UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_______________

FORM 10-Q

_______________

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______to______.

MUSCATO GROUP, INC.

(Exact name of registrant as specified in Charter)

NEVADA		333-153536
(State or other jurisdiction of incorporation or organization)		(Commission File No.)		(IRS Employee Identification No.)

2301 Maitland Center Parkway, Suite 240

Maitland, Florida 32751

(Address of Principal Executive Offices)

_______________

(407) 551-1300

(Issuer Telephone number)

_______________

(Former Name or Former Address if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large Accelerated Filero

Accelerated Filero

Non-Accelerated Filero

Smaller Reporting Companyx

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes oNox

State the number of shares outstanding of each of the issuer’s classes of common equity, as of as of May 17, 2010: 8,127,500 shares of Common Stock.

MUSCATO GROUP, INC.

FORM 10-Q

March 31, 2010

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition	11
Item 3	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4T.	Control and Procedures	14

PART II-- OTHER INFORMATION

Item 1	Legal Proceedings	15
Item 1A	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	(Removed and Reserved)	15
Item 5.	Other Information	15
Item 6.	Exhibits	15

SIGNATURE

Item 1. Financial Information.

MUSCATO GROUP, INC. & SUBSIDIARY
(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)
CONSOLIDATED BALANCE SHEETS


	March 31,			December 31,
	2010			2009
	(Unaudited)			(Audited)
ASSETS

CURRENT ASSETS
Cash	$	186,725		$	48,109
Accounts receivable, net		289,875			507,505
Prepaid expenses		91,693			13,348

TOTAL CURRENT ASSETS		568,293			568,962

PROPERTY and EQUIPMENT, net		102,147			116,794

DEPOSITS		21,080			21,080

INTANGIBLE ASSETS, net		18,748			24,999

TOTAL ASSETS	$	710,268		$	731,835


LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	534,392		$	377,727
Deferred revenue		652,229			771,159
Current portion of leases payable		14,967			14,967
Funding liability		540,218			470,641
Loans from related parties		287,360			287,360

TOTAL CURRENT LIABILITIES		2,029,166			1,921,854

LONG TERM LIABILITIES
Capital leases payable		52,241			55,812

TOTAL LONG TERM LIABILITIES		52,241			55,812

TOTAL LIABILITIES		2,081,407			1,977,666

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' DEFICIT
Common stock, $.0001 par value, 100,000,000 shares
authorized, 8,127,000 shares issued and outstanding
as of March 31, 2010 and December 31, 2009		813			813
Additional paid in capital		86,243			86,243
Retained earnings (accumulated deficit)		(1,458,195	)		(1,332,887	)

TOTAL SHAREHOLDERS' DEFICIT		(1,371,139	)		(1,245,831	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	710,268		$	731,835

The accompanying notes are an integral part of these consolidated financials statements.

MUSCATO GROUP, INC. & SUBSIDIARY
(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)
CONSOLIDATED STATEMENTS OF OPERATIONS


	For the three months ended
	March 31,
	2010			2009


CONTRACT REVENUES EARNED	$	922,012		$	1,666,206

COST OF REVENUES EARNED		2,840			38,752

GROSS PROFIT		919,172			1,627,454

OPERATING EXPENSES
Salaries and related expenses		617,994			416,829
Professional services		30,276			19,403
General and administrative expenses		306,737			268,551
Rent		63,699			58,074
Depreciation and amortization		23,623			21,549
Total operating expenses		1,042,329			784,406

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE AND INCOME TAXES		(123,157	)		843,048

Interest expense		(2,151	)		(2,565	)
Provision for income taxes		-			-

INCOME (LOSS) FROM OPERATIONS	$	(125,308	)	$	840,483

BASIC AND FULLY DILUTED NET LOSS PER SHARE	$	(0.02	)	$	0.06

WEIGHTED AVERAGE SHARES OUTSTANDING		8,127,500			13,127,500

The accompanying notes are an integral part of these consolidated financials statements.

MUSCATO GROUP, INC. & SUBSIDIARY
(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31,


	2010			2009


Cash flows from operating activities:
Net loss	$	(125,308	)	$	840,483

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		23,623			21,550
Changes in operating assets and liabilities:
Accounts receivable		217,630			(931,004	)
Prepaid assets		(78,345	)		50,149
Accounts payable and accrued expenses		156,665			(6,999	)
Deferred revenue		(118,930	)		56,647

Net cash used in operating activities		75,335			30,826

Cash flows from investing activities:
Purchase of property and equipment		(2,725	)		(5,868	)
Funding liability		69,577			8,376

Net cash used in investing activities		66,852			8,376

Cash flows from financing activities:
Proceeds (repayments) toward related party loans		-			100,000
Repayments toward capital lease		(3,571	)		(3,158	)
Net cash provided by financing activities		(3,571	)		96,842

NET INCREASE (DECREASE) IN CASH		138,616			136,045

CASH AT BEGINNING OF YEAR		48,109			101,362

CASH AT END OF PERIOD	$	186,725		$	237,407

Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	7,396		$	2,565
Cash paid for taxes	$	-		$	-

The accompanying notes are an integral part of these consolidated financials statements.

MUSCATO GROUP, INC & SUBSIDIARY

(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

NOTE 1 – ORGANIZATION

Overview

Color Accents Holdings, Inc. (the "Company") was incorporated under the laws of the State of Nevada on April 28, 2008. Color Accents Holdings, Inc. is planning to provide total interior design, color analysis and home staging to the entire housing market network including home builders, home renovators and real estate firms and agents.

M2 Systems and its wholly owned subsidiary, Muscato Corporation, (collectively referred to as M2 Systems) are incorporated under the laws of the state of Florida. M2 Systems is engaged primarily in the development and sale of software which serves the online transaction processing systems marketplace. M2 Systems primarily serves organizations which are located throughout the United States and operate in the banking, healthcare, insurance and transportation industries.

On September 30, 2009, the Company entered into a share exchange agreement (the “Share Exchange Agreement”) and consummated a share exchange (the “Share Exchange”) with M2 Systems and each of the shareholders of M2 Systems (the “M2 Systems Shareholders”).

Upon the closing of the Share Exchange on September 30, 2009 (the “Closing”), the M2 Systems Shareholders transferred all of their shares of common stock in M2 Systems to Color. In exchange, Color issued to the M2 Systems Shareholders an aggregate of 6,600,000 shares of our common stock (the “Common Stock”), $0.0001 par value per share, representing 81.21% of the shares issued and outstanding immediately after the Closing. As a result of the Share Exchange, M2 Systems became a wholly-owned subsidiary.

The Share Exchange is being accounted for as a “reverse merger” because the M2 Systems’ Shareholders now own a majority of the outstanding shares of our Common Stock immediately following the Share Exchange. M2 Systems is deemed the acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that are reflected in the financial statements prior to the Share Exchange are those of M2 Systems and are recorded at the historical cost basis of M2 Systems, and the consolidated financial statements after completion of the Share Exchange include our assets and liabilities and those of M2 Systems, historical operations of M2 Systems, and our operations from the Closing of the Share Exchange. Except as described in the previous paragraphs, no arrangements or understandings exist among present or former controlling stockholders with respect to the election of members of our board of directors and, to our knowledge, no other arrangements exist that might result in a change of control of the Company. Further, because of the issuance of the shares of our Common Stock pursuant to the Share Exchange, a change in control of the Company occurred on the date of consummation of the Share Exchange.

On October 5, 2009, the Company changed its name to Muscato Group, Inc.

MUSCATO GROUP, INC & SUBSIDIARY

(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements

The interim financial statements presented herein have been prepared pursuant to the rules and regulations of the SEC. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations. The interim financial statements should be read in conjunction with the Company’s annual financial statements, notes and accounting policies included in the Company’s Annual Report. In the opinion of management, all adjustments which are necessary to provide a fair presentation of financial position as of March 31, 2010 and the related operating results and cash flows for the interim period presented have been made. All adjustments are of a normal recurring nature. The results of operations, for the period presented are not necessarily indicative of the results to be expected for the year ended December 31, 2010.

Accounting standards update

In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a Replacement of FASB Statement No. 162”. SFAS No. 168 made the FASB Accounting Standards Codification (ASC ) the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates (ASU). The FASB will not consider ASUs as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the bases for conclusions on the change(s) in the Codification.

Principles of Consolidation

The consolidated financial statements include the accounts of Color Accents, Inc., M2 Systems Corporation and and Muscato Corporation. All significant intercompany balances and transactions have been eliminated in consolidation.

Revenue Recognition

The Company recognizes revenue in accordance with the provisions of ASC 600 Revenue Recognition, which states that revenue is realized and earned when all of the following criteria are met:

MUSCATO GROUP, INC & SUBSIDIARY

(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

(a) persuasive evidence of the arrangement exists,

(b) delivery has occurred or services have been rendered,

(d) collectibility is reasonably assured.

The Company recognizes revenue for the software development upon execution of a non-cancelable contract and the acceptable delivery of the software to the end-user. Software support, consulting, processing fees and other services are recognized as the services are performed. Software maintenance fees are recognized over the term of the underlying maintenance contracts.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make a number of estimates and assumptions relating to the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. Significant items subject to such estimates and assumptions include the carrying amount of property and equipment, intangible assets and goodwill; valuation allowances for receivables and deferred income tax assets.

Cash and Cash Equivalents

For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of one year or less to be cash equivalents. From time to time, cash accounts held in United States based checking accounts may exceed the Federal Deposit Insurance Corporation (FDIC) $250,000 insured limit. Management believes that no significant concentration of credit risk exists with respect to these cash balances because of its assessment of the credit worthiness and financial viability of their banks.

Accounts Receivable

Accounts receivable are recorded at amounts due and do not bear interest. The Company reviews these receivables on a monthly basis for collectability. An allowance is established to provide for estimated uncollectable accounts receivable. In estimating the collectability of accounts receivable, management considered the most recent financial information available for the applicable party as well as the most recent payment history. Account balances are charged off against the allowance after all means of collection have been exhausted and potential for recovery is considered remote. The Company has recorded as allowance of approximately $69,000 as of September 30, 2009 and December 31, 2008.

Property and Equipment

Property and equipment are stated at cost at the date of acquisition. Major additions and betterments are capitalized, while replacements, maintenance, and the repairs that do not improve or extend the life of the respective assets are expensed in current operations. Depreciation of property and equipment is calculated using straight-line methods over the estimated useful lives the asset. Estimated useful lives are as follows:

Furniture and Fixtures	3-5 years
Computer and office equipment	3-7 years
Leasehold improvements	10 years

MUSCATO GROUP, INC & SUBSIDIARY

(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

Income Taxes

The Company accounts for income taxes as follows:

The Company makes no provision for Federal or State income taxes for entities that have elected to be taxed as an S Corporation under Subchapter S of the Internal Revenue Code. Entities that have not made this election are accounted for under provisions for “Accounting for Income Taxes” which requires an asset and liability approach to financial accounting for income taxes. Deferred income tax assets and liabilities are computed annually for the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities. The Company has made an allowance of $500,000 as a provision for its estimated tax liability as of September 30, 2009.

The Corporation adopted the provisions of "Accounting for Uncertainty in Income Taxes. This provision prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. This provision also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties. Adoption of this provision did not have a significant impact on the Company's financial statements.

Long-Lived Assets

The Company reviews long-lived assets and certain identifiable assets related to those assets for impairment whenever circumstances and situations change, such that there is an indication that the carrying amounts may not be recoverable. If the undiscounted cash flows of the long-lived assets are less than the carrying amount, their carrying amounts are reduced to fair value, and an impairment loss is recognized.

Goodwill and Indefinite-Lived Intangible Assets

In accordance with ASC 359 Intangibles – Goodwill and Other goodwill, represents the excess of the purchase price over the fair value of net assets, including the amount assigned to identifiable intangible assets. The Company accounts for business combinations using the purchase method of accounting and accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date. The primary driver that generates goodwill is the value of synergies between the acquired entities and the Company, which does not qualify as an identifiable intangible asset. The Company does not amortize the goodwill balance.

MUSCATO GROUP, INC & SUBSIDIARY

(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred. If the carrying value of goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. The fair value of indefinite-lived purchased intangible assets should be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.

Fair Value of Financial Instruments

Fair value of certain of the Company’s financial instruments including cash and cash equivalents, accounts receivable, accrued compensation, and other accrued liabilities approximate cost because of their short maturities.

The Company has adopted the provisions of ASC 820 Fair Value Measurements and Disclosure which, ASC 820 establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosures about fair value investments. The provision was effective for financial assets and liabilities on January 1, 2008.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of an asset should reflect its highest and best use by market participants, whether using an in-use or an in-exchange valuation premise. The fair value of a liability should reflect the risk of nonperformance, which includes, among other things, the company’s credit risk.

Valuation techniques are generally classified into three categories: the market approach; the income approach; and the cost approach. The selection and application of one or more of the techniques requires significant judgment and are primarily dependent upon the characteristics of the asset or liability, the principal (or most advantageous) market in which participants and the quality and availability of inputs. Inputs to valuation techniques are classified as either observable or unobservable within the following hierarchy:

–	Level 1 Inputs: These inputs come from quoted prices (unadjusted) in active markets for identical assets or liabilities.

–

Level 2 Inputs: These inputs are other than quoted prices that are observable, for an asset or liability. This includes: quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

MUSCATO GROUP, INC & SUBSIDIARY

(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

–	Level 3 Inputs: These are unobservable inputs for the asset or liability which require the company’s own assumptions.

Advertising Costs

The Company expenses all advertising costs as incurred.

Software Development Costs

Software development costs are expensed as incurred.

Earnings Per Share

Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Diluted net loss per share is computed using the weighted-average number of common shares and excludes dilutive potential common shares outstanding, as their effect is anti-dilutive. Dilutive potential common shares would primarily consist of employee stock options and restricted common stock. The Company had no such dilutive common shares as of September 30, 2009 and 2008, respectively.

Recent Accounting Pronouncements

Fair Value Measurements: In January 2010, the FASB issued ASU 2010-06 which is intended to improve disclosures about fair value measurements. The guidance requires entities to disclose significant transfers in and out of fair value hierarchy levels, the reasons for the transfers and to present information about purchases, sales, issuances and settlements separately in the reconciliation of fair value measurements using significant unobservable inputs (Level 3). Additionally, the guidance clarifies that a reporting entity should provide fair value measurements for each class of assets and liabilities and disclose the inputs and valuation techniques used for fair value measurements using significant other observable inputs (Level 2) and significant unobservable inputs (Level 3). The Company has applied the new disclosure requirements as of January 1, 2010, except for the disclosures about purchases, sales, issuances and settlements in the Level 3 reconciliation, which will be effective for interim and annual periods beginning after December 15, 2010. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

Subsequent Events: In February 2010, the FASB issued ASU 2010-09 which requires that an SEC filer, as defined, evaluate subsequent events through the date that the financial statements are issued. The update also removed the requirement for an SEC filer to disclose the date through which subsequent events have been evaluated in originally issued and revised financial statements. The adoption of this guidance on January 1, 2010 did not have a material effect on the Company’s consolidated financial statements.

Other ASUs not effective until after March 31, 2010, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

MUSCATO GROUP, INC & SUBSIDIARY

(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2010 and 2009

NOTE 3 – PROPERTY AND EQUIPMENT

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

	2010			2009
Computer hardware and software	$	554,857		$	552,131
Furniture and fixtures		14,294			14,294
Office equipment		60,442			60,442
Leasehold improvements		96,847			96,847
		726,440			723,714
Less: accumulated depreciation		(624,293	)		(606,920	)

	$	102,147		$	116,794

For the three months ended March 31, 2010 and the year ended December 31, 2009, the Company recorded $17,373 and $63,291, respectively in depreciation and amortization expense.

NOTE 4 – COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space, and office machines under non-cancelable operating leases, which expire at various dates through 2012. Rental expense under these leases amounted to approximately $64,000 and $58,000 for the three months ended March 31, 2010 and 2009, respectively

Future minimum lease payments under the Company’s non-cancelable operating leases as of March 31, 2010 are as follows:

2010	$	161,306
2011		210,026
2012		101,475
Total	$	472,807

NOTE 6 – CONCENTRATION OF CREDIT RISK

Accounts receivable - Revenues generated from three customers, comprised approximately 80% of revenues for the nine months ended March 31, 2010. At March 31, 2010, approximately 80% of accounts receivables were from these three customers.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of financial condition and results of operations relates to the operations and financial condition reported in the financial statements should be read in conjunction with such financial statements and related notes included in this report.

Management’s discussion and analysis contains various forward-looking statements. These statements consist of any statement other than a recitation of historical fact and can be identified by the use of forward-looking terminology such as “may,” “expect,” “anticipate,” “estimate” or “continue” or use of negative or other variations or comparable terminology.

We caution that these statements are further qualified by important factors that could cause actual results to differ materially from those contained in the forward-looking statements that these forward-looking statements are necessarily speculative, and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements.

OUR BUSINESS

On September 30, 2009, we entered into a Share Exchange Agreement for the purchase of 100% of the shares of M2 Systems in exchange for the issuance of 6,600,000 shares of our Common Stock. The closing of the transaction took place on September 30, 2009 and, pursuant to the terms of the Share Exchange Agreement, M2 Systems became our wholly-owned subsidiary.

M2 Systems is a financial and healthcare services technology company. We develop, operate and license proprietary technology used to enable platform interoperability and in the initiation and settlement of electronic payments/transactions. We own all our intellectual property. M2 Systems is a preferred software vendor to two government backed healthcare companies and our platform is being used today as a core system in the processing of millions of Medicare claims.

RESULTS OF OPERATIONS

Results of Operations for the Three Month Period ended March 31, 2010 Compared to the Three Month Period ended March 31, 2009

The following tables set forth key components of our results of operations for the periods indicated, in dollars, and key components of our revenue for the period indicated, in dollars. The discussion following the table is based on these results.

	For the three months ended
	March 31,
	2010			2009


CONTRACT REVENUES EARNED	$	922,012		$	1,666,206

COST OF REVENUES EARNED		2,840			38,752

GROSS PROFIT		919,172			1,627,454

OPERATING EXPENSES
Salaries and related expenses		617,994			416,829
Professional services		30,276			19,403
General and administrative expenses		306,737			268,551
Rent		63,699			58,074
Depreciation and amortization		23,623			21,549
Total operating expenses		1,042,329			784,406

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE AND INCOME TAXES		(123,157	)		843,048

Interest expense		(2,151	)		(2,565	)
Provision for income taxes		-			-

INCOME (LOSS) FROM OPERATIONS	$	(125,308	)	$	840,483

Contract Revenue Earned:

Contract revenue earned decreased by $744,194, or 45%, from $1,666,206 for the three month period ended March 31, 2009 to $922,012 for the three month period ended March 31, 2010. This was primarily the result of a one-time software license sale in 2009 in the amount of $1,172,750. Although this sale was not repeated in 2010 both maintenance and consulting/service related revenues were significantly higher in 2010 than in 2009--$358,152 and $70,405 respectively due primarily to a new contract relationship with JP Morgan.

Operating Expenses:

Operating expenses increased by $257,923, or 33%, from $784,406 for the three month period ended March 31, 2009 to $1,042,329 for the three month period ended March 31, 2010. These increases are primarily the result of expenses related to the new contract revenues in Salary and G & A expenses.

Income (Loss) from Operations:

Income from operations decreased by $966,205, from income of $843,048 for the three month period ended March 31, 2009 to a loss of $123,157 for the three month period ended March 31, 2010 mainly due to the higher revenues of 2009 related to the software license and higher revenues and expenses related to the new contract relationships reflected in the 2010 statement.

Interest Expense:

Interest expense for the three month period ended March 31, 2010 and 2009 was $2,151 and $2,565, respectively, a decrease of $414 or 16%. The decrease in interest expense for the period was a result of the natural decrease in interest related to the amortization of a capital lease.

Net Income (loss):

Net Loss was 125,308 for the three month period ended March 31, 2010, compared to Net Income of $840,483 for the three month period ended March 31, 2009, a decrease of $965,791. The decrease in our net income for the three month period was a result of various factors including the higher revenues in 2009 associated with the software license revenue and additional income and expenses related to new contract relationships reflected in the 2010 statement.

LIQUIDITY AND CAPITAL RESOURCES

Our primary uses of cash have been for developing our software for the financial and healthcare services, marketing expenses, employee compensation, new product development and working capital. All cash we receive have been expended in the furtherance of growing the business and establishing our software.

Impact of Inflation

We expect to be able to pass inflationary increases for raw materials and other costs on to our customers through price increases, as required, and do not expect inflation to be a significant factor in our business.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements between us and any other entity that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

A summary of significant accounting policies is included in Note 2 to the audited consolidated financial statements for the year ended December 31, 2008. Management believes that the application of these policies on a consistent basis enables us to provide useful and reliable financial information about our Company's operating results and financial condition.

Recently issued accounting pronouncements

Recent accounting pronouncements that the Company has adopted or will be required to adopt in the future are summarized below:

Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles

In June 2009, the Financial Accounting Standards Board issued Statement “FASB” issued Statement No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles” (“SFAS No. 168”). SFAS No. 168 will become the single source of authoritative nongovernmental U.S. generally accepted accounting principles (“GAAP”), superseding existing FASB, American Institute of Certified Public Accountants (“AICPA”), Emerging Issues Task Force (“EITF”), and related accounting literature. SFAS No. 168 reorganizes the thousands of GAAP pronouncements into roughly 90 accounting topics and displays them using a consistent structure. Also included is relevant Securities and Exchange Commission guidance organized using the same topical structure in separate sections. SFAS No. 168 will be effective for financial statements issued for reporting periods that end after September 15, 2009. This statement will have an impact on the Company’s financial statements since all future references to authoritative accounting literature will be references in accordance with SFAS No. 168.

In August 2009, the FASB issued ASU 2009-05 which includes amendments to Subtopic 820-10, “Fair Value Measurements and Disclosures—Overall”. The update provides clarification that in circumstances, in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update. The amendments in this ASU clarify that a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability and also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The guidance provided in this ASU is effective for the first reporting period, including interim periods, beginning after issuance. The adoption of this standard did not have a material impact on the Company’s consolidated financial position and results of operations.

In September 2009, the FASB issued ASU 2009-06, Income Taxes (Topic 740), ”Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities”, which provides implementation guidance on accounting for uncertainty in income taxes, as well as eliminates certain disclosure requirements for nonpublic entities. For entities that are currently applying the standards for accounting for uncertainty in income taxes, this update shall be effective for interim and annual periods ending after September 15, 2009. For those entities that have deferred the application of accounting for uncertainty in income taxes in accordance with paragraph 740-10-65-1(e), this update shall be effective upon adoption of those standards. The adoption of this standard is not expected to have an impact on the Company’s consolidated financial position and results of operations since this accounting standard update provides only implementation and disclosure amendments.

In September 2009, the FASB has published ASU No. 2009-12, “Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)”. This ASU amends Subtopic 820-10, “Fair Value Measurements and Disclosures – Overall”, to permit a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent).

This ASU also requires new disclosures, by major category of investments including the attributes of investments within the scope of this amendment to the Codification. The guidance in this Update is effective for interim and annual periods ending after December 15, 2009. Early application is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In October 2009, the FASB has published ASU 2009-13, “Revenue Recognition (Topic 605)-Multiple Deliverable Revenue Arrangements”, which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than as a combined unit. Specifically, this guidance amends the criteria in Subtopic 605-25, “Revenue Recognition-Multiple-Element Arrangements”, for separating consideration in multiple-deliverable arrangements. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence; (b) third-party evidence; or (c) estimates. This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method and also requires expanded disclosures. The guidance in this update is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact any impact on the Company’s consolidated financial position and results of operations.

In October 2009, the FASB has published ASU 2009-14, “Software (Topic 985)-Certain Revenue Arrangements that Include Software Elements” and changes the accounting model for revenue arrangements that include both tangible products and software elements. Under this guidance, tangible products containing software components and nonsoftware components that function together to deliver the tangible product's essential functionality are excluded from the software revenue guidance in Subtopic 985-605, “Software-Revenue Recognition”. In addition, hardware components of a tangible product containing software components are always excluded from the software revenue guidance. The guidance in this ASU is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position and results of operations.

In May 2009, the FASB issued SFAS No. 165, “Subsequent Events”.(“SFAS No. 165”) This Statement establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date and is effective for interim and annual periods ending after June 15, 2009. The Company has adopted SFAS No. 165 and is evaluating the effect it will have on its financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company is subject to certain market risks, including changes in interest rates and currency exchange rates. The Company does not undertake any specific actions to limit those exposures.

Item 4T. Controls and Procedures

a) Evaluation of Disclosure Controls. Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We are currently not involved in any litigation that 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 body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

Item 1A. Risk Factors.

During the three months ended March 31, 2010, there were no material changes to the risk factors previously disclosed.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. (Removed and Reserved).

Item 5. Other Information.

None.

Item 6. Exhibits and Reports

(a) Exhibits

31.1 Certification for Joseph Adams as Chief Executive Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002

31.2 Certification for Randy Oveson as Chief Financial Officer pursuant to Section 302 of Sarbanes Oxley Act of 2002

32.1 Certification for Joseph Adams as Chief Executive Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002

32.2 Certification for Randy Oveson as Chief Financial Officer pursuant to Section 906 of Sarbanes Oxley Act of 2002

SIGNATURES

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

	MUSCATO GROUP, INC.

Date: May 17, 2010	By:	/s/ Michael Muscato
		Michael A. Muscato
		Chairman of the Board of Directors


Date: May 17, 2010	By:	/s/ Joseph Adams
		Joseph Adams
		President and Chief Executive Officer


Date: May 17, 2010	By:	/s/ Randy Oveson
		Randy Oveson
		Chief Financial Officer

Muscato Group, Inc. 10-Q