U.S. and Europe.  In addition to publicationin numerous medical journals, he is co-editor of two books relating to AIDS therapy.

 

Dr. Michael Ray Stevens – Advisor.Dr. Stevens has over twenty years of well diversified experience in the healthcare and pharmaceutical industry. Dr. Stevens spent17 years at Bristol-Myers Squibb, where he held positions of increasing responsibility in the areas of Market Research (Oncologyand HIV), Marketing (Oncology), and Medical Affairs (HIV). In addition served as a member of the Executive Council for the Forumfor Collaborative HIV Research — a public-private partnership facilitating discussion on emerging issues in HIV clinicalresearch and working to translate research results into patient care. He has also served on 15 Protocol Committees within the AdultAIDS Clinical Trials Group (ACTG). Michael received his BS Pharmacy and Doctor of Pharmacy degrees from Purdue University.

 

Dr. Ron Sekura – Director ofTherapeutic Research.  Dr. Sekura is the former Chief of the Pharmaceutical and Regulatory Affairs Branch of the Divisionof AIDS at The National Institute of Allergy and Infectious Diseases (NIAID) of the National Institute of Health (NIH) as wellas a former Research Chemist at The National Institute of Child Health and Human Development (NICHD) at the NIH and the Centerfor Biologics Evaluation and Research (CBER), and FDA. He received his Bachelor of Science and Master of Science in Biochemistrydegrees at Pennsylvania State University and his PhD at Cornell University. Dr. Sekura is the author of over sixty scientific publications.

 

Mariel Selbovitz – Directorof Global Therapeutics Product Procurement Development. Ms. Selbovitz is a graduate of Cornell University and receivedher Master’s in Public Health at the Johns Hopkins University Bloomberg School of Health. She worked as the Client IntakeSpecialist at Positive Health Project and Syringe Exchange Program Coordinator at the Foundation for Research on Sexually TransmittedDiseases and is a partner in BioEquity Partners. Selbovitz is a member of the Cornell AIDS Clinical Trials Group Community AdvisoryBoard and AIDS Treatment Advocacy Coalition. She presented at the 5th European Conference on Clinical and Social Research on AIDSand Drugs, International Conference on Antiviral Research, 5th IAS Conference on HIV Pathogenesis, Treatment and Prevention andXVIII International AIDS Conference.

 

Louie Simmons – Chief StrengthAdvisor. Mr. Simmons is a strength consultant for the New England Patriots, Green Bay Packers, Seattle Seahawks, ClevelandBrowns, and numerous Football Bowl Subdivision college football teams.  Mr. Simmons is the owner of the West Side Barbell,located in Columbus, Ohio.

 

Greg Jackson – Director ofFight 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.

 

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Paul Dillet – Chief BodybuildingAdvisor.  Mr. Paul Dillet is one of the most influential bodybuilders and a legend in the bodybuilding world.  Hehas been instrumental in creating a new era in fitness and bodybuilding for the everyday athlete.

 

Legal Proceedings

 

None of the members of the board of directorsor other executives has been involved in any bankruptcy proceedings, criminal proceedings, any proceeding involving any possibilityof enjoining or suspending members of our board of directors or other executives from engaging in any business, securities or bankingactivities, and have not been found to have violated, nor been accused of having violated, any Federal or State securities or commoditieslaws.

 

EXECUTIVE COMPENSATION

 

Summary Compensation Table

 

The following summary compensation table sets forth all compensationawarded to, earned by, or paid to the named executive officers and directors by us during the years ended December 31, 2011, 2010and 2009.

 

                       Non-Equity         
                       Incentive         
               Stock   Option   Plan   All Other     
Name and Principal Position  Year   Salary
($)
   Bonus
($)
   Awards
($)
   Awards
($)
   Compen-
sation ($)
   Compen-
sation ($)
   Total ($) 
Brad J. Pyatt   2011   $250,000   $170,410   $1,704,104   $0   $0   $0   $2,124,515 
Chief Executive Officer   2010   $194,821   $0   $2,650,000   $0   $0   $0   $2,844,821 
    2009   $133,992   $0   $0   $0   $0   $0   $133,992 
                                         
Cory Gregory   2011   $150,000    $ 170 ,410   $1,704,104   $0   $0   $0   $2,024,515 
Senior President   2010   $78,892   $0   $2,650,000   $0   $0   $0   $2,728,892 
    2009   $17,846   $0   $0   $0   $0   $0   $17,846 
                                         
Lawrence S. Meer   2011   $74,400   $0   $0   $0   $0   $0   $74,400 
Chief Financial Officer   2010   $75,493   $0   $0   $228,000(1)  $0   $0   $303,493 
                                         
Leonard K. Armenta (2)   2011   $86,400   $0   $0   $0   $0   $0   $86,400 
Former Executive Vice President   2010   $83,215   $0   $0   228,000(1)  $0   $0   $311,215 
    2009   $54,799   $0   $0   $0   $0   $0   $54,799 
                                         
Jeremy DeLuca   2011   $65,833   $170,410   $1,704,104   $0   $0   $0   $1,940,348 
President, Chief Marketing Officer                                        
                                         
John H. Bluher   2011   $36,458   $50,000   $50,000   $0   $0   $0   $136,458 
Chief Operating Officer                                        

 

(1)Represents 1,000,000 options issued, valued on the date of grant, April 2, 2010.

 

(2)Mr. Armenta resigned from his position as the Company’s Executive Vice President on September 16, 2011.

 

40
 

  

2011 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS  STOCK AWARDS 
Name (a)  Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
(b)
   Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
(c)
   Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
(d)
   Option
Exercise
Price
($)
(e)
   Option
Expiration
Date
(f)
   Number
of Shares
or Units
of Stock
That Have
Not
Vested
(#)
(g)
   Market
Value of
Shares or
Units of
Stock
That
Have Not
Vested
($)
(h)
   Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
(i)
   Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares,
Units or
Other
Rights That
Have Not
Vested
(#)
(j)
 
                                     
Brad J. Pyatt
Chief Executive Officer
   -    -    -    -    -    -    -    -    - 
                                              
Cory Gregory
Senior President
   -    -    -    -    -    -    -    -    - 
                                              
Lawrence S. Meer
Chief Financial Officer
   1,000,000(1)    -    -   $0.50    4/2/2015    -    -    -    - 
                                              
Leonard K. Armenta
Former Executive VP
   1,000,000(1)    -    -   $0.50    4/2/2015    -    -    -    - 
                                              
Jeremy DeLuca
Chief Marketing Officer President
   -    -    -    -    -    -    -    -    - 
                                              
John H. Bluher
Chief Operating Officer
   -    -    -    -    -    -    -    -    - 

 

  

(1)Valued at the date of grant, April 2, 2010.

 

41
 

 

 

Explanatory Information Relating to theSummary Compensation Table

 

Please note the following points in connectionwith the information in the Summary Compensation Table:

 

The compensation of the executive officersof the Company is reviewed on an annual basis by the board of directors.  Each year, the Company considers whether to adjustthe base salaries of senior management, including the executive officers, in order to reward individual performance, keep pacewith cost of living increases and respond to competitive considerations.

 

DIRECTOR COMPENSATION

 

The following summary compensation table sets forth all compensationawarded to, earned by, or paid to the named directors by us during the years ended December 31, 2010 and 2009.

                       Non-Equity         
Name                      Incentive         
and              Stock   Option   Plan   All Other     
Principal
Position
  Year   Salary
($)
   Bonus
($)
   Awards
($)
   Awards
($)
   Compensation
($)
   Compensation
($)
   Total
($)
 
(a)  (b)   (c)   (d)   (e)   (f)   (g)   (h)   (i) 
Brad J. Pyatt   2011   $0   $0   $0   $0   $0   $0   $0 
Director   2010   $0   $0   $0   $0   $0   $0   $0 
    2009   $0   $0   $0   $0   $0   $0   $0 
                                         
Cory Gregory   2011   $0   $0   $0   $0   $0   $0   $0 
Director   2010   $0   $0   $0   $0   $0   $0   $0 
    2009   $0   $0   $0   $0   $0   $0   $0 

 

Employment Agreements

 

Brad J. Pyatt, Chief Executive Officer

 

On August 15, 2011, the Company entered intoan employment agreement (the “Pyatt Employment Agreement”) with Brad J. Pyatt, individually, pursuant to which Mr.Pyatt will serve as the Company’s Chief Executive Officer (the “CEO”). The term of the Pyatt Employment Agreementis for a period of sixty (60) months, commencing retroactively on January 1, 2011, and expiring on December 31, 2015 (the “PyattTerm”). Pursuant to the terms of the Employment Agreement, the CEO is to receive a base salary of $250,000 for the 2011 calendaryear; $350,000 for the 2012 calendar year; $400,000 for the 2013 calendar year; $450,000 for the 2014 calendar year; and $500,000for the 2015 calendar year. Further, the CEO shall receive, upon execution of the Pyatt Employment Agreement, 31 shares of theCompany’s Series B Preferred Stock. In addition, upon the three year anniversary of the Pyatt Employment Agreement, the CEOshall receive 10,000 shares of the Company’s Series A Preferred Stock.

 

During the Pyatt Term, the CEO’s responsibilitieswill include all aspects of the day to day business operations of the Company. The CEO shall also be responsible for determiningnecessary strategic partnerships and investment opportunities relating to the Company, both nationally and internationally, andshall have wide discretion in implementing the vision, strategic goals and operational mission of the Company. The CEO shall, ona full time and exclusive basis, devote all of his business time, attention and energies to the operations of the Company and otherduties as required by the Pyatt Employment Agreement, and shall use his best efforts to advance the best interests of the Company.

 

On November 14, 2011, the Company entered intoan amended and restated employment agreement with Mr. Pyatt.  The parties amended the Pyatt Employment Agreement in orderto amend section 3(c) as it relates to Mr. Pyatt’s bonus payment.  The amended Pyatt Employment Agreement now providesthat, for each one million dollars ($1,000,000) in revenue growth achieved by the Company from the revenue figure reported forthe prior fiscal year, Mr. Pyatt shall receive (i) ten thousand dollars ($10,000) and (ii) one hundred thousand dollars ($100,000)worth of the Company’s common stock, such stock to be valued based on the average closing price for the twenty (20) tradingdays prior to the date of issuance of such stock.  The aforementioned payments to Mr. Pyatt shall be made within 90 daysafter the end of the Company’s fiscal year.

 

42
 

 

Cory Gregory, Senior President

 

On August 15, 2011, the Company entered intoan employment agreement (the “Gregory Employment Agreement”) with Cory Gregory, individually, pursuant to which Mr.Gregory will serve as the Company’s Senior President (the “Senior President”). The term of the Gregory EmploymentAgreement is for a period of sixty (60) months, commencing retroactively on January 1, 2011, and expiring on December 31, 2015(the “Gregory Term”). Pursuant to the terms of the Gregory Employment Agreement, the Senior President is to receivea base salary of $150,000 for the 2011 calendar year; $200,000 for the 2012 calendar year; $250,000 for the 2013 calendar year;$300,000 for the 2014 calendar year; and $350,000 for the 2015 calendar year. Further, the Senior President shall receive, uponexecution of the Gregory Employment Agreement, 20 shares of the Company’s Series B Preferred Stock. In addition, upon thethree year anniversary of the Gregory Employment Agreement, the Senior President shall receive 10,000 shares of the Company’sSeries A Preferred Stock.

 

During the Gregory Term, the Senior President’sresponsibilities will include, but shall not be limited to, on a full time and exclusive basis, devoting all of his business time,attention and energies to the operations of the Company and other duties as required by the Gregory Employment Agreement and asdirected by the Board of Directors, and shall use his best efforts to advance the best interests of the Company.

 

On November 14, 2011, the Company entered intoan amended and restated employment agreement with Mr. Gregory.  The parties amended the Gregory Employment Agreementin order to amend section 3(c) as it relates to Mr. Gregory’s bonus payment.  The amended Gregory Employment Agreementnow provides that, for each one million dollars ($1,000,000) in revenue growth achieved by the Company from the revenue figurereported for the prior fiscal year, Mr. Gregory shall receive (i) ten thousand dollars ($10,000) and (ii) one hundred thousanddollars ($100,000) worth of the Company’s common stock, such stock to be valued based on the average closing price for thetwenty (20) trading days prior to the date of issuance of such stock.  The aforementioned payments to Mr. Gregory shallbe made within 90 days after the end of the Company’s fiscal year.

 

John H. Bluher, Chief Operating Officer

 

On September 16, 2011, the Company enteredinto an employment agreement (the “Bluher Employment Agreement”) with John H. Bluher, individually (“Bluher”),appointing Bluher as the Company’s Chief Operating Officer.

 

Pursuant to the terms of the Bluher EmploymentAgreement, Bluher is to serve as the Company’s Chief Operating Officer from September 16, 2011 (the “Bluher EffectiveDate”), until September 15, 2013 (the “Bluher Term”).  Upon expiration of the Bluher Term, the BluherEmployment Agreement shall be automatically renewed unless either the Company or Bluher provides the other party with written noticeat least sixty (60) days prior to the last date of the respective term.  During the Bluher Term, Bluher’s responsibilitieswill include general oversight and management of the Company’s daily operations, as well as any responsibilities delegatedto him by the Company’s Chief Executive Officer or board of directors (the “Bluher Duties”).

 

In consideration for performance of the Bluher’sDuties during the Term, Bluher is to receive an initial base salary of one hundred and seventy five thousand dollars ($175,000)per year (the “Bluher Base Salary”), any increases to such salary during the Bluher Term to be determined at the discretionof the Company.  Bluher is also eligible to receive an annual performance bonus based on certain goals and performanceslevels mutually established by the parties.

 

Bluher is also entitled to receive, beginningon December 31, 2012, and on each successive calendar year end thereafter, stock options to purchase shares of the Company’scommon stock in the amount of five hundred thousand dollars ($500,000) (the “2012 Options”).  The 2012 Optionsshall be exercisable into shares of the Company’s common stock at an exercise price equal to the average of the high andlow reported selling prices of the Company’s common stock on the date of grant and vest in accordance with the schedule outlinedin the Bluher Employment Agreement.

 

43
 

 

Jeremy DeLuca, President, Chief MarketingOfficer

 

On November 14, 2011 (the “DeLuca ExecutionDate”), the Company entered into an employment agreement (the “DeLuca Employment Agreement”) with Jeremy DeLuca,the Company’s President and Chief Marketing Officer (the “President”).  The term of the DeLuca EmploymentAgreement commences on the DeLuca Execution Date and expires on December 31, 2014 (the “DeLuca Term”).  Pursuantto the terms of the DeLuca Employment Agreement, the President is to receive a base salary of $125,000 for the 2011 calendar year;$175,000 for the 2012 calendar year; $225,000 for the 2013 calendar year; and $300,000 for the 2014 calendar year. In addition,upon the three year anniversary of the DeLuca Employment Agreement, the President shall receive 5,000 shares of the Company’sSeries A Preferred Stock.

 

During the DeLuca Term, the President’sresponsibilities will include all aspects of the day to day business operations of the Company.  The President shallalso be responsible for determining necessary strategic partnerships and investment opportunities relating to the Company, bothnationally and internationally, and shall have wide discretion in implementing the vision, strategic goals and operational missionof the Company.  The President shall, on a full time and exclusive basis, devote all of his business time, attentionand energies to the operations of the Company and other duties as required by the DeLuca Employment Agreement, and shall use hisbest efforts to advance the best interests of the Company.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIALOWNERS AND MANAGEMENT

 

The following table sets forth informationknown to the Company with respect to the beneficial ownership of the Company’s common stock as of February 13, 2012,unless otherwise noted, by:

 

·each stockholder known to MusclePharm to own beneficially more than 5% of the Company’s common stock;

 

·each of the Company’s directors;

 

·each of the Company’s executive officers; and

 

·all of the Company’s current directors and executive officers as a group.

 

Beneficial ownership is determined in accordancewith the rules of the SEC and generally includes voting or dispositive power with respect to securities. Common shares relatingto options or warrants currently exercisable, or exercisable within 60 days of February 13, 2012, are deemed outstanding for computingthe percentage of the person holding such securities but are not deemed outstanding for computing the percentage of any other person.Except as indicated by footnote, and subject to the community property laws where applicable, the persons or entities named inthe tables have sole voting and dispositive power with respect to all shares shown as beneficially owned by them.

 

   Amount and   Percentage 
   Nature of   of 
Name and Address  Beneficial   Beneficial 
of Beneficial Owner  Ownership   Ownership (1) 
         
Brad J. Pyatt   18,779,316(2)   2.65%
4721 Ironton St          
Denver, CO 80239          
           
Cory Gregory   10,483,014(3)   1.48%
4721 Ironton St          
Denver, CO 80239          
           
Lawrence S. Meer   0    0%
4721 Ironton St          
Denver, CO 80239          
           
Jeremy DeLuca   0    0%
4721 Ironton St          
Denver, CO 80239          
           
John H. Bluher   0    0%
4721 Ironton St          
Denver, CO 80239          
           
All executive officers and directors as a group (5 persons)   29,262,330    4.13%

 

44
 

 

(1)Percent of class based on 709,111,792 common shares outstanding as of February 13, 2012. This percentagedoes not include preferred stock ownership or other ownership of convertible securities.

 

(2)This number does not include 148,182,971shares acquired by Mr. Pyatt on January 27, 2012, which have not yet been issued as of the date hereof.

 

(3)This number does not include 148,182,971shares acquired by Mr. Gregory on January 27, 2012, which have not yet been issued as of the date hereof.

 

Changes in Control

 

We are not aware of any arrangements that mayresult in “changes in control” as that term is defined by the provisions of Item 403(c) of Regulation S-K.

 

TRANSACTIONS WITH RELATED PERSONS, PROMOTERSAND CERTAIN CONTROL PERSONS

 

Any future transactions or loans between usand our officers, directors, principal stockholders or affiliates will be on terms no less favorable to us than could be obtainedfrom an unaffiliated third party, and will be approved by a majority of disinterested directors.

 

On February 18, 2010, the Company issued atotal of 26,000,000 shares of its common stock to the 12 former owners of Muscle Pharm, LLC in reliance on the exemption from registrationprovided by Section 4(2) of the Securities Act of 1933, as amended.

 

On November 18, 2010, Brad Pyatt loaned theCompany $100,000 and received an 8% Convertible Promissory Note exchange. On November 23, 2010, Brad Pyatt loaned the Company $256,250and received an 8% Convertible Promissory Note in exchange. On December 14, 2010, Mr. Pyatt converted all principal and accruedinterest underlying the notes ($358,077.40) into 7,161,548 shares of the Company’s common stock.

 

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

 

Other than as set forth above, there are notransactions since our inception, or proposed transactions, to which we were or are to be a party, in which any of the followingpersons had or is to have a direct or indirect material interest:

 

(a)Any director or executive officer of the Company;

 

(b)Any majority security holder; and

 

45
 

 

(c)Any member of the immediate family (including spouse, parents, children, siblings, and in-laws)of any of the persons in the above.

 

DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION

OF SECURITIES ACT LIABILITIES

 

Our directors and officers are indemnifiedas provided by the Nevada corporate law and our Bylaws.  We have agreed to indemnify each of our directors and certainofficers against certain liabilities, including liabilities under the Securities Act. Insofar as indemnification for liabilitiesarising under the Securities Act may be permitted to our directors, officers and controlling persons pursuant to the provisionsdescribed above, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policyas expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against suchliabilities (other than our payment of expenses incurred or paid by our director, officer or controlling person in the successfuldefense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securitiesbeing registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit toa court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in theSecurities Act and will be governed by the final adjudication of such issue.

 

46
 

 


MusclePharm Corporation
Financial Statements
December 31, 2010 and 2009
 
 
47
 
 
CONTENTS
 
   
Page(s)
     
Reports of Independent Registered Public Accounting Firms
 
F-2 –  F-3
     
Balance Sheets – As of December 31, 2010 (Consolidated) and 2009
 
F-4
     
Statements of Operations –
   
Years Ended December 31, 2010 (Consolidated) and 2009
 
F-5
     
Statement of Stockholders’ Equity (Deficit) –
   
Years Ended December 31, 2010 (Consolidated) and 2009
 
F-6
     
Statements of Cash Flows –
   
Years Ended December 31, 2010 (Consolidated) and 2009
 
F-7
     
Notes to Financial Statements -
   
Years Ended December 31, 2010 (Consolidated) and 2009
 
F-8 – F-30
 
F-1
 
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors of:
MusclePharm Corporation
 
We have audited the accompanying consolidated balance sheet of MusclePharm Corporation and Subsidiary, as of December 31, 2010 (consolidated), and the related statements of operations, stockholders’ deficit and cash flows for the year then ended.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of MusclePharm Corporation as of December 31, 2009, and for the period from April 22, 2008 (inception) to December 31, 2008, were audited by other auditors; whose report dated March 30, 2010 expressed an unqualified opinion on those financial statements.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included considerations of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit 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 provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of MusclePharm Corporation and Subsidiary as of December 31, 2010 (consolidated), and the results of its operations and its cash flows for the year then ended, 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 discussed in Note 2 to the financial statements, the Company had a net loss of $19,569,337 and net cash used in operations of $3,795,477 for the year ended December 31, 2010; and a working capital deficit and stockholders’ deficit of $2,809,339 and $1,744,667, respectively, at December 31, 2010. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regards to these matters is also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
Berman & Company, P.A.
 
Boca Raton, Florida
March 31, 2011
 
 
F-2
 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
Board of Directors
Muscle Pharm, LLC
Englewood, Colorado
 
We have audited the accompanying balance sheets of Muscle Pharm, LLC as of December 31, 2009 and 2008, and the related statements of operations, members’ equity (deficit), and cash flows for the year ended December 31, 2009, and the period from April 22, 2008 (inception) to December 31, 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Muscle Pharm, LLC as of December 31, 2009 and 2008, and the results of its operations and its cash flows for the year ended December 31, 2009, and for the period from April 22, 2008 (inception) to December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3, the Company has negative working capital and members’ deficits and has incurred net losses for the year ended December 31, 2009 and from inception (April 22, 2008) through December 31, 2008 of $1,913,473 and $392,629, respectively, which raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to this matter is also discussed in Note 3. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
 
/s/ Schumacher & Associates, Inc.
Schumacher & Associates, Inc.
Certified Public Accountants
7931 S. Broadway, #314
Littleton, CO 80122
 
March 30, 2010
 
F-3
 
 
MusclePharm Corporationand Subsidiary
Balance Sheets
 
   
December 31, 2010 (Consolidated)
  
December 31, 2009
 
        
Assets
      
        
Current Assets
      
Cash
 $43,704  $- 
Accounts receivable
  426,761   111,476 
Prepaid and other
  935,845   76,686 
Inventory
  -   4,245 
Deposits
  -   32,116 
Total Current Assets
  1,406,310   224,523 
          
Property and equipment
  138,551   39,815 
          
Prepaid and other
  1,176,120   2,665 
          
Total Assets
 $2,720,981  $267,003 
          
Liabilities and Stockholders' Deficit
        
          
Current Liabilities:
        
Cash overdraft
 $-  $17,841 
Accounts payable
  2,654,989   765,536 
Accrued liabilities
  500,712   161,410 
Deferred revenue
  75,733   15,018 
Due to factor
  71,783   - 
Due to related parties
  -   27,929 
Debt
  289,488   459,864 
Derivative liabilities
  622,944   - 
Total Current Liabilities
  4,215,649   1,447,598 
          
Long Term Liabilities:
        
Debt
  250,000   - 
          
Total Liabilities
  4,465,649   1,447,598 
          
Stockholders' Deficit
        
Series A, Convertible Preferred Stock, $0.001 par value; 833,000 shares authorized, none issued and outstanding
  -   - 
Common Stock,  $0.001 par value; 195,000,000 shares authorized, 118,649,439 and 26,000,000 issued and outstanding
  118,649   26,000 
Additional paid-in capital
  20,012,122   1,099,508 
Accumulated deficit
  (21,875,438)  (2,306,101)
Total Stockholders' Deficit
  (1,744,667)  (1,180,594)
          
Total Liabilities and Stockholders' Deficit
 $2,720,981  $267,003 
 
See accompanying notes to financial statements
 
F-4
 
 
MusclePharm Corporation and Subsidiary
Statements of Operations
 
   
Years Ended December 31,
 
   
2010 (Consolidated)
  
2009
 
        
Sales
 $4,047,295  $1,017,916 
          
Cost of sales
  2,804,274   922,971 
          
Gross profit
  1,243,021   94,945 
          
General and administrative expenses
  19,494,857   1,906,027 
          
Loss from Operations
  (18,251,836)  (1,811,082)
          
Other Expenses
        
Interest expense
  (480,589)  (102,390)
Derivative expense
  (93,638)  - 
Change in fair value of derivative liabilities
  (149,306)  - 
Other expense
  (160,568)  - 
Loss on settlement of accounts payable
  (433,400)  - 
Total Other Expense
  (1,317,500)  (102,390)
          
Net Loss
 $(19,569,337) $(1,913,472)
          
Net Loss Per Common Share  - Basic and Dilutive
 $(0.48) $(0.07)
          
Weighted average number of common shares outstanding
        
during the period - Basic and Dilutive
  41,141,549   25,914,615 
 
See accompanying notes to financial statements
 
F-5
 
 
MusclePharm Corporation and Subsidiary
Statement of Stockholders' Equity (Deficit)
Years Ended December 31, 2010 (Consolidated) and 2009
 
   
Series A, Convertible
                
   
Preferred Stock
  
Common Stock
          
   
Shares
  
Amount
  
Shares
  
Amount
  
Additional Paid-in Capital
  
Accumulated Deficit
  
Total Stockholders' Equity (Deficit)
 
                                                                     
Balance - December 31, 2008
  -  $-   25,828,950  $25,829  $448,671  $(392,629) $81,871 
                              
Issuance of common stock for cash
  -   -   171,050   171   87,329   -   87,500 
                              
Capital contribution
  -   -   -   -   16,508   -   16,508 
                              
Beneficial conversion feature - convertible debt
  -   -   -   -   547,000   -   547,000 
                              
Net loss for the year ended December 31, 2009
  -   -   -   -   -   (1,913,472)  (1,913,472)
                              
Balance - December 31, 2009
  -   -   26,000,000   26,000   1,099,508   (2,306,101)  (1,180,594)
                              
Recapitalization and deemed issuance
  83,333   83   70,838   71   (25,261)  -   (25,107)
                              
Issuance of common stock:
                            
Conversion of preferred stock to common stock
  (83,333)  (83)  16,666,600   16,667   (16,584)  -   - 
Conversion of convertible debt to common stock
  -   -   7,708,906   7,709   1,025,791   -   1,033,500 
Cash and warrants
  -   -   4,167,767   4,168   1,524,508   -   1,528,676 
Services - third parties
  -   -   22,457,214   22,457   4,532,158   -   4,554,615 
Services - third parties - future services
  -   -   10,545,200   10,545   2,724,003   -   2,734,548 
Services - officers
  -   -   10,000,000   10,000   5,290,000   -   5,300,000 
Services paid with previously issued stock to officers
  -   -   -   -   1,039,500   -   1,039,500 
Settlement of debt - third parties
  -   -   4,165,571   4,166   1,186,898   -   1,191,064 
Settlement of debt - related party
          7,161,548   7,161   350,916       358,077 
Settlement of accounts payable
  -   -   9,014,286   9,014   424,386   -   433,400 
Debt offering - additional interest expense
  -   -   50,000   50   30,450   -   30,500 
Extension of debt maturity date
  -   -   130,000   130   95,370   -   95,500 
Contract settlement in connection with lawsuit
  -   -   511,509   511   99,489   -   100,000 
Share based payments
  -   -   -   -   630,990   -   630,990 
                              
Net loss for the year ended December 31, 2010
  -   -   -   -   -   (19,569,337)  (19,569,337)
                              
Balance - December 31, 2010
  -  $-   118,649,439  $118,649  $20,012,122  $(21,875,438) $(1,744,667)
 
See accompanying notes to financial statements
 
F-6
 
 
MusclePharm Corporation andSubsidiary
Statements of Cash Flows
 
   
Years Ended December 31,
 
   
2010 (Consolidated)
  
2009
 
Cash Flows From Operating Activities:
      
Net loss
 $(19,569,337) $(1,913,472)
Adjustments to reconcile net loss to net cash
        
used in operating activities:
        
Depreciation and amortization
  18,567   7,953 
Bad debt
  119,468   - 
Stock issued for services - third parties
  4,554,615   - 
Stock issued for services - officers
  5,300,000   - 
Services paid with previously issued stock to officers
  1,039,500   - 
Stock issued to extend maturity date of debt
  95,500   - 
Stock issued as settlement in connection with lawsuit
  100,000   - 
Stock issued with unsecured debt offering - additional interest expense
  30,500     
Share based payments
  630,990   - 
Amortization of prepaid stock based compensation
  768,637   - 
Amortization of debt discount and debt issue costs
  485,689   79,364 
Loss on settlement of accounts payable
  433,400   - 
Derivative expense
  93,638   - 
Change in fair value of derivative liabilities
  149,306   - 
Changes in operating assets and liabilities:
        
(Increase) decrease in:
        
Accounts receivable
  (434,753)  (97,237)
Prepaid and other
  (87,989)  (64,318)
Inventory
  4,245   49,001 
Deposits
  32,116   13,700 
Other current Assets
  21,286   (2,665)
Accounts payable
  1,889,454   712,958 
Accrued liabilities
  397,193   161,410 
Deferred revenue
  60,715   15,018 
Due to factor
  71,783   - 
Net Cash Used In Operating Activities
  (3,795,477)  (1,038,289)
          
Cash Flows From Investing Activities:
        
Purchases of property and equipment
  (117,303)  (24,407)
Net Used In Investing Activities
  (117,303)  (24,407)
          
Cash Flows From Financing Activities:
        
Cash overdraft
  (17,841)  5,839 
Due to related party
  (27,929)  25,317 
Proceeds from issuance of debt
  2,140,608   932,500 
Proceeds from issuance of debt - related party
  358,077   - 
Repayments on debt
  -   (5,000)
Proceeds from issuance of common stock and warrants - net of recapitalization payment
  1,503,569   - 
Capital contribution
  -   104,008 
Net Cash Provided By Financing Activities
  3,956,484   1,062,664 
          
Net increase (decrease) in cash
  43,704   (32)
          
Cash at beginning of year
  -   32 
          
Cash at end of year
 $43,704   - 
        - 
Supplemental disclosures of cash flow information:
        
Cash paid for interest
 $15,882  $5,806 
Cash paid for taxes
 $-  $- 
          
Supplemental disclosure of non-cash investing and financing activities:
        
          
Stock issued for future services - third parties
 $2,734,548  $- 
Debt discount recorded on convertible debt accounted for as a derivative liability
 $380,000  $- 
Conversion of convertible debt and accrued interest for common stock
 $1,033,500  $- 
Stock issued to settle debt - third parties
 $1,191,064  $- 
Stock issued to settle debt - related party
 $358,077  $- 
Stock issued to settle accounts payable
 $433,400  $- 
Conversion of preferred stock to common
 $83   - 
Original issue discount
 $37,500     
Beneficial conversion feature - convertible debt
 $-   547,000 
 
See accompanying notes to financial statements
 
F-7
 
 

MusclePharm Corporation and Subsidiary

Notes to Financial Statements

December31, 2010 (Consolidated) and 2009

 
Note 1 Nature of Operations and Summary of Significant Accounting Policies
 
Nature of Operations
 
MusclePharm Corporation (the “Company”, or “MP”), was organized as a limited liability company in the State of Colorado on April 22, 2008.  On February 18, 2010, the Company executed a reverse recapitalization with Tone in Twenty, Inc. and changed its name to MP (See Note 3).
 
The Company markets branded sports nutrition products.
 
Risks and Uncertainties
 
The Company operates in an industry that is subject to rapid change and intense competition. The Company's operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure.
 
Use of Estimates
 
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.
 
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non confirming events. Accordingly, the actual results could differ significantly from estimates.
 
Principles of Consolidation
 
All inter-company accounts and transactions have been eliminated in consolidation.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents.  At December 31, 2010 and 2009, the Company had no cash equivalents.
 
The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The balance at times may exceed federally insured limits.  At December 31, 2010 and 2009, there were no balances that exceeded the federally insured limit.
 
F-8
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
Accounts Receivable and Allowance for Doubtful Accounts
 
Accounts receivable represents trade obligations from customers that are subject to normal trade collection terms. The Company periodically evaluates the collectability of its accounts receivable and considers the need to establish an allowance for doubtful accounts based upon historical collection experience and specific customer information. Accordingly, the actual amounts could vary from the recorded allowances.
 
The Company does not charge interest on past due receivables. Receivables are determined to be past due based on the payment terms of the original invoices.
 
Accounts receivable at December 31, 2010 and 2009 was as follows:
 
Accounts receivable
 $542,863  $112,297 
Less: allowance for doubtful accounts
  (116,102)  ( 821)
Accounts receivable – net
 $426,761  $111,476 
 
The Company recorded bad debt expense of $119,468 and $0 for the years ending December 31, 2010 and 2009, respectively.
 
During 2010 and 2009, the Company had the following concentrations of accounts receivable with customers:
 
Customer
 
2010
  
2009
 
A
  40%  32%
B
  24%  -%
C
  11%  -%
D
  -%  30%
E
  -%  20%
F
  -%  11%
 
Inventory
 
During 2009, the Company maintained finished goods inventory of $4,245, which was stated at the lower of cost or market. Costs were determined by the first-in first-out or average cost methods. The Company also had deposits on inventory of $32,116, which was delivered in 2010.
 
At December 31, 2010, the Company did not manufacture or physically hold any inventory.  Inventory is held and distributed by the Company’s co-manufacturers.
 
F-9
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
Property and Equipment
   
Property and equipment are stated at cost and depreciated to their estimated residual value over their estimated useful lives. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are relieved from the accounts and the resulting gains or losses are included in operating income in the statements of operations. Repairs and maintenance costs are expensed as incurred. Depreciation is provided using the straight-line method for all property and equipment.
 
Website Development Costs
 
Costs incurred in the planning stage of a website are expensed, while costs incurred in the development stage are capitalized and amortized over the estimated useful life of the asset.
 
Long-Lived Assets
 
The Company reviews long-lived assets for impairment whenever events or changes in circumstances, such as service discontinuance or technological obsolescence, indicate that the carrying amount of the long-lived asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that an impairment is present, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the asset.
 
Fair Value of Financial Instruments
 
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
 
F-10
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
The following are the hierarchical levels of inputs to measure fair value:
 
 
·
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
 
·
Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
 
·
Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
 
The following are the major categories of liabilities measured at fair value on a recurring basis as of December 31, 2010 and 2009, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
 
      
2010
  
2009
 
Derivative liabilities
 
Level 2
 $622,944  $- 
 
The Company's financial instruments consisted primarily of cash, accounts receivable, prepaids, accounts payable, accrued liabilities, and short term debt. The carrying amounts of the Company's financial instruments generally approximated their fair values as of December 31, 2010 and 2009, respectively, due to the short-term nature of these instruments.
 
Revenue Recognition
 
The Company records revenue when all of the following have occurred; (1) persuasive evidence of an arrangement exists, (2) product has been shipped or delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. 
 
Depending on individual customer agreements, sales are recognized either upon shipment of products to customers or upon delivery.  The Company records sales allowances and discounts as a direct reduction of sales.  Sales for the years ended December 31, 2010 and 2009 are as follows:
 
   
2010
  
2009
 
Sales
 $4,199,959  $1,385,117 
Discounts
  152,664   367,201 
Sales – net
 $4,047,295  $1,017,916 
 
The Company has an informal 7-day right of return for products. However, there were nominal returns in 2010 and 2009.
 
F-11
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
During 2010 and 2009, the Company had the following concentrations of revenues with customers:
 
Customer
 
2010
  
2009
 
A
  42%  20%
B
  12%  -%
C
  -%  19%
D
  -%  14%
E
  -%  13%
 
Deferred Revenue
 
As of December 31, 2010 and 2009, the Company had received $75,733 and $15,018 from international customers in advance of shipping products.
 
Cost of Sales
 
Cost of sales represents costs directly related to the production and manufacturing of the Company’s products. 
 
Shipping and Handling
 
Product sold is typically shipped directly to the customer from the manufacturer.  Any freight billed to customers is offset against shipping costs and included in cost of goods sales.
 
Advertising
 
The Company expenses advertising costs when incurred.
 
Advertising for the years ended December 31, 2010 and 2009 are as follows:
 
2010
  
2009
 
$7,084,955  $1,069,308 
 
Income Taxes
 
In 2009 and through February 18, 2010, the Company was taxed as a pass-through entity (LLC) under the Internal Revenue Code and was not subject to federal and state income taxes; accordingly, no provision had been made. The financial statements reflect the LLC’s transactions without adjustment, if any, required for income tax purposes for the year ended December 31, 2009 and through February 18, 2010. In computing the expected tax benefit, the Company reflected a net loss of $19,169,454 for the period from February 18, 2010 to December 31, 2010
 
F-12
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
From February 18, 2010 through December 31, 2010, income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Beginning with the adoption of FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, (included in FASB ASC Subtopic 740-10, Income Taxes — Overall), as of January 1, 2009, the Company recognizes the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.
 
The Company records interest and penalties related to unrecognized tax benefits in income tax expense. There were none for the years ended December 31, 2010 and 2009.
 
Beneficial Conversion Feature
 
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.
 
When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt.
 
Derivative Liabilities
 
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
 
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.
 
F-13
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
Debt Issue Costs and Debt Discount
 
The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt.  These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
 
Original Issue Discount
 
For certain convertible debt issued, the Company provides the debt holder with an original issue discount.  The original issue discount is recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
 
Share-based payments
 
Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.  Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
 
Earnings per Share
 
Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period.  Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
 
Since the Company reflected a net loss in 2010 and 2009, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
 
The Company has the following common stock equivalents at December 31, 2010 and 2009:
 
   
2010
  
2009
 
Stock options (exercise price - $0.50/share)
  2,767,500   - 
Warrants (exercise price - $1.50/share)
  750,000   - 
Convertible debt
  11,197,139   571,486 
Total common stock equivalents
  14,714,639   571,486 
 
In the above table, some of the outstanding convertible debt from 2010 contains ratchet provisions that would cause variability in the exercise price at the balance sheet date.  As a result, common stock equivalents could change at each reporting period.
 
In connection with the reverse recapitalization, all share and per share amounts have been retroactively restated.
 
F-14
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
Reclassification
 
In connection with the reverse recapitalization, common stock and additional paid in capital have been changed to reflect the transaction to the earliest period presented, as well as other reclassifications to conform 2009 to the 2010 financial statement presentation. There is no impact to operations or cash flows.
 
Recent Accounting Pronouncements
 
In January 2010, the Financial Accounting Standards Board ("FASB") issued updated guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, this update clarifies certain existing disclosure requirements. For example, this update clarifies that reporting entities are required to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities. This update also clarifies the requirement for entities to disclose information about both the valuation techniques and inputs used in estimating Level 2 and Level 3 fair value measurements. This update will become effective for the Company with the interim and annual reporting period beginning January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will become effective for the Company with the interim and annual reporting period beginning January 1, 2011. The Company will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update will not have a material effect on the Company's financial statements.
 
In July 2010, the FASB issued ASU 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. ASU 2010-20 is to provide financial statement users with greater transparency about an entity’s allowance for credit losses and the credit quality of its financing receivables. The disclosures about activity that occurs during the reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010.  The Company does not expect the provisions of ASU 2010-20 to have a material effect on its financial position, results of operations or cash flows.
 
In August 2010, the FASB issued an exposure draft on lease accounting that would require entities to recognize assets and liabilities arising from lease contracts on the balance sheet. The proposed exposure draft states that lessees and lessors should apply a “right-of-use model” in accounting for all leases. Under the proposed model, lessees would recognize an asset for the right to use the leased asset, and a liability for the obligation to make rental payments over the lease term. The lease term is defined as the longest possible term that is “more likely than not” to occur. The accounting by a lessor would reflect its retained exposure to the risks or benefits of the underlying leased asset. A lessor would recognize an asset representing its right to receive lease payments based on the expected term of the lease. Comments on this exposure draft were due by December 15, 2010 and the final standard is expected to be issued in the second quarter of 2011. The Company believes that the proposed standard, as currently drafted, will have neither a material impact on its reported financial position and reported results of operations, nor a material impact on the liquidity of the Company.
 
F-15
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
In August 2010, the FASB issued Accounting Standards Update (“ASU”) No. 2010-05, Measuring Liabilities at Fair Value, or ASU 2010-05, which amends ASC 820 to provide clarification of a circumstance in which a quoted price in an active market for an identical liability is not available. A reporting entity is required to measure fair value using one or more of the following methods: 1) a valuation technique that uses a) the quoted price of the identical liability when traded as an asset or b) quoted prices for similar liabilities (or similar liabilities when traded as assets) and/or 2) a valuation technique that is consistent with the principles of ASC 820. ASU 2010-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to adjust to include inputs relating to the existence of transfer restrictions on that liability. The adoption did not have a material impact on our consolidated financial statements
 
In December 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2010-29, Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations. This ASU requires a public entity to disclose pro forma information for business combinations that occurred in the current reporting period. The disclosures include pro forma revenue and earnings of the combined entity for the current reporting period as though the acquisition date for all business combinations that occurred during the year had been as of the beginning of the annual reporting period. If comparative financial statements are presented, the pro forma revenue and earnings of the combined entity for the comparable prior reporting period should be reported as though the acquisition date for all business combinations that occurred during the current year had been as of the beginning of the comparable prior annual reporting period. ASU 2010-29 affects any public entity as defined by Topic 805 that enters into business combinations that are material on an individual or aggregate basis. ASU 2010-29 is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  Early adoption is permitted. The Company does not expect the provisions of ASU 2010-29 to have an effect on its financial position, results of operations or cash flows.
 
Note 2 Going Concern
 
As reflected in the accompanying financial statements, the Company had a net loss of $19,569,337 and net cash used in operations of $3,795,477 for the year ended December 31, 2010; and a working capital deficit and stockholders’ deficit of $2,809,339 and $1,744,667, respectively, at December 31, 2010. These factors raise substantial doubt about the Company's ability to continue as a going concern.
 
The ability of the Company to continue its operations is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, sale of aged debt to third parties in exchange for free trading stock, until such time that funds provided by operations are sufficient to fund working capital requirements.  The Company may need to incur liabilities with certain related parties to sustain the Company’s existence.
 
F-16
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives.  The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future.  There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
 
In response to these problems, management has taken the following actions:
 
 
·
seeking additional third party debt and/or equity financing,
 
·
continue with the implementation of the business plan,
 
·
generate new sales from international customers; and
 
·
allocate sufficient resources to continue with advertising and marketing efforts

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3 Reverse Recapitalization

On February 18, 2010, the Company merged with Tone in Twenty, Inc. (“TIT”), a then public shell corporation, and MP became the surviving corporation, in a transaction treated as a reverse recapitalization. TIT did not have any operations and majority-voting control was transferred to MP.

In the recapitalization, MP acquired 26,000,000 shares of common stock from TIT in exchange for all member units in MP.  Prior to the transaction, the Company paid approximately $25,000 to a former executive of TIT to acquire 366,662 of the 437,500 shares issued and outstanding, these shares were then immediately cancelled and retired.  The remaining 70,838 shares were held by the selling stockholders as a deemed issuance in the recapitalization. After the transaction, there were 26,070,838 shares issued and outstanding.  The transaction resulted in MP acquiring 99.7% control.

The transaction also requires a recapitalization of MP. Since MP acquired a controlling voting interest, it was deemed the accounting acquirer, while TIT was deemed the legal acquirer. The historical financial statements of the Company are those of MP and of the consolidated entities from the date of recapitalization and subsequent.

Since the transaction is considered a reverse recapitalization, the presentation of pro-forma financial information was not required.
 
F-17
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
Note 4 Property and Equipment

Property and equipment consisted of the following at December 31, 2010 and 2009:

   
        2010        
  
        2009        
  
Estimated Useful Life
 
Leasehold improvements
 $67,760  $-  * 
Furniture and fixtures
  55,305   5,762  
3 years
 
Displays
  32,057   32,057  
5 years
 
Website
  11,462   11,462  
3 years
 
    166,584   49,281     
Less: Accumulated depreciation and amortization
  (28,033)  (9,466)    
   $138,551  $39,815     
* The shorter of 5 years or the life of the lease.

Note 5 Debt

At December 31, 2010 and 2009, debt consists of the following:

   
2010
  
2009
 
        
Convertible debt
 $605,000  $897,500 
Less: debt discount
  (331,261)  (467,636)
Convertible debt - net
  273,739   429,864 
          
Secured debt
  187,500   - 
          
Unsecured debt
  78,249   30,000 
          
Total debt
  539,488   459,864 
          
Less: current portion
  (289,488)  (459,864)
          
Long term debt
 $250,000  $- 

Debt in default of $427,500 is included as a component of short-term debt. In 2011, $347,500 of this total was settled with the issuance of stock.
 
F-18
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
(A)
Convertible Debt – Secured – Derivative Liabilities

During 2010, the Company issued convertible notes, totaling $380,000, with the following provisions:

Interest rate 8%,
Default interest rate of 22% on notes aggregating $130,000,
Notes are due in May, June and September 2011 (short term - $130,000), and October and December 2013 (long term - $250,000),
Conversion rates equal to 60% or 70% of the market price on date of conversion by applying a specified formula that utilizes the average of quoted closing prices preceding the conversion date by 10 or 30 days, and then takes either lowest price in the period or the average of the three lowest; and
Secured by all assets of the Company

The investor is entitled at its option to convert all or part of the principal and accrued interest into shares of the Company’s common stock at a conversion price as discussed above.  The Company classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle. See Note 6 regarding accounting for derivative liabilities.

In the first quarter of 2011, the Company issued 1,585,944 shares of common stock, having a fair value of $91,235 ($0.05 - $0.06/share) to settle convertible notes payable, originating in 2010, having a face value of $50,000.  As a result, the Company recorded a loss on debt conversion of $41,235.

During 2010, the Company amortized $48,739 to interest expense.

(B)
Conventional Convertible Debt - Secured

During 2010, the Company issued conventional convertible notes, totaling $466,000, with the following provisions:

● Interest rate 8%,
● All notes were due by December 31, 2010,
● Conversion of principal and accrued interest at rates ranging from 150% - 300%; and
● Secured by all assets of the Company
● All conversion rates associated with these instruments were at or above market. There is no BCF.

In the first quarter of 2011, the Company issued 5,257,614 shares of common stock, having a fair value of $384,407 ($0.06 - $0.10/share) to settle convertible notes payable, originating prior to December 31, 2010, having a face value of $145,000.  As a result, the Company recorded a loss on debt conversion of $239,407.
 
F-19
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
In 2010, the Company accrued $22,770 for interest for all convertible debt.

In 2009, the Company issued $897,500 in convertible notes under the same terms as discussed above.  The Company recorded a BCF of $547,000, amortized $79,364 and reflected a balance of $429,864, which was amortized in full during 2010. The Company repaid $5,000 in 2009.

Accrued interest on the 2009 debt was $14,721.

(C)
Secured Debt

During February 2010, the Company issued original issue discount notes having a face value of $187,500 for gross proceeds of $150,000. The issuance costs of $37,500 was recorded to interest expense and charged to additional paid in capital. These notes were non-interest bearing, secured by the Company’s accounts receivable and due in May 2010.  At December 31, 2010, these notes were in default.

These debt holders were also entitled to one share of common stock for every three dollars of principal invested.  The Company issued 50,000 shares of common stock, as additional interest expense, having a fair value of $30,500 ($0.61/share), based upon the quoted closing trading price.

In the first quarter of 2011, $187,500 was converted into 7,500,000 shares of common stock, having a fair value of $450,000 ($0.06/share), based upon the quoted closing trading price. The Company recorded a loss on debt settlement of $262,500. As of March 31, 2011, the balance of secured debt is $0.

(D)
Unsecured Debt

During 2010, the Company executed loans, for $1,144,608, with the following provisions:

Interest rate at 0%, 8%, or 10%,
Notes are due on demand, or; March 2010, December 2010 and September 2011

At December 31, 2010, $15,000 was in default. However, in 2011, the Company issued 478,897 shares of common stock, having a fair value of $47,889 ($0.10/share), based upon the quoted closing trading price. The Company recorded a loss on debt settlement of $29,389. As of March 31, 2011, the balance of unsecured debt is $15,000.

In 2010, the Company accrued $2,400 for interest.

In 2009, the Company executed loans for $30,000.  The loans bore interest at 10% and was unsecured. At December 31, 2010, this debt was in default.
 
F-20
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
(E)
Debt Issue Costs

During the year ended 2010 and 2009, the Company paid debt issue costs totaling $42,000 and $0, respectively.

The following is a summary of the Company’s debt issue costs:

     
Debt issue costs paid – 2010
 $42,000 
Amortization of debt issue costs – 2010
  (7,596)
Debt issue costs – net – 2010
 $34,404 

During 2010, the Company amortized $7,596.

(F)
Debt Discount

During the year ended 2010 and 2009, the Company recorded debt discounts totaling $380,000 and $547,000, respectively.

The debt discount recorded in 2010 pertains to convertible debt that contains embedded conversion options that are required to bifurcated and reported at fair value (See Note 9).

In 2009, all debt discounts were associated with conventional convertible debt that contains a BCF.

Note 6 Derivative Liabilities

The Company identified conversion features embedded within convertible debt ($380,000) issued in 2010 (see Note 5(B)). The Company has determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability.

As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follow:

Derivative liability balance at December 31, 2009
 $- 
Fair value at the commitment date for convertible notes issued
  473,638 
Fair value mark to market adjustment
  149,306 
Derivative liability balance at December 31, 2010
 $622,944 

The Company recorded the derivative liability to debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note.  The Company recorded a derivative expense for $93,638 for 2010.
 
F-21
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
The fair value at the commitment and remeasurement dates were based upon the following management assumptions:

   
Commitment Date
  
Remeasurement Date
 
Expected dividends
  0%  0%
Expected volatility
  150%  150%
Expected term: conversion feature
 
0.75 – 3 years
  
0.37 – 2.92 years
 
Risk free interest rate
  0.18% - 2.76%  0.19%

Note 7 Income Taxes

Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due.  Deferred taxes relate to differences between the basis of assets and liabilities for financial and income tax reporting will be either taxable or deductible when the assets or liabilities are recovered or settled.  The difference between the basis of assets and liabilities for financial and income tax reporting are not material, therefore, the provision for income taxes from operations consist of income taxes currently payable.

At December 31, 2010, the Company has a net operating loss carry-forward of approximately $5,400,000 available to offset future taxable income expiring through 2030. Utilization of future net operating losses may be limited due to potential ownership changes under Section 382 of the Internal Revenue Code.

The valuation allowance at December 31, 2009 was $0. The net change in valuation allowance during the year ended December 31, 2010 was an increase of approximately $2,500,000. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred income tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based on consideration of these items, management has determined that enough uncertainty exists relative to the realization of the deferred income tax asset balances to warrant the application of a full valuation allowance as of December 31, 2010.

The effects of temporary differences that gave rise to significant portions of deferred tax assets at December 31, 2010 and 2009 are as follows:
   
December 31, 2010
  
December 31, 2009
 
         
Net operating loss carry forward
 $1,986,000  $- 
Amortization of debt discount and debt issue costs
  465,000   - 
Bad debt
  44,000   - 
Valuation allowance
  (2,495,000)  - 
Net deferred tax asset
 $-  $  

F-22
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
There was no income tax expense for the year ended December 31, 2010 due to the Company’s net losses.

The Company’s tax expense differs from the “expected” tax expense for the years ended December 31, 2010, (computed by applying the Federal Corporate tax rate of 34% to loss before taxes and 4.6% for State Corporate taxes (Colorado), the blended rate used was 37.01%), as follows:
 
  
 
December 31, 2010
  
December 31, 2009
 
Current federal tax benefit
 $(6,216,000) $- 
Current state tax benefit
  (888,000)  - 
Derivative expense
  35,000   - 
Change in fair value of derivative liability
  55,000   - 
Loss on settlement of accounts payable
  161,000   - 
Non-deductible stock compensation
  4,354,000   - 
Non-deductible meals and entertainment
  4,000   - 
          
Change in valuation allowance
  2,495,000   - 
Income tax benefit
 $-  $- 
 
Note 8 Contingencies

(A)
Operating Lease

In August 2010, the Company leased office space under a non-cancelable operating lease, expiring in December 2015.

Future minimum annual rental payments are as follows:

Year Ended December 31,

2011
 $81,193 
2012
  87,560 
2013
  93,448 
2014
  99,576 
2015
  105,704 
      
Total minimum lease payments
 $467,481 

Rent expense for the years ended December 31, 2010 and 2009 was $138,357 and $22,260, respectively.

(B)
Factoring Agreement

In April 2010, the Company entered into a factoring agreement (the "agreement") and sold its accounts receivable.  During 2010, the Company entered into legal proceedings with the factor, as a result of the Company’s customers not remitting funds directly to the factor.
 
F-23
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
A settlement, of $96,783, was reached. During 2010, the Company repaid $25,000, leaving a remaining balance of $71,783 due to factor.  In January 2011, the Company paid $10,000.

At December 31, 2010, the Company no longer factors its accounts receivable.

On February 28, 2011, the remaining $65,930, inclusive of fees and interest, was settled with the issuance of 2,187,666 shares of common stock, having a fair value of $131,206 ($0.06/share), based upon the quoted closing trading price. The Company recorded a loss on debt settlement of $65,330.

(C) Litigations, Claims and Assessments

From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.

The Company is not currently aware of any legal proceedings or claims that they believe will have, individually or in the aggregate, a material adverse affect on its business, financial condition or operating results:
 
Note 9 Stockholders’ Deficit

(A)
Series A, Convertible Preferred Stock

These shares were non-voting, and had no rights to dividends or liquidation value. However, this class of stock is convertible into 200 shares of common stock for each share held.

During 2010, the holders of the preferred stock converted all shares into 16,666,600 shares at par value.
 
F-24
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
(B)
Common Stock

In 2010, the Company issued the following common stock:

Transaction Type
 
Quantity
  
Valuation
  
Range of Value per Share
 
Reverse recapitalization
  26,070,838  $-   - 
Conversion of preferred stock
  16,666,600  $16,667  $0.001 
Conversion of convertible debt
  7,708,906  $1,033,500  $0.05–0.67 
Settlement of accounts payable (1)
  9,014,286  $433,400  $0.05–0.42 
Settlement of notes payable (2)
  4,165,571  $1,191,064  $0.05–0.55 
Settlement of notes payable - officer
  7,161,548  $358,077  $0.05 
Cash and warrants – net of payment in recapitalization of ($25,107)
  4,167,767  $1,503,569  $0.27-0.50 
Services – rendered
  22,457,214  $4,554,615  $0.05–1.16 
Services – rendered – officers (bonus)
  10,000,000  $5,300,000  $0.53 
Services – prepaid stock compensation (5)
  10,545,200  $2,734,548  $0.06–1.16 
Contract settlement (3)
  511,509  $100,000  $0.20 
Extension of debt maturity date (4)
  130,000  $95,500  $0.61–1.15 
Secured debt offering
  50,000  $30,500  $0.61 
Total
  118,649,439  $17,376,547  $0.001–1.16 
              
The fair value of all stock issuances above is based upon the quoted closing trading price on the date of issuance, except for stock issued for cash and warrants, which was based upon the cash received. Stock issued in the conversion of preferred stock was recorded at par value.

The following is a more detailed description of some of the Company’s stock issuances from the table above:

(1)
Settlement of Accounts Payable and Loss on Settlement

Of the total shares issued to settle accounts payable, the Company issued 8,928,571 shares of common stock having a fair value of $400,000 ($0.045/share), based upon the quoted closing trading price.  The Company settled $375,000 in accounts payable, paid a fee of $25,000, and recorded a loss on settlement of $112,500.

The Company also paid cash to settle accounts payable of $84,715 and recorded a gain on settlement, as a result, the Company has recorded a total net loss on settlement of accounts payable of $27,785.

(2)
Settlement of Notes payable

In connection with the stock issued to settle notes payable, the Company issued 1,965,571 shares of common stock having a fair value of $1,081,064 ($0.55/share), based upon the quoted closing trading price.  The Company settled $678,325 in notes payable and recorded a loss on settlement of $402,739.
 
F-25
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
(3)
Contract Settlement

In connection with litigation (See Note 8), the Company issued stock that has been accounted for as a settlement expense and a component of other expense.

(4)
Extension of Debt Maturity

The Company issued stock to extend the maturity date of certain notes and recorded additional interest expense.

(5) Prepaid Stock Compensation

During 2010, the Company issued 10,545,200 shares of commons stock for future services, having a fair value of $2,734,548, based upon the quoted closing trading price.  The agreements commenced during the periods March – December 2010 and terminate during the periods     March 2011 - November 2012.

The following represents the allocation of prepaid stock compensation at December 31, 2010:

Prepaid expense that will be amortized in 2011
 $893,240 
Prepaid expense that will be amortized in 2012
  1,088,131 
   $1,981,371 

Prepaid stock compensation is include as a component of prepaid and other current and long term assets.

During the year ended December 31, 2010, the Company amortized $768,637 to general and administrative expenses, of the total, $572,238 was for advertising, $137,322 was for professional fees and $59,077 was for research and development.

(C) Stock Options

On February 1, 2010, the Company's board of directors and shareholders approved the 2010 Stock Incentive Plan ("2010 Plan"). The 2010 Plan allows the Company to grant incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to key employees and directors of the Company or its subsidiaries, consultants, advisors and service providers. Any stock option granted in the form of an incentive stock option will be intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986, as amended. Only stock options granted to employees qualify for incentive stock option treatment. No incentive stock option shall be granted after February 1, 2020, which is 10 years from the date the 2010 Plan was initially adopted. A stock option may be exercised in whole or in installments, which may be cumulative. Shares of common stock purchased upon the exercise of a stock option must be paid for in full at the time of the exercise in cash or such other consideration determined by the compensation committee. Payment may include tendering shares of common stock or surrendering of a stock award, or a combination of methods.
 
F-26
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
The 2010 Plan will be administered by the compensation committee. The compensation committee has full and exclusive power within the limitations set forth in the 2010 Plan to make all decisions and determinations regarding the selection of participants and the granting of awards; establishing the terms and conditions relating to each award; adopting rules, regulations and guidelines; and interpreting the 2010 Plan. The Compensation Committee will determine the appropriate mix of stock options and stock awards to be granted to best achieve the objectives of the Plan. The 2010 Plan may be amended by the Board or the compensation committee, without the approval of stockholders, but no such amendments may increase the number of shares issuable under the 2010 Plan or adversely affect any outstanding awards without the consent of the holders thereof. The total number of shares that may be issued shall not exceed 5,000,000, subject to adjustment in the event of certain recapitalizations, reorganizations and similar transactions.

On April 2, 2010, the Company's board of directors authorized the issuance of 2,767,500 stock options, having a fair value of $630,990, which was expensed immediately since all stock options vested immediately.  These options expire on April 2, 2015.

The Company applied fair value accounting for all share based payment awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes assumptions used in the year ended December 31, 2010 is as follows:

Exercise price
 $0.50 
Expected dividends
  0%
Expected volatility
  74.8%
Risk fee interest rate
  1.4%
Expected life of option
 
2.5 years
 
Expected forfeitures
  0%
F-27
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
The following is a summary of the Company’s stock option activity:
   
Options
  
Weighted Average
Exercise Price
 
Weighted
Average
Remaining
Contractual
Life
 
Aggregate
Intrinsic
Value
 
Balance – December 31, 2009
  -         
Granted
  2,767,500  $0.50      
Exercised
  (- ) $0.50      
Forfeited
  (- ) $-      
Balance – December 31, 2010 – outstanding
  2,767,500  $0.50 
1.75 years
 $- 
Balance – December 31, 2010 – exercisable
  2,767,500  $0.50 
1.75 years
 $- 
                
Grant date fair value of options granted – 2010
     $630,990       
Weighted average grant date fair value – 2010
     $0.50       
                
Outstanding options held by related parties – 2010
  2,000,000           
Exercisable options held by related parties – 2010
  2,000,000           
Fair value of stock options granted to related parties - 2010
 $456,000           

(D) Stock Warrants

During 2010, the Company issued cash with warrants (See Note 12(B)) above.  The Company issued 750,000 five-year warrants, with an exercise price of $1.50/share.

The following is a summary of the Company’s stock warrant activity:

   
Number of
Warrants
  
Weighted Average Exercise Price
 
Balance as December 31, 2009
  -  $- 
Granted
  750,000  $1.50 
Exercised
  -  $- 
Forfeited
  -  $- 
Balance as December 31, 2010
  750,000  $1.50 

F-28
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
(E) 2009 Equity Transactions
 
During 2009, a member forgave $16,508 of prior cash advances.

During 2009, the Company issued member units for $87,500.

All transactions in 2009 were charged to members’ equity, and have been presented in the financial statements as a component of additional paid in capital totaling $104,008.
 
Note 10 Due to Related Parties

In 2009, the Company's officers used personal credit cards for business related expenses of $27,929.  The amounts were repaid in 2010.  The Company no longer uses officer credit cards.
 
Note 11 Subsequent Events

During the period January 1, 2011 – March 31, 2011, the Company had the following debt transactions:

(A) Convertible Debt – Secured – Derivative Liabilities

The Company issued convertible notes totaling $1,103,592.  These notes had the following provisions:

Interest rate 8%,
Notes are due between 9 days and 1 year from issuance,
Conversion rates equal to a variable percentage by applying a specified formula that utilizes the average of quoted closing prices; and
Unsecured

The investor is entitled at its option to convert all or part of the principal and accrued interest into shares of the Company’s common stock at a conversion price as discussed above.  The Company classified the embedded conversion feature as a derivative liability due to management’s assessment that the Company may not have sufficient authorized number of shares of common stock required to net-share settle. The Company will compute the fair value of these instruments using a black-scholes option pricing model.

4,528,885 shares of common stock were issued in connection with the conversion of approximately $179,000.  The Company recorded a loss on debt conversion of approximately $179,000.

The Company paid debt issue costs of approximately $43,000.

The Company also issued 3,000,000, 3.5 year warrants with an exercise price of $0.025/share, expiring August 28, 2014

(B) Stock Issued to Settle Accounts Payable

In the first quarter of 2011, the Company issued 19,177,850 shares of common stock, having a fair value of $1,782,147 ($0.06 - $0.12/share), based upon the quoted closing trading price, to settle accounts payable with a face value of $673,561.  As a result, the Company recorded a loss on settlement of accounts payable of $1,108,586.
 
F-29
 
 
MusclePharm Corporation and Subsidiary
Notes to Financial Statements
December 31, 2010 (Consolidated) and 2009
 
(C) Stock Issued for Services

In the first quarter of 2011, the Company issued 200,000 shares of common stock for services rendered, having a fair value of $14,000 ($0.07/share), based upon the quoted closing trading price.

(D) Prepaid Stock Compensation

In the first quarter of 2011, the Company issued 2,500,000 shares of common stock for future services, having a fair value of $150,000, based upon the quoted closing trading price.  The agreement commenced February 2011 and terminates August 2011.
 
F-30
 
 

 


MusclePharm Corporation and Subsidiary
Consolidated Balance Sheets
 
   
September 30, 2011
  
December 31, 2010
 
   
(unaudited)
    
        
Assets
      
        
Current Assets
      
Cash
 $-  $43,704 
Accounts receivable
  3,605,076   426,761 
Prepaid stock compensation
  823,261   893,240 
Other current assets
  245,234   42,605 
Total Current Assets
  4,673,570   1,406,310 
          
Property and equipment
  903,625   138,551 
          
Prepaid stock compensation
  41,728   1,088,131 
          
Other assets
  98,445   87,989 
          
Total Assets
 $5,717,368  $2,720,981 
          
Liabilities and Stockholders' Deficit
        
          
Current Liabilities:
        
Accounts payable and accrued liabilites
 $4,695,399  $3,155,701 
Cash overdraft
  27,008   - 
Debt
  1,023,441   289,488 
Derivative liabilities
  4,265,953   622,944 
Deferred revenue
  54,260   75,733 
Due to factor
  -   71,783 
Total Current Liabilities
  10,066,061   4,215,649 
          
Long Term Liabilities:
        
Debt
  792,941   250,000 
Total Liabilities
  10,859,002   4,465,649 
          
Stockholders' Deficit
        
Series A, Convertible Preferred Stock,  $0.001 par value; 10,000,000 shares
        
authorized, none issued and outstanding
  -   - 
Common Stock,  $0.001 par value; 500,000,000 shares authorized,
        
354,374,865 and 118,649,439 issued and outstanding
  354,374   118,649 
Additional paid-in capital
  28,711,667   20,012,122 
Accumulated deficit
  (34,207,675)  (21,875,438)
Total Stockholders' Deficit
  (5,141,634)  (1,744,667)
          
Total Liabilities and Stockholders' Deficit
 $5,717,368  $2,720,981 
 
F-31
 
 
MusclePharm Corporation and Subsidiary
Consolidated Statements of Operations
(unaudited)
 
   
Three Months Ended September 30,
  
Nine Months Ended September 30,
 
   
2011
  
2010
  
2011
  
2010
 
              
Sales
 $5,756,426  $1,409,016  $13,077,006  $3,135,712 
                  
Cost of sales
  3,838,035   927,506   8,643,900   2,120,113 
                  
Gross profit
  1,918,391   481,510   4,433,106   1,015,599 
                  
General and administrative expenses
  4,330,735   2,759,153   9,826,443   8,420,275 
                  
Loss from operations
  (2,412,344)  (2,277,643)  (5,393,337)  (7,404,676)
                  
Other income (expense)
                
Interest expense
  499,800   (231,739)  (3,002,589)  (900,886)
Derivative expense
  481,667   -   (3,576,192)  - 
Change in fair value of derivative liabilities
  1,547,185   -   2,181,955   - 
Loss on settlement of accounts payable
  -   (364,472)  (2,542,073)  (369,668)
Total other income (expense) - net
  2,528,653   (596,211)  (6,938,899)  (1,270,554)
                  
Net Income (loss)
 $116,309  $(2,873,854)  (12,332,236) $(8,675,230)
                  
Net Income (loss) per common share  - basic and dilutive
 $0.00  $(0.08)  (0.05) $(0.28)
                  
Weighted average number of common shares outstanding
             
during the period - basic and dilutive
  326,088,629   35,923,947   225,410,157   30,473,190 
 
F-32
 
MusclePharm Corporation and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
 
   
Nine Months Ended September 30,
 
   
2011
  
2010
 
Cash Flows From Operating Activities:
      
Net loss
 $(12,332,236) $(8,675,230)
Adjustments to reconcile net loss to net cash
        
 used in operating activities:
        
Depreciation
  89,390   10,830 
Bad debt
  84,018   6,771 
Stock based compensation
  558,209   4,213,585 
Amortization of prepaid stock based compensation
  1,436,631   - 
Amortization of debt discount and debt issue costs
  2,659,918   714,430 
Loss on extinguishment of debt
  -   402,739 
Derivative expense
  3,576,192   - 
Change in fair value of derivative liabilities
  (2,181,955)  - 
Loss on sale of accounts receivable
  -   51,644 
Loss (Gain) on settlement of accounts payable
  2,542,073   (84,715)
Changes in operating assets and liabilities:
        
(Increase) decrease in:
        
Accounts receivable
  (3,262,333)  (730,131)
Prepaid and other
  (213,152)  49,417 
Inventory
  -   (181,782)
Deposits
  -   (4,485)
Other current Assets
  -   (52,268)
Accounts payable and accrued liabilities
  2,995,123   1,870,492 
Deferred revenue
  (21,473)  40,456 
Due to factor
  (5,853)  - 
Net Cash Used In Operating Activities
  (4,075,448)  (2,368,247)
          
Cash Flows From Investing Activities:
        
Purchases of property and equipment
  (771,652)  (30,395)
Net Used In Investing Activities
  (771,652)  (30,395)
          
Cash Flows From Financing Activities:
        
Proceeds from sale of accounts receivable
  -   226,847 
Repayment of debt - related party
  -   (39,291)
Proceeds from issuance of debt
  4,495,756   1,259,000 
Debt issue costs
  (219,368)  - 
Payment for recapitalization from merger
  -   (25,108)
Proceeds from issuance of common stock
  500,000   1,005,692 
Cash overdraft
  27,008   (17,841)
Net Cash Provided By Financing Activities
  4,803,396   2,409,299 
          
Net increase (decrease) in cash
  (43,704)  10,657 
          
Cash at beginning of period
  43,704   - 
          
Cash at end of period
 $-  $10,657 
 
F-33
 
 
MusclePharm Corporation and Subsidiary
Consolidated Statements of Cash Flows
(unaudited)
 
        
   
Nine Months Ended September 30,
 
   
2011
  
2010
 
Supplemental disclosures of cash flow information:
      
Cash paid for interest
 $-  $- 
          
Supplemental disclosure of non-cash investing and financing activities:
     
          
Stock issued for future services - third parties
 $326,500  $- 
Debt discount recorded on convertible debt accounted for as a derivative liability
 $3,273,181  $- 
Stock issued to settle debt - third parties
 $1,521,355  $678,325 
Conversion of notes to common stock
 $2,379,913  $564,037 
Conversion of notes to common stock payable
 $-  $- 
Reclassification of derivative liability to additional paid in capital
 $1,024,409  $- 
Beneficial conversion feature - convertible debt
 $-  $426,000 
Conversion of preferred stock to common stock
 $-  $73 
Stock issued to acquire equipment
 $82,811  $- 
Share cancellation
 $350  $- 
 
F-34
 
 

MusclePharm Corporation and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited) 

 
Note 1 Nature of Operations and Basis of Presentation
 
Nature of Operations
 
MusclePharm Corporation (the “Company” or “MP”), was organized as a limited liability company in the State of Colorado on April 22, 2008.  On February 18, 2010, the Company executed a reverse recapitalization with Tone in Twenty, Inc., a then inactive public shell company, and changed its name to MusclePharm Corporation.
 
The Company markets branded sports nutrition products.
 
Basis of Presentation
 
The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information.
 
The financial information as of December 31, 2010 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-K for the years ended December 31, 2010 and 2009.  The unaudited interim consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K, which contains the audited financial statements and notes thereto, together with the Management’s Discussion and Analysis, for the years ended December 31, 2010 and 2009.
 
Certain information or footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been or omitted, pursuant to the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statement presentation. The interim results for the nine months ended September 30, 2011 are not necessarily indicative of results for the full fiscal year.
 
Note 2 Summary of Significant Accounting Policies
 
Principles of Consolidation
 
All significant intercompany accounts and transactions have been eliminated in consolidation.
 
Use of Estimates
 
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
 
Such estimates and assumptions impact, among others, the following: the fair value of share-based payments, fair value of derivative liabilities, estimates of the probability and potential magnitude of contingent liabilities and the valuation allowance for deferred tax assets due to continuing operating losses.
 
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the consolidated financial statements, which management considered in formulating its estimate could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from our estimates.
 
F-35
 
 

MusclePharm Corporation and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

 

Risks and Uncertainties
 
The Company operates in an industry that is subject to rapid change and intense competition. The Company's operations will be subject to significant risk and uncertainties including financial, operational, technological, regulatory and other risks, including the potential risk of business failure. Also, see Note 3 regarding going concern and liquidity matters.
 
Cash and Cash Equivalents
 
The Company considers all highly liquid instruments purchased with an original maturity of three months or less and money market accounts to be cash equivalents.  There were no cash equivalents at September 30, 2011 and at December 31, 2010.
 
Accounts Receivable and Allowance for Doubtful Accounts
 
Accounts receivable represents trade obligations from customers that are subject to normal trade collection terms. The Company periodically evaluates the collectability of its accounts receivable and considers the need to establish an allowance for doubtful accounts based upon historical collection experience and specific customer information. Accordingly, the actual amounts could vary from the recorded allowances.
 
The Company does not charge interest on past due receivables. Receivables are determined to be past due based on the payment terms of the original invoices.
 
Accounts receivable at September 30, 2011 and December 31, 2010:
 
Accounts receivable
 
$
3,766,300
   
$
  542,863
 
Less: allowance for doubtful accounts
   
   (161,224
)   
  (116,102
)
Accounts receivable – net
 
$
  3,605,076
   
$
    426,761
 
 
At September 30, 2011 and December 31, 2010, the Company had the following concentrations of accounts receivable with customers:
 
Customer
  
2011
   
2010
 
 A    
29
%
   
40
%
 B    
21
%
   
24
%
 C    
20
%
   
-
%
 D    
4
%
   
11
%
 
Property and Equipment
   
Property and equipment are stated at cost and depreciated to their estimated residual value over their estimated useful lives. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are relieved from the accounts and the resulting gains or losses are included in operating income in the statements of operations. Repairs and maintenance costs are expensed as incurred. Depreciation is provided using the straight-line method for all property and equipment.
 
F-36
 
 

MusclePharm Corporation and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

 

Long-Lived Assets
 
The Company reviews long-lived assets for impairment whenever events or changes in circumstances, such as service discontinuance or technological obsolescence, indicate that the carrying amount of the long-lived asset may not be recoverable. When such events occur, the Company compares the carrying amount of the asset to the undiscounted expected future cash flows related to the asset. If the comparison indicates that impairment is present, the amount of the impairment is calculated as the difference between the excess of the carrying amount over the fair value of the asset. If a readily determinable market price does not exist, fair value is estimated using discounted expected cash flows attributable to the asset.
 
Fair Value of Financial Instruments
 
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
 
  The following are the hierarchical levels of inputs to measure fair value:
 
 
Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
 
Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
 
The following are the major categories of liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, using quoted prices in active markets for identical liabilities (Level 1); significant other observable inputs (Level 2); and significant unobservable inputs (Level 3):
 
   
September 30, 2011
  
December 31, 2011
 
Derivative liabilities
Level 2
 $4,265,953  $622,944 
 
The Company's financial instruments consisted primarily of cash, accounts receivable, prepaid stock compensation, other assets, accounts payable and accrued liabilities, demand loans and short term debt. The carrying amounts of the Company's financial instruments generally approximated their fair values as of September 30, 2011 and December 31, 2010, respectively, due to the short-term nature of these instruments.
 
Revenue Recognition
 
The Company records revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) product has been shipped or delivered, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured. 
 
F-37
 
 

MusclePharm Corporation and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

 

Depending on individual customer agreements, sales are recognized either upon shipment of products to customers or upon delivery.  The Company records sales allowances and discounts as a direct reduction of sales.  Sales for the three and nine months ended September 30, 2011 and 2010 are as follows:
 
   
Three Months Ended September 30,
  
Nine Months Ended September 30,
 
   
2011
  
2010
  
2011
  
2010
 
   
(unaudited)
  
(unaudited)
  
(unaudited)
  
(unaudited)
 
Sales
 $5,811,685  $1,452,354  $13,321,274  $3,263,959 
Discount
  (55,259)  (43,338)  (244,268)  (128,247)
Sales - Net
 $5,756,426  $1,409,016  $13,077,006  $3,135,712 
 
The Company has an informal 7-day right of return for products. There were nominal returns for the three and nine months ended September 30, 2011 and 2010.
 
For the nine months ended September 30, 2011 and 2010, the Company had the following concentrations of revenues with customers:
 
Customer
  
2011
   
2010
 
 A    
39
%
   
37
%
 B    
14
%
   
9
%
 C    
-
%
   
15
%
 D    
6
%
   
11
%
 
Cost of Sales
 
Cost of sales represents costs directly related to the production and manufacturing of the Company’s products. 
 
Shipping and Handling
 
Product sold is shipped directly to the customer from the manufacturer.  Any freight billed to customers is offset against shipping costs and included in cost of sales.
 
Advertising
 
The Company expenses advertising costs when incurred.
 
 
Advertising for the three and nine months ended September 30, 2011 and 2010 are as follows:
 
   
Three Months Ended September 30,
  
Nine Months Ended September 30,
 
   
2011
  
2010
  
2011
  
2010
 
    $2,676,417  $1,143,663  $5,869,049  $4,199,773 
 
F-38
 
 

MusclePharm Corporation and Subsidiary

Notes to Consolidated Financial Statements

September 30, 2011

(Unaudited)

 

Beneficial Conversion Feature
 
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.
 
When the Company records a BCF, the relative fair value of the BCF would be recorded as a debt discount against the face amount of the respective debt instrument. The discount would be amortized to interest expense over the life of the debt.
 
Derivative Liabilities
 
Fair value accounting requires bifurcation of embedded derivative instruments such as conversion features in convertible debt or equity instruments, and measurement of their fair value for accounting purposes. In determining the appropriate fair value, the Company uses the Black-Scholes option-pricing model. In assessing the convertible debt instruments, management determines if the convertible debt host instrument is conventional convertible debt and further if there is a beneficial conversion feature requiring measurement. If the instrument is not considered conventional convertible debt, the Company will continue its evaluation process of these instruments as derivative financial instruments.
 
Once determined, derivative liabilities are adjusted to reflect fair value at each reporting period end, with any increase or decrease in the fair value being recorded in results of operations as an adjustment to fair value of derivatives. In addition, the fair value of freestanding derivative instruments such as warrants, are also valued using the Black-Scholes option-pricing model.
 
Debt Issue Costs and Debt Discount
 
The Company may pay debt issue costs, and record debt discounts in connection with raising funds through the issuance of convertible debt.  These costs are amortized over the life of the debt to interest expense. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
 
Original Issue Discount
 
For certain convertible debt issued, the Company provides the debt holder with an original issue discount.  The original issue discount is recorded to debt discount and additional paid in capital at an amount not to exceed gross proceeds raised, reducing the face amount of the note and is being amortized to interest expense over the life of the debt.
 
Share-Based Payments
 
Generally, all forms of share-based payments, including stock option grants, warrants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.  Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable.
 
Earnings Per Share
 
Basic earnings (loss) per share is computed by dividing net income (loss) by weighted average number of shares of common stock outstanding during each period.  Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.
 
F-39
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)

Since the Company reflected a net loss for the nine months ended September 30, 2011 and 2010, respectively, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive. A separate computation of diluted earnings (loss) per share is not presented.
 
Common stock equivalents consist of exercisable instruments at the balance sheet date. The Company has the following common stock equivalents at September 30, 2011 and 2010:
 
   
2011
   
2010
 
Stock options (exercise price - $0.50/share)
   
2,767,500
     
-
 
Warrants (exercise price - $0.10 - $1.50/share)
   
56,696,327
     
-
 
Convertible debt
   
210,751,119
     
2,202,000
 
Total common stock equivalents
   
270,214,946
     
2,202,000
 
 
In the above table, some of the convertible debt from 2011 and 2010 contains discount to market provisions that would cause variability in the exercise price at the balance sheet date.  As a result, common stock equivalents could change at each reporting period.
 
Reclassification
 
Certain items in the 2010 financial statement presentation have been reclassified to conform to the 2011 presentation.  Such reclassifications have no effect on previously reported financial condition, operations or cash flows.
 
Recent Accounting Pronouncements
 
There are no recent accounting pronouncements that are expected to have an effect on the Company’s consolidated financial statements.
 
Note 3 Going Concern and Liquidity
 
As reflected in the accompanying unaudited interim consolidated financial statements, the Company had a net loss of $12,332,236 and net cash used in operations of $4,075,448 for the nine months ended September 30, 2011 and a working capital deficit and stockholders’ deficit of $5,392,491 and $5,141,634 respectively, at September 30, 2011. These factors raise substantial doubt about the Company's ability to continue as a going concern.
 
The ability of the Company to continue its operations is dependent on Management's plans, which include the raising of capital through debt and/or equity markets with some additional funding from other traditional financing sources, including term notes, sale of aged debt to third parties in exchange for free trading stock, until such time that funds provided by operations are sufficient to fund working capital requirements.  The Company may need to incur liabilities with certain related parties to sustain the Company’s existence.
 
The Company will require additional funding to finance the growth of its current and expected future operations as well as to achieve its strategic objectives.  The Company believes its current available cash along with anticipated revenues may be insufficient to meet its cash needs for the near future.  There can be no assurance that financing will be available in amounts or terms acceptable to the Company, if at all.
 
In response to these problems, management has taken the following actions:
 
seeking additional third party debt and/or equity financing; and
 
F-40
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
allocate sufficient resources to continue with advertising and marketing efforts.
 
The accompanying unaudited interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
 
Note 4 Property and Equipment
 
Property and equipment consisted of the following at September 30, 2011 and December 31, 2010:
 
   
September 30, 2011
  
December 31, 2010
 
Estimated 
Useful Life
Leasehold improvements
 
$
218,256
 
$
67,760
 
*
Furniture and fixtures
   
759,272
   
55,305
 
3 years
Displays
   
32,056
   
32,057
 
5 years
Website
   
11,462
   
11,462
 
3 years
     
1,021,046
   
166,584
   
Less: Accumulated depreciation and amortization
    (117,421) 
(28,033
)
 
   
$
903,625
 
$
138,551
   
* The shorter of 5 years or the life of the lease.
 
Note 5 Debt
 
At September 30, 2011 and December 31, 2010, debt consists of the following:
 
  
September 30,
2011
  
December 31, 2010
 
       
Convertible debt – secured – derivative liabilities
 $1,847,097  $380,000 
Conventional convertible debt – secured
  -   225,000 
Convertible debt - unsecured
  -   78,249 
Less: debt discount
  (1,159,352 )  (331,261 )
Convertible debt – net
  687,745   351,988 
          
Secured debt
  -   187,500 
          
Unsecured debt
  1,128,637   - 
          
Total debt
  1,816,382   539,488 
          
Less: current portion
  (1,023,441 )  (289,488 )
          
Long term debt
 $792,941  $250,000 
 
Debt in default of $30,000 is included as a component of short-term debt.
 
(A)  
Convertible Debt – Secured – Derivative Liabilities
 
F-41
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
During the nine months ended September 30, 2011, the Company issued $3,798,733 in convertible debt – secured – derivative liabilities. The Company issued these debt instruments with 13 different sets of conversion terms.  The Material terms of the Company’s convertible debt – secured – derivative liabilities are as follows:
 
      
Amount of Principal Raised
 
Interest Rate
 6% - 12%   
Default interest rate
 15% - 22%   
Maturity
 
April 5, 2011 to June 2, 2014
    
Conversion terms 1
 
Average 10 day trade pricing divided by 200% of outstanding principal balance
  $827,600 
Conversion terms 2
 
Lesser of: Average of the lowest 2 closing prices of the 5 days preceding conversion date or $0.025/share
  $775,000 
Conversion terms 3
 
60% of the average of the lowest 3 closing prices in the 10 days preceding conversion date
  $170,000 
Conversion terms 4
 $0.03  $100,000 
Conversion terms 5
 
65% of the average of the lowest 3 closing prices in the 30 days preceding conversion
  $303,800 
Conversion terms 6
 
62% of the lowest closing prices in the 7 days preceding conversion date
  $40,000 
Conversion terms 7
 
70% of the average of the lowest 3 closing prices in the 30 days preceding conversion
  $600,000 
Conversion terms 8
 
50% of the average closing prices in the 10 days preceding conversion
  $85,000 
Conversion terms 9
 
45% of the lowest 3 closing prices in the 10 days preceding conversion
  $277,500 
Conversion terms 10
 
35% of the lowest 3 closing prices in the 10 days preceding conversion
  $100,000 
Conversion terms 11
 
Lesser of: 50% of average of the lowest 3 closing prices of the 20 days preceding conversion date or $0.05/share
  $33,000 
Conversion terms 12
 
50% of lowest trade price in preceding 20 days
  $45,000 
Conversion terms 13
 
80% of lowest trade price in preceding 30 days
  $441,833 
      $3,798,733 
 
During the nine months ended September 30, 2011, the Company converted $2,379,913 in notes into 132,321,172 shares of the Company’s common stock at prices ranging from $0.01 to $0.08 per share, based upon the terms of the debt conversion.
 
The following is a summary of the Company’s convertible debt – secured:
 
Convertible debt – secured – derivative liabilities – December 31, 2010
 
$
380,000
 
Issuance of convertible debt – secured – derivative liabilities
   
3,798,733
 
Conversions of convertible debt to common stock
   
(2,331,636
)
         
Convertible debt - secured – September 30, 2011
 
$
1,847,097
 
 
(B)  
Conventional Convertible Debt – Secured
 
F-42
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)

Terms of the Company’s conventional convertible debt are as follows:
 
● Interest rate 8%,
● All notes were due by December 31, 2010, and were converted in 2011,
● Conversion of principal and accrued interest at rates ranging from 150% - 300%,
● Secured by all assets of the Company, and
● All conversion rates associated with these instruments were at or above market. There is no BCF.
 
During the nine months ended September 30, 2011, the Company issued 7,226,649 shares of common stock, having a fair value of $426,970 ($0.06 - $0.10/share) to settle convertible notes payable, originating prior to December 31, 2010, having a face value of $225,000.  As a result, the Company recorded a loss on debt conversion of $137,017.
 
The following is a summary of the Company’s conventional convertible debt –secured:
 
Conventional convertible debt - secured – December 31, 2010
 
$
225,000
 
Settlement of debt through issuance of common stock
   
(225,000
)
Conventional convertible debt - secured – September 30, 2011
 
$
-
 
 
(C)  
Convertible Debt – Unsecured
 
During the nine months ended September 30, 2011, $102,649 was converted into 11,501,829, shares of common stock, having a fair value of $76,647 ($0.101/share), based upon the quoted closing trading price. The Company recorded a loss on debt settlement of $24,107.
 
During the nine months ended September 30, 2011, the Company issued an additional $90,000 of conventional convertible notes, convertible at 200% of the face value of the note, bearing 8% interest annually.
 
The following is a summary of the Company’s unsecured debt:
 
Unsecured debt – December 31, 2010
 
$
78,249
 
Issuance of convertible secured notes
   
90,000
 
Settlement of debt through issuance of common stock
   
(102,649
)
Unsecured debt – September 30, 2011
 
$
65,600
 
 Table above this has been combined with convertible secured debt
 
 
(D)
Secured Debt
 
During the nine months ended September 30 2011, $187,500 was converted into 7,500,000 shares of common stock, having a fair value of $437,500 ($0.058/share - $0.059/share), based upon the quoted closing trading price. The Company recorded a loss on debt settlement of $250,000.
 
The following is a summary of the Company’s secured debt:
 
Secured debt – December 31, 2010
 
$
187,500
 
Settlement of debt through issuance of common stock
   
(187,500
)
Secured debt – September 30, 2011
 
$
-
 
 
 
(E)
Debt Issue Costs
 
The following is a summary of the Company’s debt issue costs:
 
F-43
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
      
Debt issue costs – net – December 31, 2010
 
$
34,404
 
Issue costs paid during nine months ended September 30, 2011
   
219,368
 
Amortization of debt issue costs – September 30, 2011
   
(225,686
)
Debt issue costs – net – September 30, 2011
 
$
28,086
 
 
 
(F)
Debt Discount
 
During the nine months ended September 30, 2011, the Company issued convertible debt with embedded derivatives and warrants. The Company recorded the derivatives and warrants at fair value and are amortizing the debt discount over the life of the debt.  Debt discount is as follows:
 
Debt discount balance at December 31, 2010
 
$
331,261
 
Discount recorded for convertible notes issued during nine months ended September 30, 2011
   
3,262,323
 
Accretion of debt discount to interest expense during the nine months ended September 30, 2011
   
(2,434,232
)
Debt discount balance at September 30, 2011
 
$
1,159,352
 
 
Note 6 Derivative Liabilities
 
The Company identified conversion features embedded within convertible debt - secured (see Note 5(A)). The Company has determined that the features associated with the embedded conversion option should be accounted for at fair value as a derivative liability.
 
As a result of the application of ASC No. 815, the fair value of the conversion feature is summarized as follow:
 
Derivative liability balance at December 31, 2010
 
$
622,944
 
Fair value at the commitment date for convertible notes issued during nine months ended September 30, 2011
   
6,849,374
 
Reclassification of derivative liability to additional paid in capital
   
(1,024,409)
 
Fair value mark to market adjustment
   
(2,181,956
)
Derivative liability balance at September 30, 2011
 
$
4,265,953
 
 
The Company recorded the derivative liability to debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note.  The Company recorded a derivative expense for $3,576,192 during the nine months ended September 30, 2011.
 
The fair value at the commitment and remeasurement dates for embedded conversion features and warrants were based upon the following management assumptions:
 
   
Commitment Date
   
Remeasurement Date
 
Expected dividends
   
0
%
   
0
%
Expected volatility
   
150%-204
%
   
212
%
Expected term: conversion feature
 
0.02 – 3 years
   
0.04 – 2.67 years
 
Expected term: warrants
 
2.5 – 5 years
   
2.5 – 5 years
 
Risk free interest rate
   
0.11% - 1.16
%
   
0.11
%
 
F-44
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
Note 7 Stockholders’ Deficit
 
 (A)
Common Stock
 
On April 18, 2011, the Company increased its authorized shares of common stock to 500,000,000.
 
 During the nine months ended September 30, 2011, the Company issued the following common stock:
 
Transaction Type
 
Quantity
  
Valuation
  
Loss on Settlement
  
Range of Value
 per Share
 
Conversion of debt (1)
  132,321,172  $2,379,913  $1,056,369  $0.01–0.08 
Settlement of accounts payable and accrued expenses (2)
  65,097,382  $3,642,108  $1,485,704  $0.02-0.12 
Services – rendered (3)
  15,220,665  $527,231      $0.03–1.15 
Services – prepaid stock compensation (4)
  6,586,207  $326,500      $0.05-0.09 
Common shares issued for cash (5)
  20,000,000  $500,000      $0.025 
Share cancellation (6)
  (3,500,000) $(350)     $0.0001 
Total
  235,725,426  $7,375,402  $2,542,073  $0.0001–1.15 
 
The fair value of all stock issuances above is based upon the quoted closing trading price on the date of issuance, except for stock issued for cash and warrants, which was based upon the cash received. Stock issued in the conversion of preferred stock was recorded at par value.
 
The following is a more detailed description of some of the Company’s stock issuances from the table above:
 
(1)  
Conversion of Debt
 
The Company issued 132,321,172 shares of common stock to settle notes payable having a fair value of $2,379,913  In connection therewith the Company has recorded a loss on settlement of $1,056,369.
 
(2)  
Settlement of Accounts Payable and Accrued Expense and Loss on Settlement
 
Of the total shares issued to settle accounts payable, accrued expenses and contract settlements the Company issued 65,097,382 shares of common stock having a fair value of $3,642,108.  The Company has recorded losses in connection with these settlements of $1,485,704.
 
(3)  
Stock Issued for Services
 
During nine months ended September 30, 2011, the Company issued 15,220,665 shares of common stock for services, having a fair value of $527,231 based upon the quoted closing trading price.  
 
(4)  
Prepaid Stock Compensation
 
During the nine months ended September 30, 2011, the Company issued 6,586,207 shares of common stock for future services, having a fair value of $326,500. The agreements commenced during the periods July 2010 – September 2011 and terminate during the periods July 2011 - November 2012.
 
The following represents the allocation of prepaid stock compensation:
 
F-45
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
Prepaid stock compensation – December 31, 2010
 $1,981,371 
Stock issued for future services
  320,249 
Amortization of prepaid stock compensation
  (1,436,631)
Prepaid stock compensation – September 30, 2011
  864,989 
Less: current portion
  (823,261)
Long term portion
 $41,728 
 
(5)  
Common Stock Issued for Cash
 
The Company issued 20,000,000 shares of it’s common stock for proceeds of $500,000
 
(6)  
Share Cancellation
 
The Company cancelled 3,500,000 shares during the nine months ended September 30, 2011, valued at par ($0.001). The Company is disputing the issuance of these shares due to non-performance by a consultant.
 
(B) Stock Options
 
On February 1, 2010, the Company's board of directors and shareholders approved the 2010 Stock Incentive Plan ("2010 Plan"). The 2010 Plan allows the Company to grant incentive stock options, non-qualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to key employees and directors of the Company or its subsidiaries, consultants, advisors and service providers. Any stock option granted in the form of an incentive stock option will be intended to comply with the requirements of Section 422 of the Internal Revenue Code of 1986, as amended. Only stock options granted to employees qualify for incentive stock option treatment. No incentive stock option shall be granted after February 1, 2020, which is 10 years from the date the 2010 Plan was initially adopted. A stock option may be exercised in whole or in installments, which may be cumulative. Shares of common stock purchased upon the exercise of a stock option must be paid for in full at the time of the exercise in cash or such other consideration determined by the compensation committee. Payment may include tendering shares of common stock or surrendering of a stock award, or a combination of methods. 
 
The 2010 Plan will be administered by the compensation committee. The compensation committee has full and exclusive power within the limitations set forth in the 2010 Plan to make all decisions and determinations regarding the selection of participants and the granting of awards; establishing the terms and conditions relating to each award; adopting rules, regulations and guidelines; and interpreting the 2010 Plan. The Compensation Committee will determine the appropriate mix of stock options and stock awards to be granted to best achieve the objectives of the Plan. The 2010 Plan may be amended by the Board or the compensation committee, without the approval of stockholders, but no such amendments may increase the number of shares issuable under the 2010 Plan or adversely affect any outstanding awards without the consent of the holders thereof. The total number of shares that may be issued shall not exceed 5,000,000, subject to adjustment in the event of certain recapitalizations, reorganizations and similar transactions.
 
On April 2, 2010, the Company's board of directors authorized the issuance of 2,767,500 stock options, having a fair value of $630,990, which was expensed immediately since all stock options vested immediately.  These options expire on April 2, 2015.
 
The Company applied fair value accounting for all share based payment awards. The fair value of each option granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes assumptions used in the year ended December 31, 2010 is as follows:
 
F-46
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
Exercise price
 
$
0.50
 
Expected dividends
   
0
%
Expected volatility
   
74.8
%
Risk fee interest rate
   
1.4
%
Expected life of option
 
2.5 years
 
Expected forfeitures
   
0
%
  
The following is a summary of the Company’s stock option activity:
   
 
 
 
Options
  
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life
 
 
Aggregate Intrinsic Value
 
Balance – December 31, 2010 – outstanding
  2,767,500  $0.50    $- 
Balance – December 31, 2010 – exercisable
  2,767,500  $0.50    $- 
Granted
  -  $-       
Exercised
  -  $-       
Forfeited
  -  $-       
Balance – September 30, 2011 – outstanding
  2,767,500  $ .32 
1.25 years
 $- 
Balance -  September 30, 2011 – exercisable
  2,767,500  $0.50 
1.25 years
 $- 
                
Grant date fair value of options granted – 2011
     $-       
Weighted average grant date fair value – 2011
     $-       
                
Outstanding options held by related parties – 2011
  2,000,000           
Exercisable options held by related parties – 2011
  2,000,000           
Fair value of stock options granted to related parties – 2011
 $-           
 
(C) Stock Warrants
 
During the nine months ended September 30, 2011, the Company issued 61,376,327 stock warrants attached to certain convertible debt (Note 5A). These warrants contain variable exercise features, resulting in the treatment of these warrants as derivative liabilities.
 
In addition, the Company issued 200,000, 5 year stock purchase warrants, with exercise prices ranging from $0.08 - $0.10 per share for services rendered.  The company recorded an expense of $16,200 as a result of the issuance.
 
The Company applied fair value accounting for stock warrant issuance. The fair value of each stock warrant granted is estimated on the date of issuance using the Black-Scholes option-pricing model. The Black-Scholes assumptions used at issuance are as follows:
 
Exercise price
 $0.10 - 1.50 
Expected dividends
  0%
Expected volatility
  180%
Risk fee interest rate
  1.16%
Expected life of warrants
 
2.5 to 5 years
 
Expected forfeitures
  0%
 
F-47
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
The following is a summary of the Company’s stock warrant activity:
 
   
Warrants
  
Weighted Average Exercise Price
 
        
Outstanding – December 31, 2010
  750,000  $1.50 
Exercisable – December 31, 2010
  750,000  $1.50 
Granted
  61,576,327  $0.10 
Exercised
  -  $- 
Forfeited/Cancelled
  -  $- 
Outstanding – September 30, 2011
  62,326,327  $0.10 
Exercisable –  September 30, 2011
  56,696,327  $0.10 
 
 
Warrants Outstanding
  
Warrants Exercisable
 
Range of exercise price  
Number Outstanding
 
Weighted Average Remaining Contractual Life (in years)
 
Weighted Average Exercise Price
  
Number Exercisable
  
Weighted Average Exercise Price
 
$0.10- $1.50   62,326,327 
4.14 years
 $0.10   56,696,327  $0.10 
 
 At September 30, 2011 and December 31, 2010, the total intrinsic value of warrants outstanding and exercisable was $0 and $0, respectively.
 
Note 8 Committments, Contingencies and Other Matters
 
(A)
Other Matters
 
In April 2010, the Company entered into a factoring agreement (the "agreement") and sold its accounts receivable.  During 2010, the Company entered into legal proceedings with the factor, as a result of the Company’s customers not remitting funds directly to the factor.
 
A settlement, of $96,783, was reached on November 10, 2010. During 2010, the Company repaid $25,000, leaving a remaining balance of $71,783 due to factor.  In January 2011, the Company paid $10,000.
 
On December 22, 2010, the Company became involved in a business dispute with a manufacturer, seller and distributor of their product line (the “manufacturer”) regarding their respective obligations. The parties settled their dispute in private mediation.  As a result of the settlement, the Company agreed to pay a maximum of $425,000.  The Company issued 511,509 shares in 2010 of common stock having a fair value of $100,000.  The Company settled the balance due in 2011, by issuing 4,932,500 shares of common stock, having a fair value of $187,435.  The Company recorded a loss on debt settlement of $88,785.
 
On February 28, 2011, the remaining $65,930, inclusive of fees and interest, was settled with the issuance of 2,187,666 shares of common stock, having a fair value of $126,885. The Company recorded a loss on this debt settlement of $60,955. This has been included as component of stock issued to settle accounts payable and accrued expenses (Note 7).
 
At September 30, 2011, the Company no longer factors its accounts receivable.
 
(B)
Litigations, Claims and Assessments
 
From time to time, the Company may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm its business.
 
F-48
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
 
Other legal matters to which the Company is party do exist. The outcome of these matters is not probable nor reasonably estimable. The Company intends to defend these matters vigorously.
 
(C) Taxes
 
As of September 30, 2011, accounts payable and accrued expenses included a balance of approximately $196,000 pertaining to accrued payroll taxes.  The taxes represent employee withholdings that have yet to be remitted to the taxing agencies. The balance consists of the following;
 
Prior to the Company becoming a publicly traded company in February 2010, the Company existed as an LLC, which had accrued payroll taxes/penalties/interest of approximately $53,000.
 
As of the filing of this report, the Company repaid approximately $55,000.  The remaining $141,000 is expected to be repaid in the fourth quarter of 2011
 
Accrued payroll taxes – MusclePharm, Inc.
 
$
101,000
 
Accrued payroll taxes/penalties/interest – MusclePharm, LLC
 
$
53,000
 
Accrued penalties and interest - MusclePharm, Inc
 
$
42,000
 
   
$
196,000
 
Payment in October 2011
 
$
(55,000
)
Balance due
 
$
141,000
 
 
 
Note 9 Subsequent Events
 
Debt Issuance
 
On October 1, 2011 the Company borrowed $100,000 cash related to a debt financing the terms have not yet been finalized.
 
On October 6, 2011 the Company borrowed $50,000 in the form of a convertible promissory note bearing interest at 8%.  The note matures on July 12, 2012 and is convertible into shares of the Company’s common stock at a variable conversion price.  Due to the variable conversion feature, the Company will need to determine the fair value of the derivative liability associated with this debt instrument.
 
On October 6, 2011 the Company borrowed $150,000 in the form of a convertible promissory note bearing interest at 8%. The note matures on April 3, 2012 and is convertible into shares of the Company’s common stock at a variable conversion price. Due to the variable conversion feature, the Company will need to determine the fair value of the derivative liability associated with this debt instrument
 
F-49
 
 
MusclePharm Corporation and Subsidiary
Notes to Consolidated Financial Statements
September 30, 2011
(Unaudited)
 
Conversion of Debt and Demand Loans and Accrued Interest
 
During the period October 1, 2011 through November 7, 2011, the Company issued 22,803,731 shares of common stock to convert notes payable and accrued interest totaling $194,871.
 
One note payable totaling $41,600 in principal and accrued interest was converted over the period October 28, 2011 through November 3, 2011, into 4,181,643 shares of the Company’s common stock at a conversion price of approximately $0.01.
 
F-50
 
  

 

MUSCLEPHARM CORPORATION

 

194,833,333 SHARES OF COMMON STOCK

 

PROSPECTUS

 

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINEDIN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT.THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THEOFFER OR SALE IS NOT PERMITTED.

 

The Date of This Prospectus is ____________,2012

 

48
 

 

PART II – INFORMATION NOT REQUIREDIN THE PROSPECTUS

 

OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

 

Securities and Exchange Commission Registration Fee  $309.13 
Transfer Agent and Miscellaneous Fees  $5,000.00*
Accounting fees and expenses  $5,000.00*
Legal fees and expense  $20,000.00*
Blue Sky fees and expenses  $0.00*
Total  $30,309.13*

 

* Estimate

 

All amounts are estimates other than the Commission’sregistration fee. We are paying all expenses of the offering listed above. No portion of these expenses will be borne by the sellingshareholders. The selling shareholders, however, will pay any other expenses incurred in selling their common stock, includingany brokerage commissions or costs of sale.

 

INDEMNIFICATION OF DIRECTORS AND OFFICERS

 

Nevada Law

 

Section 78.7502 of the Nevada General CorporationLaw contains provisions authorizing indemnification by the Company of directors, officers, employees or agents against certainliabilities and expenses that they may incur as directors, officers, employees or agents of the Company or of certain other entities.Section 78.7502(3) provides for mandatory indemnification, including attorney’s fees, if the director, officer, employeeor agent has been successful on the merits or otherwise in defense of any action, suit or proceeding or in defense of any claim,issue or matter therein.

 

Section 78.751 provides that such indemnificationmay include payment by the Company of expenses incurred in defending a civil or criminal action or proceeding in advance of thefinal disposition of such action or proceeding upon receipt of an undertaking by the person indemnified to repay such payment ifhe shall be ultimately found not to be entitled to indemnification under the Section. Indemnification may be provided even thoughthe person to be indemnified is no longer a director, officer, employee or agent of the Company or such other entities.

 

Section 78.752 authorizes the Company to obtaininsurance on behalf of any such director, officer employee or agent against liabilities, whether or not the Company would havethe power to indemnify such person against such liabilities under the provisions of the Section 78.7502. The indemnification andadvancement of expenses provided pursuant to Sections 78.7502 and 78.751 are not exclusive, and subject to certain conditions,the Company may make other or further indemnification or advancement of expenses of any of its directors, officers, employees oragents. Because neither the Articles of Incorporation, as amended, or By-laws of the Company otherwise provide, notwithstandingthe failure of the Company to provide indemnification and despite a contrary determination by the board of directors or its shareholdersin a specific case, a director, officer, employee or agent of the Company who is or was a party to a proceeding may apply to acourt of competent jurisdiction for indemnification or advancement of expenses or both, and the court may order indemnificationand advancement of expenses, including expenses incurred in seeking court- ordered indemnification or advancement of expenses ifit determines that the petitioner is entitled to mandatory indemnification pursuant to Section 78.7502(3) because he has been successfulon the merits, or because the Company has the power to indemnify on a discretionary basis pursuant to Section 78.7502 or becausethe court determines that the petitioner is fairly and reasonably entitled to indemnification or advancement of expenses or bothin view of all the relevant circumstances.

 

49
 

 

Articles of Incorporation and Bylaws

 

Our Articles of Incorporation and By-laws,as amended, empower us to indemnify our current or former directors, officers, employees or agents or persons serving by our requestin such capacities in any other enterprise or persons who have served by our request is in such capacities in any other enterpriseto the full extent permitted by the laws of the State of Nevada. Pursuant to Nevada law and our Articles of Incorporation and By-laws,our officers and directors (and former officers and directors) are entitled to indemnification from us to the full extent permittedby law. Our Articles of Incorporation and By-laws generally provide for such indemnification for claims arising out of the actsor omissions of our officers and directors in their capacity as such, undertaken in good faith and in a manner reasonably believedto be in, or not opposed to, our best interests and, with respect to any criminal action or proceeding, had no reasonable causeto believe that his conduct was unlawful. The conditions and extent of indemnification are set forth in the Articles of Incorporationand By-laws. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to officers, directorsor persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the SEC, such indemnificationis against public policy as expressed in the Securities Act and is therefore unenforceable.

 

50
 

 

RECENT SALES OF UNREGISTERED SECURITIES

 

Issuance of Shares Pursuant to a Share Exchange Agreement

 

On February 18, 2010, the Company issued atotal of 26,000,000 shares of its common stock to the 12 former owners of Muscle Pharm, LLC, in exchange for all of the MusclePharm, LLC units. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act andRegulation D promulgated thereunder.

 

Conversion of Preferred Stock into Sharesof Common Stock

 

On February 26, 2010, 83 shares of the Company’sSeries A Convertible Preferred Stock were converted into 83,200 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On March 30, 2010, 500 shares of the Company’sSeries A Convertible Preferred Stock were converted into 500,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On March 30, 2010, 750 shares of the Company’sSeries A Convertible Preferred Stock were converted into 750,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On April 29, 2010, 550 shares of the Company’sSeries A Convertible Preferred Stock were converted into 550,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On May 12, 2010, 550 shares of the Company’sSeries A Convertible Preferred Stock were converted into 550,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2010, 650 shares of the Company’sSeries A Convertible Preferred Stock were converted into 650,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On July 7, 2010, 600 shares of the Company’sSeries A Convertible Preferred Stock were converted into 600,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On July 7, 2010, 100 shares of the Company’sSeries A Convertible Preferred Stock were converted into 100,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On July 7, 2010, 100 shares of the Company’sSeries A Convertible Preferred Stock were converted into 100,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

51
 

 

On July 7, 2010, 18 shares of the Company’sSeries A Convertible Preferred Stock were converted into 18,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On July 30, 2010, 450 shares of the Company’sSeries A Convertible Preferred Stock were converted into 450,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On August 13, 2010, 300 shares of the Company’sSeries A Convertible Preferred Stock were converted into 300,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On August 13, 2010, 100 shares of the Company’sSeries A Convertible Preferred Stock were converted into the Company’s 100,000 shares of common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On August 23, 2010, 550 shares of the Company’sSeries A Convertible Preferred Stock were converted into 550,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On August 30, 2010, 575 shares of the Company’sSeries A Convertible Preferred Stock were converted into 575,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On September 9, 2010, 600 shares of the Company’sSeries A Convertible Preferred Stock were converted into 600,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On September 14, 2010, 1,100 shares of theCompany’s Series A Convertible Preferred Stock were converted into 1,100,000 shares of the Company’s common stock,issued to one investor pursuant to a conversion notice.  The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 21, 2010, 1,240 shares of theCompany’s Series A Convertible Preferred Stock were converted into 1,240,000 shares of the Company’s common stock,issued to one investor pursuant to a conversion notice.  The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 23, 2010, 1,290 shares of theCompany’s Series A Convertible Preferred Stock were converted into 1,290,000 shares of the Company’s common stock,issued to one investor pursuant to a conversion notice.  The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 24, 2010, 1,340 shares of theCompany’s Series A Convertible Preferred Stock were converted into 1,340,000 shares of the Company’s common stock,issued to one investor pursuant to a conversion notice.  The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

52
 

 

On September 28, 2010, 1,540 shares of theCompany’s Series A Convertible Preferred Stock were converted into 1,540,000 shares of the Company’s common stock,issued to one investor pursuant to a conversion notice.  The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, 1,600 shares of theCompany’s Series A Convertible Preferred Stock were converted into 1,600,000 shares of the Company’s common stock,issued to one investor pursuant to a conversion notice.  The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 29, 2010, 150 shares of the Company’sSeries A Convertible Preferred Stock were converted into 150,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On December 2, 2010, 363 shares of the Company’sSeries A Convertible Preferred Stock were converted into 363,400 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On December 16, 2010, 1,087 shares of the Company’sSeries A Convertible Preferred Stock were converted into 1,087,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On December 17, 2010, 202 shares of the Company’sSeries A Convertible Preferred Stock were converted into 201,776 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On December 20, 2010, 200 shares of the Company’sSeries A Convertible Preferred Stock were converted into 200,000 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On December 30, 2010, 78 shares of the Company’sSeries A Convertible Preferred Stock were converted into 78,224 shares of the Company’s common stock, issued to one investorpursuant to a conversion notice.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

Conversion of Convertible Notes intoShares of Common Stock

 

On March 22, 2010, a convertible noteholderconverted $5,000 in principal into 7,500 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 23, 2010, a convertible noteholderconverted $100,000 in principal into 350,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 24, 2010, a convertible noteholderconverted $10,000 in principal into 20,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 25, 2010, a convertible noteholderconverted $12,500 in principal into 18,750 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

53
 

 

On March 28, 2010, a convertible noteholderconverted $25,000 in principal into 50,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 3, 2010, a convertible noteholder converted$5,000 in principal into 7,500 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 3, 2010, a convertible noteholder converted$12,500 in principal into 21,500 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $5,000 in principal into 7,500 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $5,000 in principal into 10,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $5,000 in principal into 10,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $2,500 in principal into 5,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $4,000 in principal into 8,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $5,000 in principal into 10,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $5,000 in principal into 10,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $2,000 in principal into 4,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 17, 2010, a convertible noteholderconverted $2,500 in principal into 5,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, a convertible noteholderconverted $10,000 in principal into 30,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, a convertible noteholderconverted $2,500 in principal into 5,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

54
 

 

On June 30, 2010, a convertible noteholderconverted $25,000 in principal into 50,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, a convertible noteholderconverted $5,000 in principal into 10,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 21, 2010, a convertible noteholderconverted $5,000 in principal into 10,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, a convertible noteholderconverted $140,000 in principal into 400,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, a convertible noteholderconverted $5,000 in principal into 7,500 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, a convertible noteholderconverted $5,000 in principal into 7,500 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, a convertible noteholderconverted $2,500 in principal into 5,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, a convertible noteholderconverted $5,000 in principal into 10,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, a convertible noteholderconverted $150,000 in principal into 428,572 shares of common stock.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, a convertible noteholderconverted $102,500 in principal into 312,957 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 15, 2010, a convertible noteholderconverted $150,000 in principal into 1,639,179 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 15, 2010, a convertible noteholderconverted $25,000 in principal into 273,891 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 15, 2010, a convertible noteholderconverted $25,000 in principal into 273,722 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 14, 2010, a convertible noteholderconverted $120,000 in principal into 2,594,564 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

55
 

 

On December 14, 2010, a convertible noteholderconverted $50,000 in principal into 1,106,521 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 25, 2011, a convertible noteholderconverted $215,880 in principal into 3,270,904 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 17, 2011, a convertible noteholderconverted $64,841 in principal into 1,080,689 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 22, 2011, a convertible noteholderconverted $12,000 in principal into 333,333 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 25, 2011, a convertible noteholderconverted $15,000 in principal into 443,787 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 1, 2011, a convertible noteholderconverted $13,000 in principal into 416,667 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 3, 2011, a convertible noteholderconverted $10,000 in principal into 392,157 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 18, 2011, a convertible noteholderconverted $12,000 in principal into 500,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 22, 2011, a convertible noteholderconverted $15,000 in principal into 581,395 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 24, 2011, a convertible noteholderconverted $13,000 in principal into 540,741 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On April 27, 2011, a convertible noteholderconverted $8,225 in principal into 350,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On April 28, 2011, a convertible noteholderconverted $25,208 in principal into 892,326 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On April 29, 2011, a convertible noteholderconverted $25,170 in principal into 923,685 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 2, 2011, a convertible noteholder converted$25,219 in principal into 951,667 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

56
 

 

On May 11, 2011, a convertible noteholder converted$36,400 in principal into 1,400,000 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 11, 2011, a convertible noteholder converted$36,400 in principal into 1,400,000 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 17, 2011, a convertible noteholder converted$10,228 in principal into 417,467 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 17, 2011, a convertible noteholder converted$10,228 in principal into 417,467 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 17, 2011, a convertible noteholder converted$2,018 in principal into 82,834 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$10,067 in principal into 402,667 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$40,088 in principal into 1,083,450 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$10,024 in principal into 237,256 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$9,018 in principal into 243,722 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$10,022 in principal into 230,388 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$50,110 in principal into 1,186,025 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$25,110 in principal into 865,848 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$25,110 in principal into 865,848 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$5,034 in principal into 165,048 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

57
 

 

On May 19, 2011, a convertible noteholder converted$25,170 in principal into 825,241 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$10,068 in principal into 335,598 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$5,140 in principal into 102,805 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 19, 2011, a convertible noteholder converted$15,102 in principal into 554,199 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 24, 2011, a convertible noteholder converted$39,000 in principal into 1,500,000 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 27, 2011, a convertible noteholder converted$25,000 in principal into 1,250,000 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 31, 2011, a convertible noteholder converted$78,000 in principal into 3,000,000 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 2, 2011, a convertible noteholder converted$125,345 in principal into 3,679,355 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 3, 2011, a convertible noteholder converted$15,000 in principal into 625,000 shares of the Company’s common stock.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 8, 2011, a convertible noteholder converted$50,000 in principal into 2,840,910 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 9, 2011, a convertible noteholder converted$63,473 in principal into 3,100,000 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 20, 2011, a convertible noteholderconverted $50,000 in principal into 4,132,232 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 20, 2011, a convertible noteholderconverted $71,663 in principal into 4,500,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 23, 2011, a convertible noteholderconverted $47,775 in principal into 3,000,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

58
 

 

On June 29, 2011, a convertible noteholderconverted $15,000 in principal into 955,414 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 29, 2011, a convertible noteholderconverted $20,000 in principal into 1,273,885 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2011, a convertible noteholderconverted $6,600 in principal into 417,722 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 1, 2011, the Company issued 699,200 shares of the Company’scommon stock for a May 2011 conversion of convertible notes to common stock payable. The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 3, 2011, a convertible noteholder converted $5,000 in principalinto 208,644 shares of the Company’s common stock. The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 8, 2011, a convertible noteholder converted $8,600 in principalinto 353,713 shares of the Company’s common stock. The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 11, 2011, a convertible noteholder converted $50,000 inprincipal into 3,636,364 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 12, 2011, a convertible noteholder converted $40,000 inprincipal into 3,095,455 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 14, 2011, a convertible noteholder converted $75,000 inprincipal into 6,234,327 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 20, 2011, a convertible noteholder converted $77,000 inprincipal into 5,000,000 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder

 

On July 20, 2011, a convertible noteholder converted $46,500 inprincipal into 6,038,961 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder

 

On July 26, 2011, a convertible noteholder converted $75,000 inprincipal into 5,999,069 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 28, 2011, a convertible noteholder converted $75,000 inprincipal into 5,999,069 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 29, 2011, a convertible noteholder converted $8,000 in principalinto 333,616 shares of the Company’s common stock. The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

59
 

 

On August 1, 2011, a convertible noteholder converted $50,000 inprincipal into 3,300,247 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 2, 2011, a convertible noteholder converted $125,000 inprincipal into 5,216,103 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 3, 2011, a convertible noteholder converted $10,000 inprincipal into 660,049 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 16, 2011, a convertible noteholder converted $87,500 inprincipal into 5,000,000 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 24, 2011, a convertible noteholder converted $15,000 inprincipal into 980,392 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 29, 2011, a convertible noteholder converted $15,000 inprincipal into 1,013,514 shares of the Company’s common stock. The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 6, 2011, a convertible noteholderconverted $10,000 in principal into 872,180 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 7, 2011, a convertible noteholderconverted $52,500 in principal into 3,000,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 13, 2011, a convertible noteholderconverted $50,000 in principal into 10,164,384 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 19, 2011, a convertible noteholderconverted $10,000 in principal into 1,204,819 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 22, 2011, a convertible noteholderconverted $12,000 in principal into 1,445,783 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 23, 2011, a convertible noteholderconverted $25,000 in principal into 2,577,320 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 26, 2011, a convertible noteholderconverted $12,000 in principal into 1,445,783 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 4, 2011, a convertible noteholderconverted $6,000 in principal into 863,636 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

60
 

 

On October 4, 2011, a convertible noteholderconverted $60,000 in principal into 8,700,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 10, 2011, a convertible noteholderconverted $25,000 in principal into 3,270,933 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 21, 2011, a convertible noteholderconverted $35,000 in principal into 3,000,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 28, 2011, a convertible noteholderconverted $10,000 in principal into 1,030,928 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 2, 2011, a convertible noteholderconverted $11,000 in principal into 1,111,111 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 4, 2011, a convertible noteholderconverted $19,000 in principal into 2,039,604 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 8, 2011, a convertible noteholderconverted $16,666 in principal into 1,969,162 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 18, 2011, a convertible noteholderconverted $50,000 in principal into 8,163,265 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 18, 2011, a convertible noteholderconverted $100,000 in principal into 10,394,521 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 22, 2011, a convertible noteholderconverted $75,000 in principal into 4,687,500 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 22, 2011, a convertible noteholderconverted $75,000 in principal into 4,687,500 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 23, 2011, a convertible noteholderconverted $16,666 in principal into 1,932,290 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 23, 2011, a convertible noteholderconverted $25,000 in principal into 2,990,431 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 23, 2011, a convertible noteholderconverted $33,000 in principal into 4,955,237 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

61
 

 

On November 30, 2011, a convertible noteholderconverted $25,000 in principal into 3,443,527 shares of the Company's common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 1, 2011, a convertible noteholderconverted $50,000 in principal into 11,773,848 shares of the Company's common stock. The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 15, 2011, a convertible noteholderconverted $49,500 in principal into 6,848,182 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 16, 2011, a convertible noteholderconverted $16,668 in principal into 3,217,140 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 16, 2011, a convertible noteholderconverted $58,500 in principal into 15,000,000 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 16, 2011, a convertible noteholderconverted $70,157 in principal into 15,590,562 shares of the Company’s common stock.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 16, 2011, a convertible noteholderconverted $25,000 into 4,950,495 shares of the Company’s common stock.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 4, 2012, a convertible noteholderconverted $20,000 in principal into 5,865,103 shares of the Company’s common stock. The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 4, 2012, a convertible noteholderconverted $22,202.74 in principal into 5,509,365 shares of the Company’s common stock. The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 5, 2012, a convertible noteholderconverted $75,000 in principal and $11,700 in accrued interest into 17,340,000 shares of the Company’s common stock. Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On January 10, 2012 the Company issued to aconvertible noteholder 15,652,207 shares of the Company’s common stock in connection with the conversion $125,000 in principalon May 6, 2011. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act andRegulation D promulgated thereunder.

 

On January 10, 2012, a convertible noteholderconverted $19,000 in principal into 5,663,190 shares of the Company’s common stock. The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 12, 2012, a convertible noteholderconverted $20,000 in principal into 6,250,000 shares of the Company’s common stock. The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 19, 2012, a convertible noteholderconverted $26,353 in principal into 6,821,129 shares of the Company’s common stock. The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On January 20, 2012, a convertible noteholderconverted $100,000 in principal into 31,347,962 shares of the Company’s common stock. The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 23, 2012, a convertible noteholderconverted $75,000 in principal and $18,086 in accrued interest into 20,236,156 shares of the Company’s common stock. Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On January 23, 2012 the Company issued 5,000,000shares in connection with marketing services, shares were rendered at a fair value of $5,000 (.01/share). The issuance of suchsecurities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 25, 2012, a convertible noteholderconverted $104,000 in principal into 25,000,000 shares of the Company’s common stock. The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 25, 2012, a convertible noteholderconverted $18,000 in principal into 3,747,658 shares of the Company’s common stock. The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

Convertible Debt Issuance

 

On August 12, 2010, the Company raised grossproceeds of $50,000 through the sale of a (9 months) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On September 14, 2010, the Company raised grossproceeds of $40,000 through the sale of a (9 months) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On December 1, 2010, the Company entered intoa convertible promissory note of up to $1,650,000 with one accredited investor.  The note bears a one-time interest rateof eight percent (8%) and has a maturity date of December 1, 2013. The note was issued with an original issue discount of approximatelyfifteen percent (15%).  Prepayment under the note is not permitted, unless approved by the investor.  Underthe terms of the note, the investor is entitled, at its option, to convert all or part of the principal amount and accrued interestinto shares of the Company’s common stock, par value $0.001 per share, at a conversion price equal to seventy percent (70%)of the lowest closing price of the Company’s common stock in the thirty (30) trading days immediately prior to the conversion,subject to adjustment in certain circumstances.

 

On December 21, 2010, the Company raised grossproceeds of $50,000 through the sale of a (9 months) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On January 5, 2011, the Company raised grossproceeds of $10,000 through the sale of a (30 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On January 14, 2011, the Company raised grossproceeds of $75,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the averageof the lowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bearinterest at an annual rate of 12%.  The Company also issued 1,250,000 common stock purchase warrants with an exerciseprice of $0.065 per share to the noteholders.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 20, 2011, the Company raised grossproceeds of $40,000 through the sale of a (40 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 21, 2011, the Company raised grossproceeds of $9,000 through the sale of a (10 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 23, 2011, the Company raised grossproceeds of $10,000 through the sale of a (14 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 24, 2011, the Company raised grossproceeds of $50,000 through the sale of a (14 Day) convertible note at a conversion price of the average 10 day trade pricing dividedby 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 25, 2011, the Company raised grossproceeds of $50,000 through the sale of a (10 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 25, 2011, the Company raised grossproceeds of $75,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the averageof the lowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bearinterest at an annual rate of 12%.  The Company also issued 1,155,000 common stock purchase warrants with an exerciseprice of $0.065 per share to the noteholders.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 25, 2011, the Company raised grossproceeds of $75,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the averageof the lowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bearinterest at an annual rate of 12%.  The Company also issued 1,155,000 common stock purchase warrants with an exerciseprice of $0.065 per share to the noteholders.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 26, 2011, the Company raised grossproceeds of $8,000 through the sale of a (12 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 26, 2011, the Company raised grossproceeds of $10,000 through the sale of a (10 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 28, 2011, the Company raised grossproceeds of $25,000 through the sale of a (10 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On January 31, 2011, the Company raised grossproceeds of $25,000 through the sale of a (1 Month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 1, 2011, the Company raised grossproceeds of $5,000 through the sale of a (14 Day) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 2, 2011, the Company raised grossproceeds of $10,000 through the sale of a (14 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 2, 2011, the Company raised grossproceeds of $10,000 through the sale of a (15 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 4, 2011, the Company raised grossproceeds of $125,000 through the sale of a (10 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The note bearsinterest at annual rate of 8%.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On February 4, 2011, the Company raised grossproceeds of $5,000 through the sale of a (14 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 10, 2011, the Company raised grossproceeds of $50,000 through the sale of a (15 Day) convertible note at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The note bears interest at annual rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 10, 2011, the Company raised grossproceeds of $40,000 through the sale of a (9 months) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The notes bear interest at annual rates of between8% - 10%.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On February 28, 2011, the Company raised grossproceeds of $75,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the averageof the lowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bearinterest at an annual rate of 12%.  The Company also issued 3,000,000 common stock purchase warrants with an exerciseprice of $0.065 per share to the noteholders.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 28, 2011, the Company raised grossproceeds of $75,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the averageof the lowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bearinterest at an annual rate of 12%.  The Company also issued 3,000,000 common stock purchase warrants with an exerciseprice of $0.065 per share to the noteholders.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On March 1, 2011, the Company raised grossproceeds of $25,000 through the sale of a (13 Day) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 4, 2011, the Company raised grossproceeds of $25,000 through the sale of a (20 Day) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 4, 2011, the Company raised grossproceeds of $25,000 through the sale of a (20 Day) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 8, 2011, the Company raised grossproceeds of $40,000 through the sale of a (9 months) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The notes bear interest at annual rates of between8% - 10%.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On March 8, 2011, the Company raised grossproceeds of $100,000 through the sale of a (1 year) convertible notes at a conversion price of $0.03 per share.  Thenotes bear interest at an annual rate of 6%.  The issuance of such securities was exempt from registration pursuant toSection 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 11, 2011, the Company raised grossproceeds of $25,000 through the sale of a (1 Month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 14, 2011, the Company raised grossproceeds of $50,000 through the sale of a (1 year) convertible note at a conversion price of 60% of the average of the lowest threeclosing prices in the ten days preceding a conversion date.  The notes bear interest at annual rates of between 8% -10%.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act andRegulation D promulgated thereunder.

 

On March 21, 2011, the Company raised grossproceeds of $25,000 through the sale of a (1 Month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 22, 2011, the Company raised grossproceeds of $25,000 through the sale of a (1 Month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 23, 2011, the Company raised grossproceeds of $25,000 through the sale of a (2 Month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 23, 2011, the Company raised grossproceeds of 25,000 through the sale of a (1 Month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On March 23, 2011, the Company raised grossproceeds of $25,000 through the sale of a (1 Month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 24, 2011, the Company raised grossproceeds of $75,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the averageof the lowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bearinterest at an annual rate of 12%.  The Company also issued 3,000,000 common stock purchase warrants with an exerciseprice of $0.065 per share to the noteholders.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 24, 2011, the Company raised grossproceeds of $75,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the averageof the lowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bearinterest at an annual rate of 12%.  The Company also issued 3,000,000 common stock purchase warrants with an exerciseprice of $0.065 per share to the noteholders.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 25, 2011, the Company raised grossproceeds of $10,000 through the sale of a (1 month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 29, 2011, the Company raised grossproceeds of $50,000 through the sale of a (3 year) convertible notes at a conversion price of 65% of the average of the lowestthree closing prices in the 30 days preceding conversion.  The notes bear interest at an annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On March 29, 2011, the Company raised grossproceeds of $15,000 through the sale of a (1 month) convertible notes at a conversion price of the average 10 day closing pricingdivided by 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On April 27, 2011, the Company raised grossproceeds of $40,000 through the sale of a (6 month) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The notes bear interest at annual rates of between8% - 10%.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On May 6, 2011, the Company raised gross proceedsof $246,000 through the sale of a (6 month) convertible note at a conversion price equal to the lesser of (i) the average of thelowest two closing prices during the five days preceding a conversion date or (ii) $0.025/share.  The notes bear interestat an annual rate of 12%.  The Company also issued 10,000,000 common stock purchase warrants with an exercise price of$0.03 per share to certain accredited investors.  The issuance of such securities was exempt from registration pursuantto Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 31, 2011, the Company raised gross proceedsof $10,000 through the sale of a (1 Month) convertible notes at a conversion price of the average 10 day closing pricing dividedby 200% of the outstanding principal balance.  The notes bear interest at a rate of 8%.  The issuance of suchsecurities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 7, 2011, the Company entered into aconvertible promissory note of up to $900,000 with one accredited investor.  The above note bears a one-time interestrate of eight percent (8%) and has a maturity date of June 7, 2014.  Prepayment under the note is not permitted, unlessapproved by the investor.  Under the terms of the note, the investor is entitled, at its option, to convert all or partof the principal amount and accrued interest into shares of the Company’s common stock, par value $0.001 per share, at aconversion price equal to seventy percent (70%) of the lowest closing price of the common stock in the thirty (30) trading daysimmediately prior to the conversion, subject to adjustment in certain circumstances.

 

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On June 14, 2011, the Company raised grossproceeds of $40,000 through the sale of a (9 month) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The notes bear interest at annual rates of between8% - 10%.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On June 24, 2011, the Company raised grossproceeds of $20,000 through the sale of a (12 month) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at annual rate of 10%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On June 29, 2011, the Company entered intoa Note and Warrant Purchase Agreement with Inter-Mountain Capital Corp., a Delaware corporation (“Inter-Mountain”),whereby the Company issued and sold, and Inter-Mountain purchased: (i) a Secured Convertible Promissory Note of the Company inthe principal amount of $441,833 (the “Company Note”) and (ii) a warrant to purchase common stock of the Company.

 

The principal amount of the Company Note is$441,833 (the “Maturity Amount”) and the Company Note is due 48 months from June 29, 2011.  The Company Notebears an interest rate of 6% per annum, compounded daily.  The total amount funded (in cash and notes) at closing was$400,000, representing the Maturity Amount less an original issue discount of $31,833 and the payment of $10,000 to Inter-Mountainto cover its fees, with payment consisting of $400,000 advanced on July 1, 2011.  The Company may borrow up to an additional$2,000,000 under the note, in a series of ten secured convertible notes with interest rates of 5% per annum, compounded daily.

 

Beginning three months after closing, Inter-Mountainhas the right to convert, subject to restrictions described in the Company Note, all or a portion of the outstanding amount ofthe Company Note that is eligible for conversion into shares of the Company’s common stock.  The number of commonshares delivered to the Investor upon conversion will be calculated by dividing the amount of the Company Note that is being convertedby the market price of the common stock, which is defined as 80% of the lowest trade price during the 30 trading days immediatelypreceding the date of the conversion.

 

Inter-Mountain also received a warrant to purchasesuch number of shares of common stock of the Company equal to $800,000 divided by 80% of the lowest trade price of the common stockduring the 30 trading days immediately preceding the June 29, 2011, at any time within five years after the June 29, 2011.  Thewarrant also contains a net exercise provision.

 

On August 28, 2011, the Company raised grossproceeds of $60,000 through the sale of a (18 month) convertible note at a conversion price of 60% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at an annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On August 31, 2011, the Company raised grossproceeds of $560,000 through the sale of (18 month) promissory notes bearing interest at an annual rate of 15%.  In considerationof the promisorry notes, the Company issued 18,666,667 stock purchase warrants equal to the face amount of the notes, with an exerciseprice of $0.03 per share.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of theSecurities Act and Regulation D promulgated thereunder.

 

On October 4, 2011, the Company raised grossproceeds of $50,000 through the sale of a (3 year) convertible note at a conversion price of 65% of the average of the lowest threeclosing prices in the ten days preceding a conversion date.  The note bears interest at an annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On October 5, 2011, the Company raised grossproceeds of $135,000 through the sale of a (6 month) convertible note at a conversion price of 35% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at an annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

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On October 6, 2011, the Company raised grossproceeds of $47,000 through the sale of a (9 month) convertible note at a conversion price of 45% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at an annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On October 12, 2011, the Company raised grossproceeds of $200,000 through the sale of a (3 year) convertible note at a conversion price of 65% of the average of the lowestthree closing prices in the ten days preceding a conversion date.  The note bears interest at an annual rate of 8%.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On October 28, 2011, the Company raised grossproceeds of $14,000 through the sale of a (12 month) convertible note at a conversion price equal to 300% of the face value ofthe note.  The notes bear interest at a rate of 10%.  The issuance of such securities was exempt from registrationpursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 1, 2011, the Company raised grossproceeds of $382,000 through the sale of (18 month) promissory notes bearing interest at an annual rate of 15%.  In considerationof the promisorry notes, the Company issued 21,828,571 stock purchase warrants equal to the face amount of the notes, with an exerciseprice of $0.0175 per share.  The issuance of such securities was exempt from registration pursuant to Section 4(2) ofthe Securities Act and Regulation D promulgated thereunder.

 

On November 1, 2011, the Company raised grossproceeds of $223,000 through the sale of (18 month) promissory notes bearing interest at an annual rate of 15%.  In considerationof the promisorry notes, the Company issued 6,371,429 stock purchase warrants equal to 50% of the face amount of the notes, withan exercise price of $0.0175 per share.  The issuance of such securities was exempt from registration pursuant to Section4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 14, 2011, the Company raised grossproceeds of $25,000 through the sale of (18 month) promissory notes bearing interest at an annual rate of 15%.  In considerationof the promisorry notes, the Company issued 714,286 stock purchase warrants equal to 50% of the face amount of the notes, withan exercise price of $0.0175 per share.  The issuance of such securities was exempt from registration pursuant to Section4(2) of the Securities Act and Regulation D promulgated thereunder.

 

Issuance of Shares to Extend Debt Agreements

 

On May 5, 2010, the Company issued a noteholder15,000 shares of the Company’s common stock in consideration for an extension of the noteholder’s note.  Theissuance was recorded as interest at a fair value of $17,250 ($1.15/share) based upon the quoted closing price of the Company’scommon stock on the date of issuance.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On May 5, 2010, the Company issued a noteholder15,000 shares of the Company’s common stock in consideration for an extension of the noteholder’s note.  Theissuance was recorded as interest at a fair value of $17,250 ($1.15/share) based upon the quoted closing price of the Company’scommon stock on the date of issuance.  The issuance of such securities was exempt from registration pursuant to Section4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 21, 2010, the Company issued anoteholder 75,000 shares of the Company’s common stock in consideration for an extension of the noteholder’s note.  Theissuance was recorded as interest at a fair value of $45,750 ($0.61/share) based upon the quoted closing price of the Company’scommon stock on the date of issuance.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

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On September 21, 2010, the Company issued anoteholder 12,500 shares of the Company’s common stock in consideration for an extension of the noteholder’s note.  Theissuance was recorded as interest at a fair value of $7,625 ($0.61/share) based upon the quoted closing price of the Company’scommon stock on the date of issuance.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On September 21, 2010, the Company issued anoteholder 12,500 shares of the Company’s common stock in consideration for an extension of the noteholder’s note.  Theissuance was recorded as interest at a fair value of $7,625 ($0.61/share) based upon the quoted closing price of the Company’scommon stock on the date of issuance.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

On June 7, 2011, the Company issued a noteholder402,667 shares of the Company’s common stock in consideration for an extension of the noteholder’s note.  Theissuance was recorded as interest at a fair value of $14,778 ($0.037/share) based upon the quoted closing price of the Company’scommon stock on the date of issuance.  The issuance of such securities was exempt from registration pursuant to Section 4(2)of the Securities Act and Regulation D promulgated thereunder.

 

Issuance of Shares to Settle Notes Payable

 

On September 29, 2010, the Company issued 1,824,856shares of its common stock to a noteholder in settlement of principal debt and accrued interest in the aggregate amount of $1,003,671.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On September 29, 2010, the Company issued 65,715shares of its common stock to a noteholder in settlement of principal debt and accrued interest in the aggregate amount of $36,143.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On September 29, 2010, the Company issued 75,000shares of its common stock to a noteholder in settlement of principal debt and accrued interest in the aggregate amount of $41,250.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On September 29, 2010, the Company issued 7,161,548shares of its common stock to a noteholder in settlement of principal debt and accrued interest in the aggregate amount of $358,077.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

On September 29, 2010, the Company issued 2,200,000shares of its common stock to a noteholder in settlement of principal debt and accrued interest in the aggregate amount of $110,000.  Theissuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgatedthereunder.

 

Issuance of Shares to Settle Contract

 

On December 23, 2010, the Company issued 511,509shares of its common stock in settlement of an outstanding contract with a vendor.  The issuance of such securities wasexempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

Issuance of Shares to Settle Aged Debt

 

On December 27, 2010, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to  athird party fund.  Pursuant to this transaction, on December 27, 2010, the Company directed its transfer agent to issueand deliver to the third party 8,928,571 shares of the Company’s common stock, subject to adjustment, in satisfaction ofa debt in the amount of $400,000.

 

On January 26, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on January 26, 2011, the Company directed its transfer agent to issue anddeliver to the third party 3,312,435 shares of the Company’s common stock subject to adjustment, in satisfaction of a debtin the amount of $82,811.

 

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On January 27, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on January 27, 2011, the Company directed its transfer agent to issue anddeliver to the third party 1,176,471 shares of the Company’s common stock subject to adjustment, in satisfaction of a debtin the amount of $100,000.

 

On February 1, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on February 1, 2011, the Company directed its transfer agent to issue anddeliver to the third party 833,333 shares of the Company’s common stock subject to adjustment, in satisfaction of a debtin the amount of $50,000.

 

On February 3, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on February 3, 2011, the Company directed its transfer agent to issue anddeliver to the third party 11,500,000 shares of common stock of the Company common stock subject to adjustment, in satisfactionof a debt in the amount of $444,250.

 

On February 7, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on February 7, 2011, the Company directed its transfer agent to issue anddeliver to the third party 1,250,000 shares of the Company’s common stock subject to adjustment, in satisfaction of a debtin the amount of $50,000.

 

On February 11, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on February 11, 2011, the Company directed its transfer agent to issue anddeliver to the third party 2,000,000 shares of common stock of the Company common stock subject to adjustment, in satisfactionof a debt in the amount of $50,000.

 

On February 18, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on February 18, 2011, the Company directed its transfer agent to issue anddeliver to the third party 1,667,000 shares of the Company’s common stock subject to adjustment, in satisfaction of a debtin the amount of $50,000.

 

On February 28, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on February 28, 2011, the Company directed its transfer agent to issue anddeliver to the third party 2,187,666 shares of the Company’s common stock subject to adjustment, in satisfaction of a debtin the amount of $65,930.

 

On March 29, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on March 29, 2011, the Company directed its transfer agent to issue and deliverto the third party 1,094,904 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $27,373.

 

On March 29, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on March 29, 2011, the Company directed its transfer agent to issue and deliverto the third party 1,905,096 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $47,627.

 

On March 29, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on March 29, 2011, the Company directed its transfer agent to issue and deliverto the third party 3,000,000 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $75,000.

 

On April 6, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on April 6, 2011, the Company directed its transfer agent to issue and deliverto the third party 2,000,000 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $50,000.

 

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On April 15, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on April 15, 2011, the Company directed its transfer agent to issue and deliverto the third party 2,000,000 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $58,644.

 

On May 12, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on May 12, 2011, the Company directed its transfer agent to issue and deliverto the third party 3,023,040 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $75,576.

 

On May 20, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on May 20, 2011, the Company directed its transfer agent to issue and deliverto the third party 3,774,744 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $83,044.

 

On May 19, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on May 19, 2011, the Company directed its transfer agent to issue and deliverto the third party 4,031,853 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $100,796.

 

On June 2, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on June 2, 2011, the Company directed its transfer agent to issue and deliverto the third party 4,932,500 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $98,650.

 

On June 3, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on June 3, 2011, the Company directed its transfer agent to issue and deliverto the third party 2,777,777 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $50,000.

 

On June 27, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund.  Pursuant to this transaction, on June 27, 2011, the Company directed its transfer agent to issue and deliverto the third party 3,636,363 shares of the Company’s common stock subject to adjustment, in satisfaction of a debt in theamount of $40,000.

 

On August 4, 2011, the Company issued securitiesexempt from the registration requirements of the Securities Act pursuant to Section 3(a)(10) of the Securities Act, to a thirdparty fund. Pursuant to this transaction, on August 4, 2011, the Company directed its transfer agent to issue and deliver to thethird party 1,794,871 shares of the Company’s common stock in satisfaction of a debt in the amount of $100,000.

 

Issuance of Shares as Performance Bonus

 

On October 18, 2010, the Company issued anofficer and director 5,000,000 shares of the Company’s common stock as a performance bonus at a fair value of $2,650,000($0.53/share), based upon the quoted closing price of the Company’s common stock on October 18, 2010.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 18, 2010, the Company issued anofficer and director 5,000,000 shares of the Company’s common stock as a performance bonus at a fair value of $2,650,000($0.53/share), based upon the quoted closing price of the Company’s common stock on October 18, 2010.  The issuanceof such securities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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Issuance of Shares to Debt Holders

 

On September 21, 2010, the Company issued oneinvestor 33,333 shares of the Company’s common stock as further consideration for the investor to enter into a debt agreementwith the Company.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

On September 21, 2010, the Company issued oneinvestor 16,667 shares of the Company’s common stock as further consideration for the investor to enter into a debt agreementwith the Company.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

Issuance of Shares for Services

 

On April 1, 2010, the Company issued 150,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $174,000 ($1.16/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 5, 2010, the Company issued 170,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $175,100 ($1.15/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 5, 2010, the Company issued 20,000 sharesof the Company’s common stock to a consultant for services rendered at a fair value of $20,600 ($1.15/share), basedupon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 5, 2010, the Company issued 10,000 sharesof the Company’s common stock to a consultant for services rendered at a fair value of $10,300 ($1.15/share), basedupon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 5, 2010, the Company issued 70,000 sharesof the Company’s common stock to a consultant for services rendered at a fair value of $72,100 ($1.15/share), basedupon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 5, 2010, the Company issued 80,000 sharesof the Company’s common stock to a consultant for services rendered at a fair value of $82,400 ($1.15/share), basedupon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 8, 2010, the Company issued 36,000 sharesof the Company’s common stock to a consultant for services rendered at a fair value of $37,440 ($1.15/share), basedupon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 28, 2010, the Company issued 300,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $309,000 ($1.00/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 120,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $139,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On June 30, 2010, the Company issued 50,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $52,000 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 89,250shares of the Company’s common stock to a consultant for services rendered at a fair value of $92,820 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 5,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $5,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 5,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $5,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 250,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $260,000 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 25,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $26,000 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 30,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $31,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 23, 2010, the Company issued 75,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $87,038 ($1.16/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 54,750shares of the Company’s common stock to a consultant for services rendered at a fair value of $56,940 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 30,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $31,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 1, 2010, the Company issued 120,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $138,000 ($1.15/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 10,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $10,400 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On June 30, 2010, the Company issued 10,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $10,400 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 10,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $10,400 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 50,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $31,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 30,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $31,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 30,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $31,200 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 12,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $12,480 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On June 30, 2010, the Company issued 110,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $114,400 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 1, 2010, the Company issued 250,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $257,500 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 14, 2010, the Company issued 10,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $10,300 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 14, 2010, the Company issued 50,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $51,500 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 14, 2010, the Company issued 25,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $25,750 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On July 14, 2010, the Company issued 25,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $25,750 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 15, 2010, the Company issued 125,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $128,750 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 15, 2010, the Company issued 375,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $386,250 ($1.03/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 22, 2010, the Company issued 25,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $25,000 ($1.00/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 22, 2010, the Company issued 12,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $10,000 ($0.833/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On July 29, 2010, the Company issued 5,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $3,700 ($0.740/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 10, 2010, the Company issued 115,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $56,350 ($0.590/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 20, 2010, the Company issued 2,500shares of the Company’s common stock to a consultant for services rendered at a fair value of $1,275 ($0.510/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 20, 2010, the Company issued 100,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $51,000 ($0.510/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 25, 2010, the Company issued 24,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $11,760 ($0.490/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On August 25, 2010, the Company issued 85,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $41,650 ($0.490/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On September 29, 2010, the Company issued 50,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $20,900 ($0.418/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On September 29, 2010, the Company issued 35,715shares of the Company’s common stock to a consultant for services rendered at a fair value of $12,500 ($0.350/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 5, 2010, the Company issued 19,200shares of the Company’s common stock to a consultant for services rendered at a fair value of $9,408 ($0.490/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 11, 2010, the Company issued 250,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $150,000 ($0.600/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 11, 2010, the Company issued 250,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $150,000 ($0.600/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 14, 2010, the Company issued 19,125shares of the Company’s common stock to a consultant for services rendered at a fair value of $10,519 ($0.550/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 14, 2010, the Company issued 12,500shares of the Company’s common stock to a consultant for services rendered at a fair value of $6,875 ($0.550/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 14, 2010, the Company issued 3,375shares of the Company’s common stock to a consultant for services rendered at a fair value of $1,856 ($0.550/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 22, 2010, the Company issued 285,714shares of the Company’s common stock to a consultant for services rendered at a fair value of $240,000 ($0.840/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 22, 2010, the Company issued 140,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $117,600 ($0.840/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 26, 2010, the Company issued 50,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $30,000 ($0.600/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On October 26, 2010, the Company issued 7,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $3,710 ($0.600/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 26, 2010, the Company issued 130,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $117,000 ($0.600/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On October 28, 2010, the Company issued 100,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $177,000 ($0.77/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 2, 2010, the Company issued 35,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $18,200 ($0.520/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 18, 2010, the Company issued 3,500,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $840,000 ($0.240/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 3, 2010, the Company issued 20,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $11,000 ($0.550/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 10, 2010, the Company issued 2,200,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $220,000 ($0.100/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 13, 2010, the Company issued 1,000,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $60,000 ($0.060/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 14, 2010, the Company issued 4,000,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $200,000 ($0.050/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 14, 2010, the Company issued 1,000,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $50,000 ($0.050/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On November 17, 2010, the Company issued 4,000,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $960,000 ($0.240/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On December 15, 2010, the Company issued 1,000,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $80,000 ($0.080/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 15, 2010, the Company issued 1,500,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $120,000 ($0.080/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 15, 2010, the Company issued 250,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $20,000 ($0.080/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 16, 2010, the Company issued 5,000,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $350,000 ($0.070/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On December 22, 2010, the Company issued 5,000,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $300,000 ($0.060/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 7, 2011, the Company issued 25,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $1,723 ($0.069/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 7, 2011, the Company issued 150,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $10,335 ($0.069/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On January 7, 2011, the Company issued 25,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $1,723 ($0.069/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 17, 2011, the Company issued 150,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $9,000 ($0.060/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On February 28, 2011, the Company issued 258,621shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $15,000 ($0.058/share),based upon contract value.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

On March 31, 2011, the Company issued 25,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $1,650 ($0.066/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 31, 2011, the Company issued 471,698shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $25,0000 ($0.053/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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On March 31, 2011, the Company issued 227,273shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $15,000 ($0.066/share),based upon contract value.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

On April 15, 2011, the Company issued 100,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $8,100 ($0.081/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On April 30, 2011, the Company issued 319,149shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $15,000 ($0.047/share),based upon contract value.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

On May 1, 2011, the Company issued 3,723,404shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $175,000 ($0.047/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 31, 2011, the Company issued 333,333shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $15,000 ($0.045/share),based upon contract value.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

On June 30, 2011, the Company issued 500,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $15,000 ($0.030/share),based upon contract value.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

On July 12, 2011, the Company issued 100,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $3,050 ($0.0305/share), basedupon contract value. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On August 22, 2011, the Company issued 375,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $11,250 ($0.03/share), basedupon contract value. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On August 22, 2011 the Company issued 75,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $2,250 ($0.03/share), basedupon contract value. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On August 30, 2011, the Company issued 100,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $2,500 ($.02/share), basedupon contract value. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On August 30, 2011, the Company issued 3,934,426shares of the Company’s common stock to a consultant for services rendered at a fair value of 90,000 ($0.029share, basedupon contract value. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

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On September 6, 2011, the Company issued 2,586,207shares of the Company’s common stock to a consultant for services rendered at a fair value of $75,000 ($0.029/share), basedupon contract value. The issuance of such securities was exempt from registration pursuant to Section 4(2) of the Securities Actand Regulation D promulgated thereunder.

 

On September 30, 2011, the Company issued 100,000shares of the Company’s common stock to a consultant for services rendered at a fair value of $8,100 ($0.081/share), basedupon contract value.  The issuance of such securities was exempt from registration pursuant to Section 4(2) of the SecuritiesAct and Regulation D promulgated thereunder.

 

On December 7, 2011 the Company issued 9,714,285shares of the Company’s common stock in connection with a marketing agreement, shares were rendered at a fair value of $170,000($0.0175/share), based upon an average quoted closing price of the twenty preceding trading days.  The issuance of suchsecurities was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

Issuances for Prepaid Services

 

On February 11, 2011, the Company issued 1,000,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $78,000 ($0.078/share),based upon the quoted closing price of the Company’s common stock on the date of issuance.  The issuance of such securitieswas exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On March 9, 2011, the Company issued consultants2,500,000 shares of the Company’s common stock for services to be rendered at a fair value of $150,000 ($0.066/share)based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

On May 1, 2011, the Company issued 500,000shares of the Company’s common stock to a consultant for services to be rendered at a fair value of $23,500 ($0.047/share),based upon the quoted closing price trading price on the date of issuance.  The issuance of such securities was exempt fromregistration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

Issuance of Shares for Cash

 

In May 2010, the Company entered into subscriptionagreements with accredited investors in connection with two private issuances and sales of 1,000,000 shares of the Company’scommon stock  at $0.50 per share (the “1,000,000 share private placement”) and 300,000 shares of the Company’scommon stock at $0.35 per share (the “300,000 share private placement”).  As of June 30, 2010, the Companysold 90,000 shares under the 1,000,000 share private placement and 227,423 shares under the 300,000 share private placement foraggregate net proceeds of $117,848.  On June 30, 2010, the Company’s Board of Directors increased the number ofshares under the 300,000 share private placement to 1,000,000 shares.  These shares were sold without registration underthe Securities Act or state securities laws, in reliance on the exemptions provided by Section 4(2) of the Act and Regulation Dpromulgated thereunder.

 

On May 4, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 25,000 sharesof the Company’s common stock, for an aggregate purchase price of $12,500, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 4, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

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On May 4, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 15,000 sharesof the Company’s common stock, for an aggregate purchase price of $7,500, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 4, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 100,000 sharesof the Company’s common stock, for an aggregate purchase price of $50,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 12, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 15,000 sharesof the Company’s restricted common stock, par value $0.001 per share, in exchange for an aggregate purchase price of $7,500,or $0.50 per share.  The shares of common stock issued in connection with the Agreement were issued pursuant to exemptionsfrom registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 12, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $55,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 12, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 100,000 sharesof the Company’s common stock, for an aggregate purchase price of $50,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 12, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 100,000 sharesof the Company’s common stock, for an aggregate purchase price of $50,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 20,000 sharesof the Company’s common stock, in exchange for an aggregate purchase price of $10,000, or $0.50 per share.  Theshares of common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registrationprovided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 5,000 sharesof the Company’s common stock, for an aggregate purchase price of $2,500, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 5,000 sharesof the Company’s common stock, for an aggregate purchase price of $2,500, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

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On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 5,000 sharesof the Company’s common stock, for an aggregate purchase price of $2,500, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On May 19, 2010, the Company entered into astock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 17, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, share, for an aggregate purchase price of $5,000, or $0.50 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 17, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 20,000 sharesof the Company’s common stock, for an aggregate purchase price of $10,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 17, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 20,000 sharesof the Company’s common stock, for an aggregate purchase price of $10,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 17, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.50 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 17, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, share, for an aggregate purchase price of $5,000, or $0.50 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

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On June 17, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 28,569 sharesof the Company’s common stock, for an aggregate purchase price of $9,999, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 23, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, par value $0.001 per share, in exchange for an aggregate purchase price of $5,000, or $0.50per share.  The shares of common stock issued in connection with the stock purchase agreement were issued pursuant toexemptions from registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 23, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, par value $0.001 per share, in exchange for an aggregate purchase price of $5,000, or $0.50per share.  The shares of common stock issued in connection with the stock purchase agreement were issued pursuant toexemptions from registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 23, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 105,000 sharesof the Company’s common stock, for an aggregate purchase price of $30,000, or $0.286 per share.  The shares ofcommon stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On June 23, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 28,569 sharesof the Company’s common stock, for an aggregate purchase price of $9,999, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 13, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 15,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,250, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 13, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 16,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,600, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 13, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 20,000 sharesof the Company’s common stock, for an aggregate purchase price of $7,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 14, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 14,285 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

84
 

 

On July 14, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 50,000 sharesof the Company’s common stock, for an aggregate purchase price of $13,250, or $0.265 per share.  The shares ofcommon stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 16, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 55,000 sharesof the Company’s common stock, for an aggregate purchase price of $19,250, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 29, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 40,000 sharesof the Company’s common stock, for an aggregate purchase price of $14,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 29, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 85,715 sharesof the Company’s common stock, for an aggregate purchase price of $30,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On July 29, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 28,572 sharesof the Company’s common stock, for an aggregate purchase price of $9,999, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 20, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 2,625 sharesof the Company’s common stock, for an aggregate purchase price of $7,500, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 20, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 2,625 sharesof the Company’s common stock, for an aggregate purchase price of $7,500, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 20, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 85,715 sharesof the Company’s common stock, for an aggregate purchase price of $30,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 20, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 200,000 sharesof the Company’s common stock, for an aggregate purchase price of $70,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 25, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 14,286 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

85
 

 

On August 25, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 14,286 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 25, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 45,000 sharesof the Company’s common stock, for an aggregate purchase price of $15,750, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 25, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 7,500 sharesof the Company’s common stock, for an aggregate purchase price of $2,625, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On August 25, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 7,500 sharesof the Company’s common stock, for an aggregate purchase price of $2,625, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On September 29, 2010, the Company enteredinto a stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 142,857shares of the Company’s common stock, for an aggregate purchase price of $50,000, or $0.35 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On September 29, 2010, the Company enteredinto a stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 571,429shares of the Company’s common stock, for an aggregate purchase price of $200,000, or $0.35 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On September 29, 2010, the Company enteredinto a stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 144,125shares of the Company’s common stock, for an aggregate purchase price of $50,444, or $0.35 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On September 29, 2010, the Company enteredinto a stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 30,000shares of the Company’s common stock, for an aggregate purchase price of $10,500, or $0.35 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On September 29, 2010, the Company enteredinto a stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 174,285shares of the Company’s common stock, for an aggregate purchase price of $61,000, or $0.35 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

86
 

 

On September 29, 2010, the Company enteredinto a stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 285,714shares of the Company’s common stock, for an aggregate purchase price of $100,000, or $0.35 per share.  The sharesof common stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On October 26, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 15,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,250, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On October 26, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 28,572 sharesof the Company’s common stock, for an aggregate purchase price of $10,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On October 26, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 42,858 sharesof the Company’s common stock, for an aggregate purchase price of $15,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On October 26, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 100,000 sharesof the Company’s common stock, for an aggregate purchase price of $35,000, or $0.35 per share.  The shares of commonstock issued in connection with the Agreement were issued pursuant to exemptions from registration provided by Section 4(2) ofthe Securities Act and/or Regulation D promulgated thereunder.

 

On October 26, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 71,429 sharesof the Company’s common stock, for an aggregate purchase price of $25,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On October 26, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 400,000 sharesof the Company’s common stock, for an aggregate purchase price of $140,000, or $0.35 per share.  The shares ofcommon stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On October 26, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 300,000 sharesof the Company’s common stock, for an aggregate purchase price of $105,000, or $0.35 per share.  The shares ofcommon stock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration providedby Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 14,286 sharesof the Company’s common stock, for an aggregate purchase price of $5,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

87
 

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 15,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,250, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 21,500 sharesof the Company’s common stock, for an aggregate purchase price of $7,525, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 15,000 sharesof the Company’s common stock, for an aggregate purchase price of $5,250, or $0.35 per share.  The shares of commonstock issued in connection with the Agreement were issued pursuant to exemptions from registration provided by Section 4(2) ofthe Securities Act and/or Regulation D promulgated thereunder.

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 50,000 sharesof the Company’s common stock, for an aggregate purchase price of $17,500, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 85,715 sharesof the Company’s common stock, for an aggregate purchase price of $29,985, or $0.35 per share.  The shares of commonstock issued in connection with the Agreement were issued pursuant to exemptions from registration provided by Section 4(2) ofthe Securities Act and/or Regulation D promulgated thereunder.

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 114,000 sharesof the Company’s restricted common stock, par value $0.001 per share, in exchange for an aggregate purchase price of $39,900,or $0.35 per share.  The shares of common stock issued in connection with the stock purchase agreement were issued pursuantto exemptions from registration provided by Section 4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On November 2, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 100,000 sharesof the Company’s common stock, for an aggregate purchase price of $35,000, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On December 3, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 20,000 sharesof the Company’s common stock, for an aggregate purchase price of $6,990, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On December 15, 2010, the Company entered intoa stock purchase agreement with an investor.  Pursuant to the stock purchase agreement, the Company issued 10,000 sharesof the Company’s common stock, for an aggregate purchase price of $3,485, or $0.35 per share.  The shares of commonstock issued in connection with the stock purchase agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

88
 

 

On July 7, 2011, the Company entered into astock purchase agreement (the “Carriage Agreement”) with Carriage Group, LLC (“Carriage”).  Pursuantto the Carriage Agreement, the Company issued 20,000,000 shares of the Company’s common stock, to Carriage in exchange foran aggregate purchase price of $500,000.00, or $0.025 per share.  The shares of common stock issued in connection withthe Carriage Agreement were issued pursuant to exemptions from registration provided by Section 4(2) of the Securities Act and/orRegulation D promulgated thereunder.  On November 29, 2011, the Company repriced the shares purchased on July 7, 2011at $0.0125 per share, and the Company issued an additional 20,000,000 shares of its common stock.  The shares of commonstock issued in connection with the Carriage Agreement were issued pursuant to exemptions from registration provided by Section4(2) of the Securities Act and/or Regulation D promulgated thereunder.

 

On November 4, 2011, the Company entered intoa Series C Preferred Stock Purchase Agreement, pursuant to which the Company issued to Southridge 190 shares of the Company’sSeries C Preferred Stock in exchange for (i) the forgiveness of $90,000 owed to Southridge for services rendered and (ii) $100,000cash.  Southridge can elect to convert the Series C Preferred Stock into shares of the Company’s common stock atany time after the issue date.  Each share of Series C Preferred Stock is convertible into that number of shares of commonstock as determined by dividing the stated value of such share of Series C Preferred Stock by the conversion price.  Theconversion price shall equal the higher of (i) $0.01 and (ii) such price that is a 50% discount to the average of the low two closingbid prices for the Company’s common stock for the five trading days immediately prior to such day that Southridge deliversa notice of conversion to the Company, subject to adjustment.

 

On November 29, 2011, the Company issued 42,000,000shares of the Company’s common stock for cash proceeds of $375,000.  The issuance of such securities was exemptfrom registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.

 

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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

Exhibit No.
 
Description
     
2.1
 
Share Exchange Agreement, dated February 1, 2010, by and between Tone in Twenty, Inc. and Muscle Pharm LLC (as filed as Exhibit 2.1 to Company’s Current Report on Form 8-K on February 2, 2010).
     
3.1
 
Tone In Twenty Articles of Incorporation, dated August 4, 2006 (as filed as Exhibit 3.1 to Company’s Form SB-2 Registration Statement, filed November 2, 2007).
     
3.2
 
Bylaws of MusclePharm Corporation, dated August 5, 2006 (as filed as Exhibit 3.2 to Company’s Form SB-2 Registration Statement, filed November 2, 2007).
     
3.3
 
Amended Articles of Incorporation, dated February 23, 2007 (as filed as Exhibit 3.3 to Company’s Form SB-2 Registration Statement, filed November 2, 2007).
     
3.4
 
Series A Certificate of Designation (as filed as Exhibit 3.4 to the Company’s Current Report on Form 8-K, filed on February 24, 2010).
     
3.5
 
Amended Articles of Incorporation (as filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on May 23, 2011).
     
3.6
 
Series B Certificate of Designation (as filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on August 16, 2011).
3.7
 
Series C Certificate of Designation (as filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 4, 2011)
3.8
 
Amended Articles of Incorporation (as filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on November 23, 2011).
     
4.1
 
$900,000 Convertible Promissory Note (as filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, dated July 8, 2011).
     
4.2
 
$100,000 Convertible Promissory Note, dated November 18, 2010(as filed as Exhibit 4.2 to the Company’s Registration Statement on Form S-1/A, filed on December 29, 2011).
     
4.3
 
$256,250 Convertible Promissory Note, dated November 23, 2010 (as filed as Exhibit 4.3 to the Company’s Registration Statement on Form S-1/A, filed on December 29, 2011).
     
5.1
 
Opinion of Lucosky Brookman LLP *
     
10.1
 
Joint Development, Manufacturing, Distribution and Marketing Agreement, dated July 26, 2010, by and between MusclePharm Corporation and TapouT, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K on September 22, 2010).
     
10.2
 
Sponsorship Agreement, dated January 18, 2011, by and between MusclePharm Corporation, and The Cincinnati Reds LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on January 24, 2011).
     
10.3
 
Registration Rights Agreement, dated June 2, 2011, by and between MusclePharm Corporation and JMJ Financial (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on July 8, 2011).
     
10.4
 
Amended and Restated Employment Agreement, dated November 14, 2011, by and between MusclePharm Corporation and Brad Pyatt (as filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q, filed on August 16, 2011).
 
90
 
 
10.5
 
Amended and Restated Employment Agreement, dated November 14, 2011, by and between MusclePharm Corporation and Cory Gregory (as filed as Exhibit 10.7 to the Company’s Quarterly Report on Form 10-Q, filed on August 16, 2011).
10.6
 
Employment Agreement, dated September 15, 2011, by and between MusclePharm Corporation and John H. Bluher (as filed as Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q, filed on November 14, 2011).
10.7
 
Employment Agreement, dated November 14, 2011, by and between MusclePharm Corporation and Jeremy DeLuca (as filed as Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q, filed on November 14, 2011).
10.8
 
Equity Purchase Agreement, dated November 4, 2011, by and between MusclePharm Corporation and Southridge Partners II, LP (as filed as Exhibit 10.8 to the Company’s Registration Statement on Form S-1/A, filed on December 29, 2011).
10.9
 
Registration Rights Agreement, dated November 4, 2011, by and between MusclePharm Corporation and Southridge Partners II, LP (as filed as Exhibit 10.9 to the Company’s Registration Statement on Form S-1/A, filed on December 29, 2011).
10.10
 
Amendment No. 1 to Stock Purchase Agreement, dated December 8, 2011, by and between MusclePharm Corporation and Carriage Group, LLC (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 9, 2011.
10.11
 
Stock Purchase Agreement, dated December 2, 2011, by and between MusclePharm Corporation and TSX Holdings, LLC (as filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on December 8, 2011).
23.1
 
Consent of Schumacher and Associates, Inc.*
23.2
 
Consent of Berman & Company, P.A. *
23.3
 
Consent of Lucosky Brookman LLP (included in Exhibit 5.1 filed herewith)

* Filed herewith

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 UNDERTAKINGS

 

(A) The undersigned Registrant hereby undertakes:

 

(1)To file, during any period in which offers or sales are being made, a post-effective amendmentto this registration statement to:

 

(i)To include any prospectus required by Section 10(a)(3) of the Securities Act;

 

(ii)Reflect in the prospectus any facts or events which, individually or together, represent a fundamentalchange in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volumeof securities offered (if the total dollar value of securities offered would not exceed that which was registered) any deviationfrom the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commissionpursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximumaggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;and

 

(iii)Include any material information with respect to the plan of distribution not previously disclosedin the registration statement or any material change to such information in the registration statement.

 

(2)That, for the purpose of determining any liability under the Securities Act, each such post-effectiveamendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering therein,and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

(3)To remove from registration by means of a post-effective amendment any of the securities beingregistered which remain unsold at the termination of the offering.

 

(4)Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permittedto directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registranthas been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy asexpressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (otherthan the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrantin the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connectionwith the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled bycontrolling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is againstpublic policy as expressed in the Act and will be governed by the final adjudication of such issue.

 

(B) The issuer is subject to Rule 430C (ss.230. 430C of this chapter): Each prospectus filed pursuant to Rule 424(b)(ss. 230. 424(b) of this chapter) as part of a registrationstatement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed inreliance on Rule 430A (ss. 230. 430A of this chapter), shall be deemed to be part of and included in the registration statementas of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectusthat is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registrationstatement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale priorto such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part ofthe registration statement or made in any such document immediately prior to such date of first use.

 

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SIGNATURES

 

Pursuant to the requirements of the SecuritiesAct of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereuntoduly authorized in the City of Denver, State of Colorado, on February 14, 2012.

 

  MUSCLEPHARM CORPORATION
       
  By: /s/ Brad J. Pyatt  
    Name: Brad J. Pyatt  
   

Title: Chief Executive Officer

          Principal Executive Officer

 
       
  By: /s/ Lawrence S. Meer  
    Name: Lawrence S. Meer  
   

Title: Chief Financial Officer

         Principal Financial Officer

         Principal Accounting Officer

 

  

PURSUANT TO THE REQUIREMENTS OF THE SECURITIESACT OF 1933, AS AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY OR ON BEHALF OF THE FOLLOWING PERSONS IN THE CAPACITIESAND ON THE DATES INDICATED:

 

Signature   Title   Date
         
/s/ Brad J. Pyatt   Chief Executive Officer, Principal Executive   February 14, 2012
Brad J. Pyatt   Officer and Director    
         
         
/s/ Cory Gregory   Senior President and Director   February 14, 2012
Cory Gregory        
         
         
/s/ Lawrence S. Meer   Chief Financial Officer, Principal Financial   February 14, 2012
Lawrence S. Meer   Officer and Principal Accounting Officer    
         
         
/s/ Jeremy DeLuca   President and Chief Marketing Officer   February 14, 2012
Jeremy DeLuca        
         
         
/s/ John H. Bluher   Chief Operating Officer   February 14, 2012
John H. Bluher        

 

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