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 June 30, 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 August 23, 2010: 8,127,500 shares of Common Stock.

MUSCATO GROUP, INC.

FORM 10-Q

June 30, 2010

INDEX

PART I-- FINANCIAL INFORMATION

Item 1.	Financial Statements	1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	17
Item 4.	Controls and Procedures	17

PART II-- OTHER INFORMATION

Item 1	Legal Proceedings	17
Item 1A	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	18
Item 4.	(Removed and Reserved)	18
Item 5.	Other Information	18
Item 6.	Exhibits	18

SIGNATURE

Item 1. Financial Information.

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


	June 30,			December 31,
	2010			2009
	(Unaudited)			(Audited)
ASSETS

CURRENT ASSETS
Cash	$	13,855		$	48,109
Accounts receivable, net		707,486			507,505
Prepaid expenses		13,571			13,348
Other current assets		183,020			-

TOTAL CURRENT ASSETS		917,932			568,962

PROPERTY and EQUIPMENT, net		91,473			116,794

DEPOSITS		21,080			21,080

INTANGIBLE ASSETS, net		12,499			24,999

TOTAL ASSETS	$	1,042,984		$	731,835


LIABILITIES AND SHAREHOLDERS' DEFICIT

CURRENT LIABILITIES
Accounts payable and accrued expenses	$	563,346		$	377,727
Deferred revenue		773,009			771,159
Current portion of leases payable		14,967			14,967
Funding liability		-			470,641
Loans from related parties		-			287,360

TOTAL CURRENT LIABILITIES		1,351,322			1,921,854

LONG TERM LIABILITIES
Due to Global Bank of Commerce		300,000			-
Capital leases payable		48,558			55,812

TOTAL LONG TERM LIABILITIES		348,558			55,812

TOTAL LIABILITIES		1,699,880			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 June 30, 2010 and December 31, 2009		813			813
Additional paid in capital		809,627			86,243
Retained earnings (accumulated deficit)		(1,467,336	)		(1,332,887	)

TOTAL SHAREHOLDERS' DEFICIT		(656,896	)		(1,245,831	)

TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	1,042,984		$	731,835

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

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


	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2010			2009			2010			2009

CONTRACT REVENUES EARNED	$	2,312,840		$	1,398,105		$	3,234,852		$	3,064,311

COST OF REVENUES EARNED		583,080			9,604			585,920			48,356

GROSS PROFIT		1,729,760			1,388,501			2,648,932			3,015,955

OPERATING EXPENSES
Salaries and related expenses		489,486			582,732			1,107,480			999,561
Professional services		177,156			19,403			207,432			38,806
General and administrative expenses		996,824			288,490			1,303,561			557,041
Rent		48,414			58,074			112,113			116,148
Depreciation and amortization		24,980			21,571			48,603			43,120
Total operating expenses		1,736,860			970,270			2,779,189			1,754,676

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE AND INCOME TAXES		(7,100	)		418,231			(130,257	)		1,261,279

Interest expense		(2,151	)		(2,466	)		(4,192	)		(5,031	)
Benefit (provision) for income taxes		-			22,000			-			22,000

INCOME (LOSS) FROM OPERATIONS	$	(9,251	)	$	437,765		$	(134,449	)	$	1,278,248

BASIC AND FULLY DILUTED NET LOSS PER SHARE	$	(0.00	)	$	0.03		$	(0.02	)	$	0.10

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

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

MUSCATO GROUP, INC. & SUBSIDIARIES
(f/k/a COLOR ACCENTS HOLDINGS, INC. & SUBSIDIARY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,


	2010			2009

Cash flows from operating activities:
Net loss	$	(134,449	)	$	1,278,248

Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization		48,603			43,120
Changes in operating assets and liabilities:
Accounts receivable		153,605			(1,259,098	)
Prepaid assets		(223	)		39,769
Other current assets		(183,020	)		-
Accounts payable and accrued expenses		164,872			196,127
Deferred revenue		(73,663	)		(224,817	)

Net cash used in operating activities		(24,275	)		73,350

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

Net cash used in investing activities		(2,725	)		(5,868	)

Cash flows from financing activities:
Proceeds (repayments) toward related party loans		-			147,500
Repayments toward capital lease		(7,254	)		(7,254	)
Net cash provided by financing activities		(7,254	)		140,246

NET INCREASE (DECREASE) IN CASH		(34,254	)		207,728

CASH AT BEGINNING OF YEAR		48,109			101,362

CASH AT END OF PERIOD	$	13,855		$	309,090

Supplemental disclosure of cash flow information:
Cash paid during the year for interest	$	7,396		$	5,130
Cash paid for taxes	$	-		$	-

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

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 was 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.

On May 28, 2010, our wholly owned subsidiary, M2 ReInc II, LLC, a Florida limited liability company, (“ReInc”) entered into an asset purchase agreement with M2 Global, an Antigua Corporation.

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 2009

Pursuant to the agreement, ReInc purchased from M2 Global all of its rights, title, and interest in all internet electronic addresses, uniform resource locators and alphanumeric designations owned, and the following names and domain names: M2 Europe, M2 Europe Ltd., M2 Financial, M2 Financial Ltd., M2 ReInc, M2 ReInc, LLC, M2 International, M2 International Ltd., iKobo, ikobo.com, iikobo.com, iikobo.org, ikobo.net, ikobocustomercare.com, ikobocustomercare.org, ikobocustomercare.net, ikobogifts.com, ikobogifts.net, ikoboinc.com, ikoboo.com, ikoboo.net, ikoboo.org, ikobosupport.com, ikobosupport.net, and ikobosupport.org.

In addition, pursuant to the agreement, M2 Global agreed not to claim any rights associated with the following domain names: m2-financial.com, m2-international.com, and m2-reinc.com.

Additionally, ReInc acquired all the hardware assets that were originally acquired from Symmetrex, Inc., via a Bill of Sale dated March 10, 2009, and any claim to the patent pending or application for Dynamic Card Validation Value (also known as SAFE) and associated trademarks.

Lastly, ReInc acquired all the stock that M2 Global owned in the following entities: (i) 57,560,000 shares of M2 Europe Ltd., at a total purchase price of $25.00; (ii) 1,000 shares of M2 Financial Ltd., at a total purchase price of $25.00; (iii) 100 shares of M2 ReInc LLC at a total purchase price of $25.00; and (iv) 1000 shares of M2 International Ltd., at a total purchase price of $25.00. As a result of these acquisitions, three entities became wholly-owned subsidiaries of ReInc, specifically M2 Financial Ltd., M2 ReInc LLC, and M2 International, Ltd. Muscato Group. Inc. became the majority shareholder of M2 Europe, Ltd.

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 June 30, 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

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 2009

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 Muscato Group, Inc and its majority owned subsidiaries; M2 Systems, Corporation, M2 Financial, Ltd, M2 Europe, Ltd., M2 International, Ltd., and M2 Reinc, LLC. All companies are wholly owned with the exception of M2 Europe, which is majority owned. 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:

(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.

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 2009

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

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 no provision for its estimated tax liability as of June 30, 2010.

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 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.

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.

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 2009

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.

· 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.

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 2009

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.

Income Taxes: In April 2010, the FASB issued Accounting Standard Update No. 2010-12. “Income Taxes” (Topic 740). ASU No.2010-12 amends FASB Accounting Standard Codification subtopic 740-10 Income Taxes to include paragraph 740-10-S99-4. On March 30, 2010 The President signed the Health Care & Education Affordable Care Act reconciliation bill that amends its previous Act signed on March 23, 2010. FASB Codification topic 740, Income Taxes, requires the measurement of current and deferred tax liabilities and assets to be based on provisions of enacted tax law. The effects of future changes in tax laws are not anticipated.” Therefore, the different enactment dates of the Act and reconciliation measure may affect registrants with a period-end that falls between March 23, 2010 (enactment date of the Act), and March 30, 2010 (enactment date of the reconciliation measure). However, the announcement states that the SEC would not object if such registrants were to account for the enactment of both the Act and the reconciliation measure in a period ending on or after March 23, 2010, but notes that the SEC staff “does not believe that it would be appropriate for registrants to analogize to this view in any other fact patterns.” The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

Stock Compensation: In April 2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity.

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 2009

The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

Revenue Recognition: In April 2010, the FASB issued Accounting Standard Update No. 2010-17. “Revenue Recognition-Milestone Method” (Topic 605) ASU No.2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. An entity often recognizes these milestone payments as revenue in their entirety upon achieving a specific result from the research or development efforts. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. Determining whether a milestone is substantive is a matter of judgment made at the inception of the arrangement. The ASU is effective for fiscal years and interim periods within those fiscal years beginning on or after June 15, 2010. Early application is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

Receivables: In April 2010, the FASB issued Accounting Standard Update No. 2010-18. “Receivables” (Topic 310). ASU No.2010-18 provides guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition. Paragraph 310-30-15-6 allows acquired assets with common risk characteristics to be accounted for in the aggregated as a pool. Upon establishment of the pool, the pool becomes the unit of accounting. When loans are accounted for as a pool, the purchase discount is not allocated to individual loans; thus all of the loans in the pool accrete at a single pool rate (based on cash flow projections for the pool). Under subtopic 310-30, the impairment analysis also is performed on the pool as a whole as opposed to each individual loan. Paragraphs 310-40-15-4 through 15-12 establish the criteria for evaluating whether a loan modification should be classified as a troubled debt restructuring. Specifically paragraph 310-40-15-5 states that “a restructuring of a debt constitutes a troubled debt restructuring for purposes of this subtopic if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.” The ASU is effective for modification of loans accounted for within pools under subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

Other ASUs not effective until after June 30, 2010, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.

MUSCATO GROUP, INC & SUBSIDIARIES

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2010 and 2009

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2010 and December 31, 2009 consisted of the following:

	2010			2009
Computer hardware and software	$	559,163		$	552,131
Furniture and fixtures		24,294			14,294
Office equipment		60,442			60,442
Leasehold improvements		96,847			96,847
		740,746			723,714
Less: accumulated depreciation		(649,273	)		(606,920	)

	$	91,473		$	116,794

For the six months ended June 30, 2010 and the year ended December 31, 2009, the Company recorded $48,603 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 $112,000 and $116,000 for the six months ended June 30, 2010 and 2009, respectively

Future minimum lease payments under the Company’s non-cancelable operating leases as of June 30, 2010 are as follows:

2010	$	161,306
2011		210,026
2012		53,061
Total	$	424,393

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.

On May 28, 2010, our wholly owned subsidiary, M2 ReInc II, LLC, a Florida limited liability company, (“ReInc”) entered into an asset purchase agreement with M2 Global, an Antigua Corporation.

In addition, pursuant to the agreement, M2 Global agreed not to claim any rights associated with the following domain names: m2-financial.com, m2-international.com, and m2-reinc.com.

RESULTS OF OPERATIONS

Results of Operations for the Six month Period ended June 30, 2010 Compared to the Six month Period ended June 30, 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 six months ended
	June 30,
	2010			2009


CONTRACT REVENUES EARNED	$	3,234,852		$	3,064,311

COST OF REVENUES EARNED		585,920			48,356

GROSS PROFIT		2,648,932			3,015,955

OPERATING EXPENSES
Salaries and related expenses		1,107,480			999,561
Professional services		207,432			38,806
General and administrative expenses		1,303,561			557,041
Rent		112,113			116,148
Depreciation and amortization		48,603			43,120
Total operating expenses		2,779,189			1,754,676

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE AND INCOME TAXES		(130,257	) )		1,261,279

Interest expense		(4,192	) )		(5,031	)
Provision for income taxes		-			22,000

INCOME (LOSS) FROM OPERATIONS	$	(134,449	) )	$	1,278,248

Contract Revenue Earned:

Contract revenue earned increased by $170,541, or 5.6%, from $3,234,852 for the six month period ended June 30, 2010 to $3,064,311for the six month period ended June 30, 2009. 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.

Operating Expenses:

Operating expenses increased by $1,024,513, or 58.4%, from $1,754,676 for the six month period ended June 30, 2009 to $2,779,189 for the six month period ended June 30, 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 $1,143,799, from income of $1,278,248 for the six month period ended June 30, 2009 to a loss of $134,449 for the six month period ended June 30, 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 six month period ended June 30, 2010 and 2009 was $4,192 and $5,031, respectively, a decrease of $839 or 16.7%. 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 ($130,257) for the six month period ended June 30, 2010, compared to Net Income of $1,261,279 for the six month period ended June 30, 2009, a decrease of $1,131,022. The decrease in our net income for the six 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:

In April 2010, the FASB issued Accounting Standard Update No. 2010-12. “Income Taxes” (Topic 740). ASU No.2010-12 amends FASB Accounting Standard Codification subtopic 740-10 Income Taxes to include paragraph 740-10-S99-4. On March 30, 2010 The President signed the Health Care & Education Affordable Care Act reconciliation bill that amends its previous Act signed on March 23, 2010. FASB Codification topic 740, Income Taxes, requires the measurement of current and deferred tax liabilities and assets to be based on provisions of enacted tax law. The effects of future changes in tax laws are not anticipated.” Therefore, the different enactment dates of the Act and reconciliation measure may affect registrants with a period-end that falls between March 23, 2010 (enactment date of the Act), and March 30, 2010 (enactment date of the reconciliation measure). However, the announcement states that the SEC would not object if such registrants were to account for the enactment of both the Act and the reconciliation measure in a period ending on or after March 23, 2010, but notes that the SEC staff “does not believe that it would be appropriate for registrants to analogize to this view in any other fact patterns.” The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update No. 2010-13 “Stock Compensation” (Topic 718). ASU No.2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update No. 2010-15. “Financial Services-Insurance” (Topic 944) ASU No.2010-15 gives direction on how investments through separate accounts affect an insurer’s consolidation analysis of those investments. Under the ASU: an insurance entity should not consider any separate account interests held for the benefit of policy holders in an investment to be the insurer's interests and should not combine those interests with its general account interest in the same investment when assessing the investment for consolidation, unless the separate account interests are held for the benefit of a related party policy holder as defined in the Variable Interest Entities Subsections of Subtopic 810-10 and those Subsections require the consideration of related parties. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010. Early adoption is permitted. The amendments in this Update should be applied retrospectively to all prior periods upon the date of adoption. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update No. 2010-17. “Revenue Recognition-Milestone Method” (Topic 605) ASU No.2010-17 provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. An entity often recognizes these milestone payments as revenue in their entirety upon achieving a specific result from the research or development efforts. A vendor can recognize consideration that is contingent upon achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. Determining whether a milestone is substantive is a matter of judgment made at the inception of the arrangement. The ASU is effective for fiscal years and interim periods within those fiscal years beginning on or after June 15, 2010. Early application is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued Accounting Standard Update No. 2010-18. “Receivables” (Topic 310). ASU No.2010-18 provides guidance on accounting for acquired loans that have evidence of credit deterioration upon acquisition. Paragraph 310-30-15-6 allows acquired assets with common risk characteristics to be accounted for in the aggregated as a pool. Upon establishment of the pool, the pool becomes the unit of accounting. When loans are accounted for as a pool, the purchase discount is not allocated to individual loans; thus all of the loans in the pool accrete at a single pool rate (based on cash flow projections for the pool). Under subtopic 310-30, the impairment analysis also is performed on the pool as a whole as opposed to each individual loan. Paragraphs 310-40-15-4 through 15-12 establish the criteria for evaluating whether a loan modification should be classified as a troubled debt restructuring. Specifically paragraph 310-40-15-5 states that “a restructuring of a debt constitutes a troubled debt restructuring for purposes of this subtopic if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider.” The ASU is effective for modification of loans accounted for within pools under subtopic 310-30 occurring in the first interim or annual period ending on or after July 15, 2010. The amendments are to be applied prospectively. Early application is permitted. The adoption of this guidance has not had and is not expected to have a material impact on the Company’s consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

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.

Not required for smaller reporting companies.

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: August 23, 2010	By:	/s/ Michael Muscato
		Michael A. Muscato
		Chairman of the Board of Directors


Date: August 23, 2010	By:	/s/ Joseph Adams
		Joseph Adams
		President and Chief Executive Officer


Date: August 23, 2010	By:	/s/ Randy Oveson
		Randy Oveson
		Chief Financial Officer

Muscato Group, Inc. 10-Q