UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549





FORM
10-Q/A


Amendment
No. 1





(Mark
One)


x     
Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934




For the
quarterly period ended June 30, 2008





o     
Transition report under Section 13 or 15(d) of the Exchange Act




For the
transition period from _________ to _________




Commission
file number 0-27889





THE
AMACORE GROUP, INC.


(Exact
name of registrant as specified in its charter)





Delaware
            
            59-3206480(State
      or other jurisdiction of
            
            (I.R.S.
      Employerincorporation
      or organization)
            
            Identification
      No.)







1211
      North Westshore Boulevard, Suite 512Tampa,
      Florida 33607(Address
      of principal executive offices)







(813)
      289-5552(Registrant’s
      telephone number, including area
code)







Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant 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 is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer   o
            Accelerated
      filer  oNon-accelerated
      filer    o(Do not check if
      a smaller reporting company)
            Smaller
      reporting company  x





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


Yes o     
No x





Indicate
the number of shares outstanding of each of the issuer’s classes of common stock
as of August 13, 2008:


143,220,225
Class A Common Shares


2,503,522 Class
B Common Shares










EXPLANATORY
NOTE






This
Amendment No. 1 to this Quarterly Report on Form 10-Q/A (“Form 10-Q/A”) is being
filed in order to correct previously issued condensed consolidated financial
statements of The Amacore Group, Inc. (the “Company”) as of and for the six
months ended June 30, 2008, initially filed on Form 10-Q with the Securities and
Exchange Commission (the “SEC”) on August 14, 2008 (the “Original Form
10-Q”).  This restatement corrects errors related to the treatment of
certain warrant agreements with “change in control” provisions, the treatment of
the allowance for sales refunds and chargebacks, and the treatment of
capitalization of commissions paid.  The tables within Note 2 to the
Condensed Consolidated Financial Statements contained herein show the amount
originally reported, the amount of the adjustment and the restated amount. In
addition, the presentation of financial information (including notes to
financial statements) has been revised to conform to the presentation of
financial information in the Company Quarterly Report on Form 10-Q for the
period ended September 30, 2008.  In addition, certain other enhancements
and clarifications to Part I, Item 2 have been made.




This Form
10-Q/A includes items that have been changed as a result of the restatement as
well as items that are unchanged from the Original Form 10-Q.  Other
than as required to reflect the effects of the restatement, this Form 10-Q/A has
not been updated to reflect the effects of other events occurring subsequent to
the filing date of the Original Form 10-Q.  Therefore, this Form
10-Q/A should be read in conjunction with our filings made with the SEC
subsequent to the filing of the Original Form 10-Q, including any amendments to
those filings.




This Form
10-Q/A amends the following items which were impacted by the adjustments
described above:




Part I -
Item 1 - Financial Statements




Part I -
Item 2 - Management’s Discussion and Analysis of Financial Condition and Results
of Operations




In
addition, this Form 10-Q/A includes currently-dated certifications from our
principal executive officer and principal financial officer, as required by
Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended.




Additional
information about the decision to restate the March 31, 2008 financial
statements can be found in the Company’s Current Report on Form 8-K, filed with
the SEC on December 18, 2008 and in Note 2 to the Condensed Consolidated
Financial Statements contained herein.






























2








THE
AMACORE GROUP, INC.





FORM
10-Q/A




PART I
- FINANCIAL INFORMATION





Page
      No.Item
      1. Financial Statements (Unaudited)Condensed
      Consolidated Balance Sheets - June 30, 2008 and December 31,
      2007
            4Condensed
      Consolidated Statements of Operations – For the Three and Six Months
      Ended June 30, 2008 and 2007
            5Condensed
      Consolidated Statements of Cash Flows – For the Six Months Ended June 30,
      2008 and 2007
            6Notes
      to Interim Condensed Consolidated Financial Statements
            7Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
            27Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk.
            32Item
      4T.  Controls and Procedures.
            32








PART II
- OTHER INFORMATION





Page
      No.Item.
      1. Legal Proceedings.
            33Item
      2. Unregistered Sales of Equity and Use of Proceeds.
            33Item
      3. Defaults Upon Senior Securities.
            33Item
      4. Submission of Matters to a Vote of Security Holders.
            33Item
      5. Other Information.
            33Item
      6. Exhibits
            35Signatures
            36





3


THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
  June
      30,
                
                
                December
      31,2008
                
                
                2007ASSETSCurrent
      assetsCash
                
                $
                2,054,937
                
                
                $
                2,161,042Restricted
      cash
                
                
                250,000
                
                
                
                316,935Accounts
      receivable (net of $50,662 and $0 allowancefor
      doubtful accounts in 2008 and 2007, respectively)
                
                
                297,159
                
                
                
                470,049Non-trade
      receivables – related party
                
                
                92,114
                
                
                
                64,385Inventory
                
                
                37,814
                
                
                
                37,814Deferred
      expenses
                
                
                3,195,179
                
                
                
                1,023,798Deposits
      and advances
                
                
                491,137
                
                
                
                61,236Total
      current assets
                
                
                6,418,340
                
                
                
                4,135,259Property,
      plant and equipment (net of accumulated depreciation of $245,204 and
      $132,387for
      2008 and 2007, respectively)
                
                
                899,235
                
                
                
                418,356Other
      assetsDeferred
      customer acquisition costs
                
                
                473,636
                
                
                
                -Goodwill
      and other intangible assets
                
                
                26,382,017
                
                
                
                14,725,250Other
                
                
                1,152,348
                
                
                
                -Total
      other assets
                
                
                28,008,001
                
                
                
                14,725,250Total
      assets
                
                $
                35,325,576
                
                
                $
                19,278,865LIABILITIES
      AND STOCKHOLDERS' (DEFICIT) EQUITYCurrent
      liabilitiesAccounts
      payable
                
                $
                2,986,938
                
                
                $
                2,639,200Accounts
      payable - related party
                
                
                610,217
                
                
                
                590,888Loans
      and notes payable
                
                
                1,326,947
                
                
                
                1,414,530Accrued
      expenses and other liabilities
                
                
                2,945,029
                
                
                
                5,147,665Deferred
      compensation - related party
                
                
                466,414
                
                
                
                602,344Deferred
      revenue
                
                
                1,881,464
                
                
                
                1,409,984Deferred
      acquisition payments
                
                
                465,685
                
                
                
                -Total
      current liabilities
                
                
                10,682,694
                
                
                
                11,804,611Long-Term
      LiabilitiesCapital
      lease obligations
                
                
                69,420
                
                
                
                -Deferred
      acquisition payments
                
                
                884,760
                
                
                
                -Accrued
      dividends
                
                
                1,029,831
                
                
                
                479,896Fair
      value of redeemable warrants
                
                
                19,458,597
                
                
                
                -Total
      long-term liabilities
                
                
                21,442,608
                
                
                
                479,896Total
      liabilities
                
                
                32,125,302
                
                
                
                12,284,507Stockholders'
      (deficit) equityPreferred
      Stock, $.001 par value, 20,000,000 shares authorized;Series
      D mandatory convertible preferred stock; 694.6 shares authorized;689
      shares issued and outstanding for 2008 and 2007,
      respectively
                
                
                -
                
                
                
                -Series
      E mandatory convertible preferred stock; 139 shares authorized;139
      shares issued and outstanding for 2008 and 2007,
      respectively
                
                
                -
                
                
                
                -Series
      G mandatory convertible preferred stock; 1,200 shares authorized;1,200
      and 300 shares issued and outstanding for 2008 and 2007,
      respectively
                
                
                1
                
                
                
                -Series
      H mandatory convertible preferred stock; 400 shares authorized;400
      and 0 shares issued and outstanding for 2008 and 2007,
      respectively
                
                
                -
                
                
                
                -Series
      A mandatory convertible preferred stock; 1,500 shares authorized;155
      shares issued and outstanding; for 2008 and 2007,
      respectively
                
                
                -
                
                
                
                -Common
      Stock A, $.001 par value, shares authorized 1,360,000,000 shares
      authorized;123,170,409
      and 110,149,156 shares issued and outstanding for 2008 and 2007,
      respectively
                
                
                123,170
                
                
                
                110,149Common
      Stock B, $.001 par value, 120,000,000 shares authorized;29,062,802
      and 27,563,802 shares issued and outstanding for 2008 and 2007,
      respectively
                
                
                29,063
                
                
                
                27,563Additional
      paid-in capital
                
                
                99,485,056
                
                
                
                83,956,054Accumulated
      deficit
                
                
                (96,437,016
                )
                
                
                (77,099,408
                )Total
      stockholders' (deficit) equity
                
                
                3,200,274
                
                
                
                6,994,358Total
      liabilities and stockholders' (deficit) equity
                
                $
                35,325,576
                
                
                $
                19,278,865
  See
      notes to condensed consolidated financial
  statements


4





THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
  (UNAUDITED)
  For
      the Three Months Ended
              
              
              For
      the Six Months EndedJune
      30, 2008
              
              
              June
      30, 2007
              
              
              June
      30, 2008
              
              
              June
      30, 2007REVENUESMembership
      fees
              
              $
              6,575,425
              
              
              $
              432,590
              
              
              $
              11,320,732
              
              
              $
              592,457Commissions
              
              
              542,002
              
              
              
              -
              
              
              
              678,745
              
              
              
              -Marketing
      fees and materials
              
              
              470,213
              
              
              
              -
              
              
              
              737,311
              
              
              
              -Total
      revenue
              
              
              7,587,640
              
              
              
              432,590
              
              
              
              12,736,788
              
              
              
              592,457COST
      OF SALESSales
      commissions
              
              
              3,630,820
              
              
              
              367,819
              
              
              
              6,372,152
              
              
              
              433,919Benefit
      and service cost
              
              
              1,604,012
              
              
              
              -
              
              
              
              2,897,890
              
              
              
              -Total
      cost of sales
              
              
              5,234,832
              
              
              
              367,819
              
              
              
              9,270,042
              
              
              
              433,919GROSS
      PROFIT
              
              
              2,352,808
              
              
              
              64,771
              
              
              
              3,466,746
              
              
              
              158,538OPERATING
      EXPENSESDepreciation
              
              
              78,922
              
              
              
              2,435
              
              
              
              125,902
              
              
              
              4,436Amortization
              
              
              1,001,142
              
              
              
              -
              
              
              
              1,715,171
              
              
              
              -Office
      related expenses
              
              
              554,139
              
              
              
              97,410
              
              
              
              912,782
              
              
              
              161,578Professional
      fees
              
              
              (163,620
              )
              
              
              233,194
              
              
              
              557,533
              
              
              
              2,097,807Payroll
      and employee benefits
              
              
              2,280,438
              
              
              
              587,915
              
              
              
              4,103,691
              
              
              
              3,524,940Travel
              
              
              337,756
              
              
              
              115,091
              
              
              
              639,385
              
              
              
              226,403Selling
      and marketing
              
              
              2,739,775
              
              
              
              59,305
              
              
              
              4,827,832
              
              
              
              106,745Total
      operating expenses
              
              
              6,828,552
              
              
              
              1,095,350
              
              
              
              12,882,296
              
              
              
              6,121,909Loss
      from operations before other income and expense
              
              
              (4,475,744
              )
              
              
              (1,030,579
              )
              
              
              (9,415,550
              )
              
              
              (5,963,371
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              2,241
              
              
              
              49,722
              
              
              
              17,113
              
              
              
              49,722Interest
      expense
              
              
              (94,633
              )
              
              
              (84,739
              )
              
              
              (130,170
              )
              
              
              (113,851
              )Loss
      on conversion of note payable
              
              
              -
              
              
              
              -
              
              
              
              (242,647
              )
              
              
              -Change
      in fair value of redeemable warrants
              
              
              (760,178
              )
              
              
              -
              
              
              
              (8,910,178
              )
              
              
              -Miscellaneous
              
              
              5,718
              
              
              
              -
              
              
              
              7,713
              
              
              
              -Total
      other income (expense)
              
              
              (846,852
              )
              
              
              (35,017
              )
              
              
              (9,258,169
              )
              
              
              (64,129
              )Net
      loss before income taxes
              
              
              (5,322,596
              )
              
              
              (1,065,596
              )
              
              
              (18,673,719
              )
              
              
              (6,027,500
              )Income
      taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              
              (5,322,596
              )
              
              
              (1,065,596
              )
              
              
              (18,673,719
              )
              
              
              (6,027,500
              )Preferred
      stock dividend and accretion
              
              
              (388,969
              )
              
              
              (99,735
              )
              
              
              (664,075
              )
              
              
              (141,110
              )Net
      loss available to common stockholders
              
              $
              (5,711,565
              )
              
              $
              (1,165,331
              )
              
              $
              (19,337,794
              )
              
              $
              (6,168,610
              )Basic
      and diluted loss per share
              
              $
              (0.04
              )
              
              $
              (0.01
              )
              
              $
              (0.13
              )
              
              $
              (0.06
              )Basic
      and diluted weighted average number of  common shares
      outstanding
              
              
              147,549,553
              
              
              
              98,408,325
              
              
              
              144,235,116
              
              
              
              96,857,577See
      notes to condensed consolidated financial statements





5





THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFor
      the Six Months Ended June 30, 2008 and 20072008
              
              
              2007Cash
      flows from operating activitiesNet
      loss
              
              $
              (18,673,719
              )
              
              $
              (6,027,500
              )Adjustments
      to reconcile net loss to net cash used inoperating
      activities:Amortization
      of intangible assets
              
              
              1,715,171
              
              
              
              -Amortization
      of discount on notes payable
              
              
              13,436
              
              
              
              -Depreciation
              
              
              125,902
              
              
              
              4,436Gain
      on change in fair value of redeemable and noncompensatory
      warrants
              
              
              (5,839,822
              )
              
              
              -Loss
      on conversion of note payable
              
              
              242,652
              
              
              
              -Loss
      on the issuance of redeemable warrants
              
              
              14,750,000
              
              
              
              -Provision
      for doubtful accounts
              
              
              50,662
              
              
              
              -Share-based
      payments to employees and consultants
              
              
              1,187,068
              
              
              
              4,066,099Changes
      in operating assets and liabilities:Decrease
      in accounts receivable
              
              
              242,832
              
              
              
              9,472Increase
      in accounts receivable – related party
              
              
              (27,729
              )
              
              
              -Increase
      in inventory and prepaid expenses
              
              
              -
              
              
              
              (11,683
              )Increase
      in deferred expenses
              
              
              (2,171,381
              )
              
              
              -Increase
      in deposits and advances
              
              
              (429,901
              )
              
              
              -Increase
      in deferred customer acquisition costs
              
              
              (473,636
              )
              
              
              -Increase
      in other assets
              
              
              (1,152,348
              )
              
              
              -(Decrease)
      increase in accounts payable and accrued expenses
              
              
              (1,883,563
              )
              
              
              160,064Decrease
      in deferred compensation
              
              
              (135,930
              )
              
              
              (206,960
              )Increase
      in deferred revenue
              
              
              471,480
              
              
              
              20,501Net
      cash used in operating activities
              
              
              (11,988,826
              )
              
              
              (1,985,571
              )Cash
      flows from investing activitiesAcquisition
      payment
              
              
              (1,215,568
              )
              
              
              -Purchase
      of property and equipment
              
              
              (97,040
              )
              
              
              (100,001
              )Decrease
      in restricted cash
              
              
              66,935
              
              
              
              -Net
      cash used by investing activities
              
              
              (1,245,673
              )
              
              
              (100,001
              )Cash
      flows from financing activitiesProceeds
      from sale of preferred stock and redeemable warrants
              
              
              13,000,000
              
              
              
              750,000Equity
      issuance costs
              
              
              (510,000
              )
              
              
              -Net
      proceeds from credit card borrowing
              
              
              (44,106
              )
              
              
              -Payments
      made on notes payable
              
              
              (15,000
              )
              
              
              -Payments
      on and redemption of convertible notes
              
              
              -
              
              
              
              (55,000
              )Proceeds
      from exercise of common stock warrants
              
              
              122,000
              
              
              
              31,600Proceeds
      from private placement equity issuance
              
              
              500
              
              
              
              -Proceeds
      from promissory notes
              
              
              575,000
              
              
              
              4,835,000Net
      cash provided by financing activities
              
              
              13,128,394
              
              
              
              5,561,600(Decrease)
      increase in cash
              
              
              (106,105
              )
              
              
              3,476,028Cash,
      beginning of period
              
              
              2,161,042
              
              
              
              135,046Cash,
      end of period
              
              $
              2,054,937
              
              
              $
              3,611,074SUPPLEMENTAL
      INFORMATION:Cash
      paid for interest
              
              $
              22,002
              
              
              $
              27,010Cash
      paid for income taxes
              
              $
              -
              
              
              $
              -See
      notes to condensed consolidated financial statements


6





THE
AMACORE GROUP, INC.




NOTES
TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)









NOTE
1 – NATURE OF OPERATIONS





The
Amacore Group, Inc. (Amacore or the Company) develops, designs and distributes
health-related membership benefit programs, insurance programs, and other
health-care solutions, primarily through its wholly-owned subsidiary, LifeGuard
Benefit Services, Inc. (LifeGuard).  The Company’s products include
discount benefit and/or limited medical benefit products such as hearing,
dental, vision and doctor reimbursements among others.  The components
of these product offerings represent both Company-developed products as well as
products marketed through arrangements with other
vendors.  Additionally, the Company utilizes its distribution network
to market certain non health-related products and services.





NOTE
2 – RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS





On
December 17, 2008, the Board of Directors of the Company, after discussions with
the Company’s independent registered public accounting firm, McGladrey &
Pullen, LLP (“McGladrey”) and its former independent registered public
accounting firm Brimmer, Burek & Keelan LLP (“Brimmer”), determined that it
is necessary to restate the Company’s consolidated financial statements for the
quarterly period ended June 30, 2008 to correct the errors described in the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on December 18, 2008. Accordingly, the Company’s consolidated
interim financial statements previously filed for those periods should no longer
be relied upon and the Company’s press releases and similar communications
should no longer be relied upon to the extent that they refer to such financial
statements.


7





The
effects of these corrections on the accompanying condensed consolidated balance
sheets, condensed consolidated statements of operations and condensed
consolidated statements of cash flows and description of the nature of the
adjustments made to the balances are as follows:





THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED BALANCE SHEETS
  June
      30,
              
              
              
              
              
              
              
              June
      30,2008
              
              
              
              
              
              
              
              2008ASSETS
              
              As
      Orginally filed
              
              
              Adjustments
              
              
              
              
              As
      RestatedCurrent
      assetsCash
              
              $
              2,054,937
              
              
              
              -
              
              
              
              
              $
              2,054,937Restricted
      cash
              
              
              250,000
              
              
              
              -
              
              
              
              
              
              250,000Accounts
      receivable
              
              
              713,052
              
              
              
              (415,893
              )
              (1
              )
              
              
              297,159Non-trade
      receivables – related party
              
              
              92,114
              
              
              
              -
              
              
              
              
              
              92,114Inventory
              
              
              37,814
              
              
              
              -
              
              
              
              
              
              37,814Deferred
      expenses
              
              
              5,597,726
              
              
              
              (473,636
              )
              (2
              )(2,119,505
              )
              (3
              )190,594
              
              (4
              )
              
              
              3,195,179Deposits
      and advances
              
              
              625,244
              
              
              
              415,893
              
              (1
              )(550,000
              )
              (5
              )
              
              
              491,137Total
      current assets
              
              
              9,370,887
              
              
              
              (2,952,547
              )
              
              
              
              
              6,418,340Property,
      plant and equipment
              
              
              899,235
              
              
              
              
              
              
              
              
              
              899,235Other
      assetsDeferred
      customer acquisition costs
              
              
              
              
              
              
              473,636
              
              (2
              )
              
              
              473,636Goodwill
      and other intangible assets
              
              
              12,448,044
              
              
              
              15,530,590
              
              (6
              )(1,596,617
              )
              (6
              )
              
              
              26,382,017Unallocated
      assets
              
              
              15,530,590
              
              
              
              (15,530,590
              )
              (6
              )
              
              
              -Other
              
              
              602,348
              
              
              
              550,000
              
              (5
              )
              
              
              1,152,348Total
      other assets
              
              
              28,580,982
              
              
              
              (572,981
              )
              
              
              
              
              28,008,001Total
      assets
              
              $
              38,851,104
              
              
              $
              (3,525,528
              )
              
              
              
              $
              35,325,576LIABILITIES
      AND STOCKHOLDERS' (DEFICIT) EQUITYCurrent
      liabilitiesAccounts
      payable
              
              $
              2,986,938
              
              
              
              
              
              
              
              
              $
              2,986,938Accounts
      payable – related party
              
              
              610,217
              
              
              
              
              
              
              
              
              
              610,217Loans
      and notes payable
              
              
              1,585,072
              
              
              
              (69,420
              )
              (7
              )
              
              
              -(188,705
              )
              (9
              )
              
              
              1,326,947Accrued
      expenses and other liabilities
              
              
              2,250,962
              
              
              
              750,668
              
              (8
              )(56,601
              )
              (6
              )
              
              
              2,945,029Deferred
      compensation – related party
              
              
              466,414
              
              
              
              -
              
              
              
              
              
              466,414Deferred
      revenue
              
              
              1,881,464
              
              
              
              -
              
              
              
              
              
              1,881,464Deferred
      acquisition payments
              
              
              465,685
              
              
              
              -
              
              
              
              
              
              465,685Total
      current liabilities
              
              
              10,246,752
              
              
              
              435,942
              
              
              
              
              
              10,682,694Long-term
      liabilitiesCapital
      lease obligations
              
              
              -
              
              
              
              69,420
              
              (7
              )
              
              
              69,420Deferred
      acquisition payments
              
              
              884,760
              
              
              
              -
              
              
              
              
              
              884,760Accrued
      dividends
              
              
              1,029,831
              
              
              
              -
              
              
              
              
              
              1,029,831Fair
      value of redeemable warrants
              
              
              
              
              
              
              10,548,419
              
              (9
              )8,910,178
              
              (9
              )
              
              
              19,458,597Total
      long-term liabilities
              
              
              1,914,591
              
              
              
              19,528,017
              
              
              
              
              
              21,442,608Total
      liabilities
              
              
              12,161,343
              
              
              
              19,963,959
              
              
              
              
              
              32,125,302Stockholders'
      (deficit) equityPreferred
      Stock
              
              
              1
              
              
              
              
              
              
              
              
              
              1Common
      Stock A
              
              
              118,672
              
              
              
              4,498
              
              (10
              )
              
              
              123,170Common
      Stock B
              
              
              29,038
              
              
              
              25
              
              (10
              )
              
              
              29,063Additional
      paid-in capital
              
              
              106,806,895
              
              
              
              (4,523
              )
              (10
              )(10,359,714
              )
              (9
              )(185,324
              )
              (9
              )3,227,722
              
              (6
              )
              
              
              99,485,056(80,264,845
              )
              
              
              (13,001,050
              )
              (11
              )(3,227,722
              )
              (6
              )56,601
              
              (6
              )
              
              
              (96,437,016
              )Total
      stockholders' (deficit) equity
              
              
              26,689,761
              
              
              
              (23,489,487
              )
              
              
              
              
              3,200,274Total
      liabilities and stockholders' (deficit) equity
              
              $
              38,851,104
              
              
              $
              (3,525,528
              )
              
              
              
              $
              35,325,576
  EXPLANATION
      OF ADJUSTMENTS AND RECLASSICATIONS(1)
              This
      adjustment reclassifies certain merchant account balances held in reserve
      from accounts receivable to deposits and advances.(2)
              This
      adjustment reclassifies the noncurrent portion of deferred customer
      acquisition costs from current assets to noncurrent
assets.(3)
              Certain
      selling costs were capitalized in error, resulting in an overstatement of
      deferred customer acquisition costs.  This
      adjustmentrecognizes
      as expense the costs incorrectly capitalized.(4)
              This
      adjustment correctly records certain advances to sales agents as
      compensation expense over the requisite service period.(5)
              This
      adjustment reclassifies a noncurrent deposit from current assets to
      noncurrent assets.(6)
              During
      the third quarter of 2008, the Company completed its analysis and
      valuation of the assets acquired in the acquisition ofLifeGuard.  This
      adjustment reclassifies assets previously reported as unallocated assets
      to goodwill and other intangible assetsand
      reflects the final determination of the LifeGuard purchase
      price.  These adjustments also reclassify amounts related to
      theLifeGuard
      purchase erroneously recorded in accumulated deficit.(7)
              This
      adjustment reclassifies the long-term portion of capital lease obligations
      from current liabilities.(8)
              The
      Company had not adequately analyzed the amount of sales refunds and
      charge-backs, resulting in an understatement of therelated
      allowance.  This adjustment increases the allowance for
      estimated refunds and charge-backs on an established
      methodology.(9)
              Certain
      of the Company's outstanding warrants were classified as equity
      instruments at the time of issuance.  After further
      analyis,the
      Company has determined that these warrants are properly classified as
      liabilities in accordance with the provisions of SFAS 150and
      EITF 00-19.  This adjustment reclassifies those warrants as
      liabilities and reflects the adjustment of the fair value of
      thoseliabilities
      as of June 30, 2008.(10)
              This
      adjustment correctly reflects capital stock outstanding(11)
              This
      is the effect on the accumulated deficit of restatement adjustments
      reflected in earnings.


8





THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the Three Months Ended, June 30
              
              
              For
      the Six Months Ended, June 302008
              
              
              
              
              
              
              
              
              2008
              
              
              2008
              
              
              
              
              
              
              
              
              2008As
      Originally Filed
              
              
              Adjustments
              
              
              As
      Restated
              
              
              As
      Originally Filed
              
              
              Adjustments
              
              
              As
      RestatedREVENUESMembership
      fees
              
              $
              7,005,908
              
              
              $
              (430,483
              )
              
              (1)
              
              
              $
              6,575,425
              
              
              $
              12,071,400
              
              
              $
              (750,668
              )
              
              (1)
              
              
              $
              11,320,732Commissions
              
              
              542,002
              
              
              
              
              
              
              
              
              
              
              542,002
              
              
              
              678,745
              
              
              
              
              
              
              
              
              
              
              678,745Marketing
      fees and materials
              
              
              470,213
              
              
              
              
              
              
              
              
              
              
              470,213
              
              
              
              737,311
              
              
              
              
              
              
              
              
              
              
              737,311Total
      revenue
              
              
              8,018,123
              
              
              
              (430,483
              )
              
              
              
              
              
              7,587,640
              
              
              
              13,487,456
              
              
              
              (750,668
              )
              
              
              
              
              
              12,736,788COST
      OF SALESSales
      commissions
              
              
              4,529,814
              
              
              
              (898,994
              )
              
              (2)
              
              
              
              3,630,820
              
              
              
              7,223,657
              
              
              
              (851,505
              )
              
              (2)
              
              
              
              6,372,152Benefit
      and service cost
              
              
              1,604,012
              
              
              
              
              
              
              
              
              
              
              1,604,012
              
              
              
              2,897,890
              
              
              
              
              
              
              
              
              
              
              2,897,890Total
      cost of sales
              
              
              6,133,826
              
              
              
              (898,994
              )
              
              
              
              
              
              5,234,832
              
              
              
              10,121,547
              
              
              
              (851,505
              )
              
              
              
              
              
              9,270,042GROSS
      PROFIT
              
              
              1,884,297
              
              
              
              468,511
              
              
              
              
              
              
              2,352,808
              
              
              
              3,365,909
              
              
              
              100,837
              
              
              
              
              
              
              3,466,746OPERATING
      EXPENSESDepreciation
              
              
              78,922
              
              
              
              
              
              
              
              
              
              
              78,922
              
              
              
              125,902
              
              
              
              
              
              
              
              
              
              
              125,902Amortization
              
              
              52,083
              
              
              
              949,059
              
              
              (3)
              
              
              
              1,001,142
              
              
              
              118,554
              
              
              
              1,596,617
              
              
              (3)
              
              
              
              1,715,171Office
      related expenses
              
              
              554,139
              
              
              
              
              
              
              
              
              
              
              554,139
              
              
              
              912,782
              
              
              
              
              
              
              
              
              
              
              912,782Professional
      fees
              
              
              (163,620
              )
              
              
              
              
              
              
              
              
              
              (163,620
              )
              
              
              557,533
              
              
              
              
              
              
              
              
              
              
              557,533Payroll
      and employee benefits
              
              
              2,280,438
              
              
              
              
              
              
              
              
              
              
              2,280,438
              
              
              
              4,103,691
              
              
              
              
              
              
              
              
              
              
              4,103,691Travel
              
              
              337,756
              
              
              
              
              
              
              
              
              
              
              337,756
              
              
              
              639,385
              
              
              
              
              
              
              
              
              
              
              639,385Selling
      and marketing
              
              
              1,408,551
              
              
              
              1,331,224
              
              
              (4)
              
              
              
              2,739,775
              
              
              
              2,047,416
              
              
              
              2,780,416
              
              
              (4)
              
              
              
              4,827,832Total
      operating expenses
              
              
              4,548,269
              
              
              
              2,280,283
              
              
              
              
              
              
              6,828,552
              
              
              
              8,505,263
              
              
              
              4,377,033
              
              
              
              
              
              
              12,882,296Operating
      loss from operations before other income and expense
              
              
              (2,663,972
              )
              
              
              (1,811,772
              )
              
              
              
              
              
              (4,475,744
              )
              
              
              (5,139,354
              )
              
              
              (4,276,196
              )
              
              
              
              
              
              (9,415,550
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              2,241
              
              
              
              
              
              
              
              
              
              
              2,241
              
              
              
              17,113
              
              
              
              
              
              
              
              
              
              
              17,113Interest
      expense
              
              
              (94,633
              )
              
              
              
              
              
              
              
              
              
              (94,633
              )
              
              
              (130,170
              )
              
              
              
              
              
              
              
              
              
              (130,170
              )Loss
      on conversion of note payable
              
              
              (144,044
              )
              
              
              144,044
              
              
              (5)
              
              
              
              -
              
              
              
              (242,647
              )
              
              
              
              
              
              
              
              
              
              (242,647
              )Loss
      on change in fair value of redeemable warrants
              
              
              -
              
              
              
              (760,178
              )
              
              (6)
              
              
              
              (760,178
              )
              
              
              -
              
              
              
              (8,910,178
              )
              
              (6)
              
              
              
              (8,910,178
              )Miscellaneous
              
              
              5,718
              
              
              
              
              
              
              
              
              
              
              5,718
              
              
              
              7,713
              
              
              
              
              
              
              
              
              
              
              7,713Total
      other income (expense)
              
              
              (230,718
              )
              
              
              (616,134
              )
              
              
              
              
              
              (846,852
              )
              
              
              (347,991
              )
              
              
              (8,910,178
              )
              
              
              
              
              
              (9,258,169
              )Net
      loss before income taxes
              
              
              (2,894,690
              )
              
              
              (2,427,906
              )
              
              
              
              
              
              (5,322,596
              )
              
              
              (5,487,345
              )
              
              
              (13,186,374
              )
              
              
              
              
              
              (18,673,719
              )Income
      taxes
              
              
              -
              
              
              
              
              
              
              
              
              
              
              -
              
              
              
              -
              
              
              
              
              
              
              
              
              
              
              --Net
      loss
              
              
              (2,894,690
              )
              
              
              (2,427,906
              )
              
              
              
              
              
              (5,322,596
              )
              
              
              (5,487,345
              )
              
              
              (13,186,374
              )
              
              
              
              
              
              (18,673,719
              )Preferred
      stock dividend and accretion
              
              
              (532,099
              )
              
              
              143,130
              
              
              (7)
              
              
              
              (388,969
              )
              
              
              (849,399
              )
              
              
              185,324
              
              
              (7)
              
              
              
              (664,075
              )Net
      loss available to common stockholders
              
              $
              (3,426,789
              )
              
              $
              (2,284,776
              )
              
              
              
              
              $
              (5,711,565
              )
              
              $
              (6,336,744
              )
              
              $
              (13,001,050
              )
              
              
              
              
              $
              (19,337,794
              )Basic
      and diluted loss per share
              
              $
              (0.02
              )
              
              
              
              
              
              
              
              
              $
              (0.04
              )
              
              $
              (0.04
              )
              
              
              
              
              
              
              
              
              $
              (0.13
              )
  EXPLANATION
      OF ADJUSTMENTS AND RECLASSICATIONS(1)
              The
      Company had not adequately analyzed the amount of sales refunds and
      charge-backs, resulting in an understatementof
      the related allowance and a corresponding overstatement of
      revenue.  This adjustment increases the allowance for estimated
      refunds andcharge-backs
      based on an established methodology.(2)
              Certain
      selling costs were capitalized in error, resulting in an overstatement of
      deferred customer acquisition costs and an understatement of selling
      andmarketing
      expense and sales commissions.  This adjustment recognizes as
      expense the costs incorrectly capitalized.(3)
              During
      the third quarter of 2008, the Company completed its analysis and
      valuation of the assets acquired in the acquisition of
      Lifeguard.  Thisadjustment
      retrospectively reflects the amortization of identifiable intangible
      assets acquired in the Lifeguard acquisition.(4)
              This
      adjustment correctly records certain advances to sales agents as
      compensation expense over the requisite service period.(5)
              This
      adjustment records the loss incurred as a result of note payable
      conversion.(6)
              Certain
      of the Company's outstanding warrants were classified as equity
      instruments at the time of issuance.  After further analysis,
      theCompany
      has determined that these warrants are properly classified as liabilities
      in accordance with the provisions of SFAS 150 and EITF
    00-19.This
      adjustment reclassifies those warrants as liabilities and reflects the
      adjustment of the fair value of those.(7)
              This
      adjustment reverses preferred stock discount accretion as a result of
      reclassifying as liabilities the redeemable warrants issued
    inconjuntion
      with preferred stock issuances.





9


THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFor
      the Six Months Ended June 30, 2008
  2008
              
              
              
              
              
              
              
              
              2008As
      Orginally filed
              
              
              Adjustments
              
              
              
              
              
              As
    RestatedNet
      cash used by operating activities
              
              $
              (11,782,618
              )
              
              $
              (206,208
              )
              
              (1
              )
              
              $
              (11,988,826
              )Cash
      flows from investing activitiesAcquisition
      payment
              
              
              -
              
              
              
              (1,215,568
              )
              
              (2
              )
              
              
              (1,215,568
              )Purchase
      of property and equipment
              
              
              (466,729
              )
              
              
              369,689
              
              
              (1
              )
              
              
              (97,040
              )Decrease
      in restricted cash
              
              
              66,935
              
              
              
              
              
              
              
              
              
              
              66,935Net
      cash used by investing activities
              
              
              (399,794
              )
              
              
              (845,879
              )
              
              
              
              
              
              (1,245,673
              )Cash
      flows from financing activitiesProceeds
      from sale of preferred stock and redeemable warrants
              
              
              13,000,000
              
              
              
              
              
              
              
              
              
              
              13,000,000Acquisition
      payment
              
              
              (1,275,000
              )
              
              
              1,275,000
              
              
              (2
              )
              
              
              -Proceeds
      from private placement equity issuance
              
              
              500
              
              
              
              
              
              
              
              
              
              
              500Equity
      issuance costs
              
              
              (510,000
              )
              
              
              
              
              
              
              
              
              
              (510,000
              )Proceeds
      from exercise of common stock warrants
              
              
              122,000
              
              
              
              
              
              
              
              
              
              
              122,000Proceeds
      from promissory notes
              
              
              643,488
              
              
              
              (68,488
              )
              
              (1
              )
              
              
              575,000Net
      proceeds from credit card borrowing
              
              
              59,694
              
              
              
              (103,800
              )
              
              (1
              )
              
              
              (44,106
              )Payments
      made on notes payable
              
              
              (23,807
              )
              
              
              8,807
              
              
              (1
              )
              
              
              (15,000
              )Funds
      obtained through acquisition
              
              
              59,432
              
              
              
              (59,432
              )
              
              (2
              )
              
              
              -Net
      cash provided by financing activities
              
              
              12,076,307
              
              
              
              1,052,087
              
              
              
              
              
              
              13,128,394Decrease
      in cash
              
              
              (106,105
              )
              
              
              -
              
              
              
              
              
              
              (106,105
              )Cash,
      beginning of period
              
              
              2,161,042
              
              
              
              
              
              
              
              
              
              
              2,161,042Cash,
      end of period
              
              $
              2,054,937
              
              
              
              
              
              
              
              
              
              $
              2,054,937
  EXPLANATION
      OF ADJUSTMENTS AND RECLASSICATIONS(1)
              These
      adjustments properly classify certain items within the operating,
      investing, and financing sections of the cash flow
    statement.(2)
              This
      adjustment properly classifies cash paid, net of cash acquired, in
      connection with the acquisition of U.S. Health BenefitsGroup,
      Inc. as an investing activity.





NOTE
3 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





The
accompanying condensed consolidated balance sheet as of December 31, 2007, which
was derived from audited financial statements, and the unaudited condensed
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by U.S. GAAP for complete financial
statements.  In the opinion of management, all adjustments considered
necessary in order to make the financial statements not misleading have been
included.  Results for the three and six month periods ended June 30, 2008
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2008.  For further information, refer to the financial
statements and footnotes thereto included in the Company’s annual report on Form
10-KSB for the year ended December 31, 2007.





Management’s Assessment of
Liquidity





At June
30, 2008, the Company had negative working capital of $4,264,354 and an
accumulated deficit of approximately $96,437,000.  For the six months ended
June 30, 2008, the Company had a net loss of $18,673,719.  Anticipated
revenue and the ongoing support of the Company’s majority shareholder will, in
the opinion of management, be sufficient to sustain current planned operations
for the next 12 months.  From January to June 2008, the Company received
proceeds of $13,000,000 in four tranches through the sale of preferred stock to
its majority shareholder.  Additional cash resources may be needed if
the Company does not meet its sales targets, exceeds its projected operating
costs, if unanticipated expenses arise or are incurred or the Company wishes to
consummate an acquisition.  The Company does not currently maintain a
line of credit or term loan with any commercial bank or other financial
institution and has not made any other arrangements to obtain additional
financing.  There can be no assurance that we will not require
additional financing.  Likewise, the Company can provide no assurance
that if we need additional financing that it will be available in an amount or
on terms acceptable to us, if at all. If the Company is unable to obtain
additional funds when they are needed or if such funds cannot be obtained on
terms favorable to the Company, we may be unable to execute upon the Company’s
business plan or pay costs and expenses as they are incurred, which could have a
material, adverse effect on our business, financial condition and results of
operations.


The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern.





10


Use of
Estimates





The
preparation of the Company’s consolidated financial statements requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period.  The accounting estimates that
require management’s most difficult and subjective judgments include the reserve
for sales refunds, valuation of intangible assets acquired in business
combinations, and the fair value of common stock and warrants issued.  Due
to the uncertainty inherent in such estimates, actual results may differ from
these estimates.





Revenue
Recognition





Membership
Fees





The
Company recognizes revenues from membership fees for the sales of health-related
discount benefit plans as earned.  These arrangements are generally
renewable monthly and revenue is recognized over the renewal
period.  As these products often include elements sold through
contracts with third-party providers, the Company considers each contractual
arrangement in accordance with EITF 99-19, Reporting Revenue Gross as a
Principal versus Net as an Agent (“EITF 99-19”).  The Company’s
current contracts meet the requirements of EITF 99-19 for reporting revenue on a
gross basis.





The
Company records a reduction in revenue for estimated refunds, chargebacks
from credit card companies, and allowances based upon actual history and
management’s evaluation of current facts and circumstances.  In
January 2008, the Company entered into an arrangement with a third party to
expand distribution of the Company’s products.  The terms of this
arrangement led to a significant increase in refunds and
chargebacks.  Refunds, chargebacks and allowances totaled $2,264,087
and $187,830 for the three months ended June 30, 2008 and 2007, respectively,
and $3,300,012 and $188,100 for the six months ended June 30, 2008 and 2007,
respectively, and were recorded as a reduction of revenue in the accompanying
statements of operations.





Commissions





The
Company is paid a commission for its sales of third-party products. 
Commissions are recognized as products are sold and services performed and the
Company has accomplished all activities necessary to complete the earnings
process.





Marketing
Fees and Materials





The
Company markets certain of its products through a multi-level sales organization
whereby independent distributors establish their own network of
associates.  The independent distributors pay the Company a fee to become
marketing representatives on behalf of the Company.  In exchange, the
representatives receive various marketing and promotional materials and
tools.  The Company also earns ancillary revenue from the sale of
marketing materials.  Revenue is recognized when marketing materials
are provided to the representatives.





Concentration of Credit
Risk





For the
six months ended June 30, 2008, revenue generated by LifeGuard represented
approximately 83% of total consolidated revenue. Lifeguard’s products are
dependent upon strategic relationships with insurance companies; accordingly, a
change in these strategic relationships, contractual or otherwise, could
negatively impact the Company’s business.





For the
six months ended June 30, 2008, one of Lifeguard’s customers represented 48% of
LifeGuard’s revenue or 40% of consolidated revenue.





At
certain times, the Company’s bank deposits exceed the amounts insured by the
FDIC.  As of June 30, 2008, the Company had  deposits in excess
of FDIC insured limits of $1,698,608.  Should the financial
institution cease operations when the Company’s deposit balances exceed FDIC
insured limits, it would be a significant disruption to the Company’s cash
flow.  Management continually monitors the Company’s banking relationships
to lessen this risk.  In addition, a majority of the Company’s credit card
processing is with one merchant processor.


11





Accounts
Receivable





Accounts
receivable are stated at estimated net realizable value. Accounts
receivable are primarily comprised of balances due from memberships, net of
estimated allowances for uncollectible accounts.  In determining
collectibility, historical trends are evaluated and specific customers are
reviewed to arrive at appropriate allowances.  Based on the Company’s
historical experience and an assessment of specific accounts an allowance of
$50,662 has been provided at June 30, 2008.  No allowance was required
at December 31, 2007.





Customer Acquisition
Costs





Customer
acquisition costs relate to contractual arrangements with certain marketing
companies primarily for the sale of Lifeguard products. Payments are made
as leads are provided and are amortized to cost of goods sold over a term
relevant to the expected life of the membership.  The majority of
these costs are amortized on an accelerated basis over a period less than twelve
months, in proportion to recognition of the related revenue.  At June
30, 2008 and December 31, 2007, unamortized customer acquisition costs of
$2,386,222 and $0, respectively, are included in deferred expenses and $473,636
and $0, respectively, are included in deferred customer acquisition costs in the
accompanying balance sheets.  Amounts paid for leads that do not
result in a sale are expensed immediately as a selling and marketing
expense.





In
January 2008, the Company entered into an arrangement with a third party to
expand distribution of the Company’s products resulting in an increase in
customer acquisition costs for the three and six months ended June 30, 2008.
 Customer acquisition costs of $1,954,896 and $0 for the three months ended
June 30, 2008 and 2007, respectively, and $3,287,517 and $0 for the six months
ended June 30, 2008 and 2007, respectively, are included in selling and
marketing in the accompanying statements of operations.





Property, Plant and
Equipment





Property,
plant and equipment are recorded at cost.  The costs of additions and
improvements are capitalized, while maintenance and repairs are charged to
expense as incurred.  The Company provides for depreciation and
amortization using the straight-line method over the estimated useful lives of
the property as follows: computer hardware and computer software, 3 years;
furniture and fixtures, 7 years; equipment and machinery, 5 years; and leasehold
improvements, the shorter of the term of the lease or the life of the
asset.  When assets are retired or otherwise disposed of, the assets
and related accumulated depreciation are eliminated from the accounts and the
resulting gain or loss is reflected in the results of operations.





Property,
plant and equipment, net of accumulated depreciation, consist of the
following:





June
      30, 2008
              
              
              Dec.
      31, 2007Computer
      hardware
              
              $
              159,195
              
              
              $
              418,804Furniture
      and fixtures
              
              
              440,524
              
              
              
              70,634Equipment
      and machinery
              
              
              377,017
              
              
              
              21,372Building
      and leasehold improvements
              
              
              167,703
              
              
              
              39,9331,144,439
              
              
              
              550,743Less
      accumulated depreciation
              
              
              (245,204
              )
              
              
              (132,387
              )Total
              
              $
              899,235
              
              
              $
              418,356




Depreciation
expense including depreciation of assets held under capital leases, was $78,922
and $2,435 for the three months ended June 30, 2008 and 2007, respectively, and
$125,902 and $4,436 for the six months ended June 30, 2008 and 2007,
respectively.





Goodwill and Acquired
Intangible Assets





Management
assesses goodwill related to reporting units for impairment annually as of
October 1 or more frequently if an event occurs or circumstances indicate that
the asset might be impaired and determines if a reduction of the carrying amount
of goodwill is required.  An impairment charge is recorded if the implied
fair value of goodwill of a reporting unit is less than the book value of
goodwill for that unit.





Intangible
assets with a finite useful life recorded as a result of acquisition
transactions are amortized over their estimated useful lives as
follows:





Software
            3
      yearsCustomer
      and vendor relationships
            5
      yearsTradenames
            16
      months





12





The
Company evaluates its intangible assets for impairment whenever events or
changes in circumstances indicate that the carrying value of such assets may not
be recoverable.  To determine recoverability, the Company compares the
carrying value of the assets to the estimated future cash flows.  If the
carrying amount of an asset exceeds its estimated future cash flows, an
impairment charge is recognized for the amount by which the carrying amount of
the asset exceeds the fair value of the asset.





Stock-Based
Compensation





The
Company accounts for share-based payments in accordance with Statement of
Financial Accounting Standards (SFAS) No. 123R Share Based Payment (SFAS
123R).  SFAS 123R requires that the cost resulting from all share-based
payment transactions be recognized in the financial statements.  This
Statement establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a
fair-value-based measurement method in accounting for share-based payment
transactions.  The Company uses the Black-Scholes Option model in computing
fair value of warrant instrument issuances and uses market value of Common A and
Common B stock issuances.





The
Company determines the measurement date of its share-based payments made to
non-employees in accordance EITF 96-18 Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services (“EITF 96-18”).  EITF 96-18 requires
the issuer to measure the fair value of the equity instrument using the stock
price or other measurement assumptions as of the earlier of either of the
following:  the date at which a commitment for performance by the
counterparty to earn the equity instruments is reached or the date at which the
counterparty’s performance is complete.





LossPer
Share





Basic
loss per share is calculated by dividing net loss available to common
stockholders by the weighted average number of shares of common stock
outstanding for the period.  Diluted loss per share is calculated by
dividing the net loss by the weighted average number of shares of common stock
outstanding for the period, adjusted for the dilutive effect of common stock
equivalents, using the treasury stock method.  Weighted average shares
outstanding include both Class A and Class B common stock.  There is no
difference between the dividend rights and earnings allocation of Class A and
Class B common stock.





The
following sets forth the computation of basic and diluted net loss per common
share for the three and six months ended June 30, 2008 and
2007:





Three
      Months Ended June 30,
              
              
              Six
      Months Ended June 30,2008
              
              
              2007
              
              
              2008
              
              
              2007Numerator:Net
      loss
              
              $
              (5,322,596
              )
              
              $
              (1,065,596
              )
              
              $
              (18,673,719
              )
              
              $
              (6,027,500
              )Less
      preferred stock dividend and accretion
              
              
              (388,969
              )
              
              
              (99,735
              )
              
              
              (664,075
              )
              
              
              (141,110
              )Net
      loss available to common stockholders
              
              $
              (5,711,565
              )
              
              $
              (1,165,331
              )
              
              $
              (19,337,794
              )
              
              $
              (6,168,610
              )Denominator:Weighted
      average basic and fully diluted shares outstanding
              
              
              147,549,553
              
              
              
              98,408,325
              
              
              
              144,235,116
              
              
              
              96,857,577Net
      loss per common share – basic and diluted
              
              $
              (0.04
              )
              
              $
              (0.01
              )
              
              $
              (0.13
              )
              
              $
              (0.06
              )


13





As the
Company reported losses in all periods presented, all common stock equivalents
are excluded from the computation of diluted earnings per share, since the
result would be antidilutive.  Securities that could potentially dilute
earnings per share in the future but which were not included in the calculation
of diluted loss per share because to do so would have been antidilutive for the
periods presented, are as follows:





As
      of June 30,2008
              
              2007Potentially
      dilutive securities outstanding at end of period:Common
      stock warrants
              
              145,766,067
              
              21,293,980Convertible
      preferred stock:Series
      A
              
              310,000
              
              310,000Series
      D
              
              694,600,000
              
              694,600,000Series
      E
              
              69,500,000
              
              42,000,000Series
      G
              
              2,400,000
              
              -Series
      H
              
              800,000
              
              -Total
              913,376,067
              
              758,203,980Weighted-average
      share equivalents outstanding
              
              837,697,763
              
              438,559,075









Fair Value
Measurements





Statement
of Financial Accounting Standard 157 (“SFAS 157”) Fair Value Measurements
defines fair value as the price that would be received to sell an asset or paid
to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market
participants on the measurement date. In many cases, the exit price and the
transaction (or entry) price will be the same at initial recognition.
 However, in certain cases, the transaction price may not represent fair
value. Prior to SFAS 157, the fair value of a liability was often based on a
settlement price concept, which assumed the liability was extinguished.
 Under SFAS 157, fair value is based on the amount that would be paid to
transfer a liability to a third party with the same credit standing.  SFAS
157 requires that fair value be a market-based measurement in which the fair
value is determined based on a hypothetical transaction at the measurement date,
considered from the perspective of a market participant.  Accordingly, fair
value is no longer determined based solely upon the perspective of the reporting
entity.  When quoted prices are not used to determine fair value, SFAS 157
requires consideration of three broad valuation techniques:  (i) the market
approach, (ii) the income approach, and (iii) the cost approach. SFAS 157
requires that entities determine the most appropriate valuation technique to
use, given what is being measured and the availability of sufficient inputs.
SFAS 157 prioritizes the inputs to fair valuation techniques and allows for the
use of unobservable inputs to the extent that observable inputs are not
available.  SFAS 157 establishes a three-level hierarchy, based on the
priority of the inputs to the respective valuation technique.  The
fair value hierarchy gives the highest priority to quoted prices in active
markets for identical assets or liabilities (Level 1) and the lowest priority to
unobservable inputs (Level 3).  An asset or liability’s classification
within the fair value hierarchy is based on the lowest level of significant
input to its valuation. SFAS 157 defines the input levels as
follows:





Level
1                      Unadjusted
quoted prices in active markets for identical assets or
liabilities.





Level
      2
            Quoted
      prices in markets that are not active or inputs that are observable either
      directly or indirectly. Level 2 inputs include quoted prices for similar
      assets or liabilities other than quoted prices in Level 1; quoted prices
      in markets that are not active; or other inputs that are observable or can
      be derived principally from or corroborated by observable market data for
      substantially the full term of the assets or
  liabilities.





Level
      3
            Unobservable
      inputs that are supported by little or no market activity and are
      significant to the fair value of the assets or
      liabilities.  Unobservable inputs reflect the reporting entity’s
      own assumptions about the assumptions that market participants would use
      in pricing the asset or liability.  Level 3 assets and
      liabilities include financial instruments whose values are determined
      using pricing models, discounted cash flow methodologies, or similar
      techniques, as well as those for which the determination of fair value
      requires significant management judgment or
  estimation.





Recent Accounting
Pronouncements Issued But Not Yet Adopted





In
December 2007, the FASB issued SFAS 160 Noncontrolling Interests in
Consolidated Financial Statements - An Amendment of ARB No. 51(“SFAS
160”).  SFAS 160 establishes accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary.  SFAS 160is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Earlier adoption is prohibited.  The Company
believes that SFAS 160 will not have a material impact, if any, on its financial
statements.


14





In
February 2008, the FASB issued Financial Staff Positions (“FSP”)
SFAS 157-2, Effective
Date of FASB Statement No. 157(“FSP 157-2”), which delays the
effective date of SFAS No. 157, Fair Value Measurement (“SFAS
157”), for all nonfinancial assets and nonfinancial liabilities, except those
that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually).  SFAS 157 establishes a framework for
measuring fair value and expands disclosures about fair value measurements. FSP
157-2 partially defers the effective date of SFAS 157 to fiscal years
beginning after November 15, 2008, and interim periods within those fiscal
years for items within the scope of this FSP.  FSP 157-2 is effective for
the Company beginning January 1, 2009.  The Company is currently
evaluating the potential impact of the adoption of those provisions of
SFAS 157, for which effectiveness was delayed by FSP 157-2, on the
Company’s consolidated financial position and results of
operations.





In March
2008, the Emerging Issues Task Force issued EITF 08-4 Transition Guidance for Conforming
Changes to EIFT Issue No. 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios (EITF 08-4).  The Task Force reached a
consensus-for-exposure that the conforming changes to Issue 98-5 shall be
effective for financial statements issued for fiscal years ending December 15,
2008, with earlier application permitted.  The effect, if any, of
applying the conforming changes shall be presented retrospectively with the
cumulative-effect of the change being reported in retained earnings in the
statement of financial position as of the beginning of the first period
presented (retrospective application).  Additionally, any transition
impact of applying these conforming changes shall comply with the disclosure
requirements of Statement 154 for changes in accounting
principles.  In connection with the adoption of EITF 08-4, the Company
expects that it will have a retrospective adjustment of approximately $458,000
to its 2008 beginning retained earnings for the cumulative effect of adjusting
the accretion of the beneficial conversion feature of certain of the Company’s
convertible preferred stock.





NOTE
4 – NONCASH INVESTING AND FINANCING ACTIVITY





The
following table presents a summary of the various noncash investing and
financing transactions that the Company entered into during the six months
ended:





June
      30, 2008
              
              
              June
      30, 2007Beneficial
      conversion feature accretion
              
              $
              131,495
              
              
              $
              -Common
      stock issued as acquisition consideration
              
              $
              9,000,000
              
              
              $
              -Conversion
      value of notes payable and interest to common stock
              
              $
              645,814
              
              
              $
              50,000Conversion
      value of notes payable and interest to preferred stock
              
              $
              -
              
              
              $
              4,811,000Liability
      issued as acquisition consideration
              
              $
              1,352,129
              
              
              $
              -Payment
      of accounts payable with common stock
              
              $
              -
              
              
              $
              5,450Preferred
      stock dividends
              
              $
              532,580
              
              
              $
              141,110Reclassification
      of noncompensatory warrants from equity to liability
              
              $
              44,000
              
              
              $
              -Property
      and equipment acquired under capital lease
              
              $
              238,617
              
              
              $
              -





NOTE
5 – ACQUISITIONS





Effective
April 1, 2008, the Company acquired 100% of the outstanding common stock of U.S.
Health Benefits Group (USHBG), a call center-based marketing company that was a
key agent for the Company’s LifeGuard products.  The consideration for
the acquisition was a combination of cash and stock. The agreed value of
the acquisition was $14,300,000 and was payable as follows:





●
            Cash
      at closing $1,215,568, net of cash
acquired.


●
            1,800,000
      unregistered shares of Class A common stock with a deemed value of $5.00
      per share ($9,000,000 equivalent).


●
            Deferred
      cash payments of $1,609,090 payable in equal installments quarterly over a
      three-year period.


●
            Contingent
      consideration of $2,550,000, consisting of $850,000 based on performance
      targets in each of the next three years. This amount may be increased
      if USHBG exceeds its performance
targets.


15





The
purchase agreement provides for a share adjustment, if necessary, 18 months from
the acquisition’s effective date.  Within the immediately preceding
thirty-day period prior to the 18-month anniversary of closing (the “Share
Adjustment Date”) if the Company’s common stock has an average trading price
below $5.00 per share subject to certain adjustments, additional shares of the
Company’s common stock will be issued such that the aggregate number of shares
issued under the terms of the merger agreement have a value equal to the
agreed-upon value of $9,000,000. In the event the Company’s common stock
has an average trading price for the said period of $5.00 or more, no adjustment
shall be made to the amount of common stock previously issued and the previous
stock issuance shall be deemed final and not subject to further
adjustment.  However, in the event the average common stock price is
below $1.50 for the said adjustment period, the Company has the right to
effectively unwind the merger and irrevocably transfer 100% of USHBG’s acquired
stock to previous USHBG shareholders. In addition, in such event the
Company has the right to receive from USHBG shareholders 80% of the Company’s
common stock issued as consideration.  At June 30, 2008, the Company’s
common stock had a trading price of $0.38 per share. If the Company’s
common stock is trading at this price at the Share Adjustment Date, the Company
would be required to either issue 21,884,210 shares or unwind the
transaction.





The USHBG
purchase price was allocated to tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition of April 1, 2008.  The excess of the purchase price over
the fair value of net assets acquired was allocated to goodwill.





The
following table summarizes the estimated fair values of net assets
acquired:





Tangible
      assets:Cash
      and cash equivalents
              
              $
              59,432Accounts
      receivable
              
              
              120,603Fixed
      assets
              
              
              271,453Total
      tangible assets
              
              
              451,488Liabilities:Accounts
      payable
              
              
              67,005Accrued
      expenses
              
              
              97,245Loans
      and notes payable
              
              
              83,036Total
      liabilities
              
              
              247,286Net
      tangible assets acquired
              
              
              204,202Identifiable
      intangible assets
              
              
              6,019,000Goodwill
              
              
              5,402,243Total
      net assets acquired
              
              $
              11,625,445





The
difference between the agreed value of the acquisition of $14,300,000 and the
total net assets acquired of $11,625,445 is a result of discounting the deferred
cash payments as well as excluding contingent consideration as required by SFAS
141, Business
Combinations.  The earn-out provision of the acquisition
agreement is based on future earnings of USHBG and, thus, represents contingent
consideration.  Once the contingency period expires and the earn-out
is determinable, this additional acquisition consideration, if any, will be
recorded as additional purchase price and, consequently, will increase the
goodwill associated with this acquisition.





The
identified intangible assets include the USHBG trade name, computer software,
and customer relationships.  The Company engaged a third-party
valuation specialist to assist in estimating the fair value of the acquired
intangible assets.





The
following unaudited pro forma information shows the results of the Company’s
operations as though the USHBG acquisition had occurred as of the beginning of
that period:





For
      the Six Months EndedJune
      30, 2008
              
              
              June
      30, 2007Total
      revenues
              
              $
              13,812,550
              
              
              $
              3,937,881Net
      loss
              
              $
              (6,196,080
              )
              
              $
              (5,673,094
              )Basic
      and dilutive loss per share
              
              $
              (0.04
              )
              
              $
              (0.06
              )





The pro
forma results have been prepared for comparative purposes only and are not
necessarily indicative of the actual results of operations had the merger taken
place as of the beginning of the periods presented, or the results that may
occur in the future.


16





On
September 1, 2007, the Company acquired 100% ownership of JRM Benefits
Consultants, LLC (JRM); and on October 9, 2007, the Company acquired 100%
ownership of LifeGuard Benefit Services, Inc. (LifeGuard).





The
Company completed the identification and valuation analysis of the intangible
assets acquired in respect to the LifeGuard acquisition as of September 30,
2008.  Prior to the completion of the Company’s valuation analysis
these intangible assets were identified as unallocated assets in the
consolidated balance sheet (see Note 6).  Based upon the final
analysis, the Company has adjusted amortization expense retrospectively and has
allocated the purchase price to individual intangible assets within the restated
financial statements for the period ended June 30, 2008.





The
following table summarizes goodwill and the other identifiable intangible assets
in respect to the LifeGuard acquisition and their respective estimated fair
values as reclassified from the unallocated assets balance as of the acquisition
date:





Customer
      and vendor relationships
              
              $
              10,688,000Software
              
              
              465,000Trademark
      and tradename
              
              
              710,000Total
      identifiable intangible assets
              
              
              11,863,000Goodwill
              
              
              4,281,662Total
      identifiable intangible assets
              
              $
              16,144,662





Unaudited
pro forma operating data for the six months ended June 30, 2007 is presented as
though JRM and LifeGuard had been acquired at January 1, 2007.  The
unaudited pro forma operating data does not purport to represent what our actual
results of operations would have been had we acquired JRM and LifeGuard on
January 1, 2007 and should not serve as a forecast of our operating results
for any future periods.  The pro forma adjustments are based solely
upon certain assumptions that management believes are reasonable under the
circumstances at this time.  The unaudited pro forma operating data is
presented as follows:





For
      the Six MonthsEndedJune
      30, 2007Total
      revenues
              
              $
              4,204,584Net
      loss
              
              $
              (6,453,414
              )Basic
      and diluted loss per share
              
              $
              (0.06
              )





NOTE
6 – GOODWILL AND OTHER INTANGIBLE ASSETS





The
following table reflects the components of goodwill and other intangible assets
as of June 30, 2008 and December 31, 2007:





June
      30, 2008
              
              
              December
      31, 2007Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Carrying
      Value
              
              
              Gross
      Carrying Amount
              
              
              Accumulated
      Amortization
              
              
              Carrying
      ValueGoodwill
              
              $
              10,006,147
              
              
              $
              -
              
              
              $
              10,006,147
              
              
              $
              492,144
              
              
              $
              -
              
              
              $
              492,144Customer
      and vendor relationships
              
              
              16,262,000
              
              
              
              1,354,200
              
              
              
              14,907,800
              
              
              
              -
              
              
              
              -
              
              
              
              -Software
              
              
              742,250
              
              
              
              138,830
              
              
              
              603,420
              
              
              
              708,250
              
              
              
              41,164
              
              
              
              667,086Trademarks
      and tradenames
              
              
              1,130,900
              
              
              
              266,250
              
              
              
              864,650
              
              
              
              -
              
              
              
              -
              
              
              
              -Unallocated
      assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              13,566,020
              
              
              
              -
              
              
              
              13,566,020Total
              
              $
              28,141,297
              
              
              $
              1,759,280
              
              
              $
              26,382,017
              
              
              $
              14,766,414
              
              
              $
              41,164
              
              
              $
              14,725,250




Goodwill
represents the excess of the purchase price over the sum of the amounts assigned
to assets acquired less liabilities assumed in respect to the JRM, Lifeguard and
USHBG acquisitions.  None of this goodwill is expected to be deducted for
tax purposes.


17





Amortization
expense related to all of the Company’s identifiable intangible assets for the
three months ended June 30, 2008 and 2007 was $1,001,142 and $0, respectively,
and for the six months ended June 30, 2008 and 2007 was $1,715,171 and $0,
respectively.  Management estimates future amortization expense of
approximately $15,944,041.  Future amortization of intangible assets
is shown in the following table:





2008
              
              $
              2,016,1592009
              
              
              3,677,3172010
              
              
              3,457,5982011
              
              
              3,268,5672012
              
              
              3,252,400Thereafter
              
              
              272,000$
              15,944,041





The
weighted-average remaining amortization period for customer and vendor
relationships, software, and trademarks and tradenames is 4.59 years, 2.38
years, and 10 months, respectively.





The table
below presents the total carrying amount by intangible asset class for
intangible assets not subject to amortization:





Carrying
      ValueMarch
      31,
              
              
              December
      312008
              
              
              2007Goodwill
              
              $
              10,006,147
              
              
              $
              492,144Trademarks
      and tradenames
              
              
              420,900
              
              
              
              -$
              10,427,047
              
              
              $
              492,144





NOTE 7 –
NOTES AND LOANS PAYABLE





Notes and
loans payable consist of the following as of June 30, 2008 and December 31,
2007:





2008
              
              
              2007Promissory
      notes payable to investors and stockholders; bearing interest ranging from
      8% to 10% per annum; due through December 2006; currently in
      default
              
              $
              557,500
              
              
              $
              572,500Convertible
      promissory notes payable to investors and stockholders; bearing interest
      ranging from 10% to 11% per annum; due through December 2006; currently in
      default
              
              
              122,000
              
              
              
              122,000Convertible
      promissory notes payable to investors and stockholders; bearing interest
      ranging from 8% to 10% per annum; due through December 2007; currently in
      default
              
              
              7,000
              
              
              
              357,000Promissory
      notes payable to investors and stockholders; bearing interest of 1.53% per
      annum; due through June 2004, increasing to 15% thereafter, currently in
      default
              
              
              114,950
              
              
              
              114,950Convertible
      promissory notes payable to investors and shareholders; bearing interest
      of 10% per annum; accrued quarterly at 2.5%; due April 25, 2010, net of
      $491,163 discount.
              
              
              83,837
              
              
              
              -Revolving
      consumer credit cards
              
              
              184,451
              
              
              
              228,557Capital
      lease obligations
              
              
              238,617
              
              
              
              -Promissory
      notes payable to related parties (payable on demand; noninterest
      bearing)
              
              
              18,592
              
              
              
              19,523Total
      notes and loans payable
              
              $
              1,326,947
              
              
              $
              1,414,530





18





At the
date of issue of each of the convertible notes, the conversion price was equal
to or exceeded the stock price at the time of issue, and as such, no intrinsic
value was allocated to the embedded option of each note. As of June 30,
2008, all of the promissory notes payable were classified as current due to
either maturity dates or events of default. The capital lease obligation
was allocated between current and long-term portion of $169,197 and $69,420,
respectively.  The following schedule details the future payments on
capital leases:





2008
              
              $
              169,1972009
              
              
              37,2542010
              
              
              17,2042011
              
              
              14,962Thereafter
              
              $
              238,617





Approximately
$801,450 of the above listed notes in default are held by investors who have
been financial supporters of the Company. The Company is in the process of
negotiating either a conversion to equity or a restructuring of the terms of
these notes.





On
February 13, 2008, the Company received notice to convert a promissory note in
the amount of $100,000 with accrued interest of $44,049 into 1,617,680 shares of
Class A common stock which were issued on or about February 13,
2008.





On March
31, 2008, the Company received notice to convert a promissory note in the amount
of $350,000 with accrued interest of $53,162 into 4,031,620 shares of Class A
common stock which were issued on or about March 31, 2008.





On April
25, 2008, the Company issued $575,000 of convertible promissory notes with
1,868,217 detachable warrants to investors and stockholders. The notes bear
interest at 10% per annum accruing quarterly and are due April 25,
2010.  The holders of the warrants have the ability, under certain
circumstances, to require cash settlement.  Therefore, the warrants
have been classified as liabilities.  The fair value of the warrants
of $504,419 was determined by an independent valuation specialist using the
Black-Scholes Option model with a volatility of 139%, risk free rate of 3.14%, a
five year expected term and no dividends.  Proceeds equal to the full fair
value of the warrants were assigned to the warrants, resulting in discount on
the convertible notes at issuance in the amount of $504,419.  The
discount is amortized to interest expense using the effective interest
method.





NOTE
8 – PREFERRED STOCK





The
Company is authorized to issue 20,000,000 shares of preferred
stock.





Series B,
C, D, E, G, and H Preferred Stock is entitled to receive dividends payable on
the stated value of the preferred stock at a rate of six percent (6%) per annum,
which shall be cumulative, accrue daily from the issuance date and be due and
payable on the first day of each calendar quarter.  Such dividends
accrue whether or not declared, but no dividend shall be paid unless there are
profits, surplus or other funds legally available for the payment of
dividends.  Dividends are payable in cash or common stock, at the
option of the holder. The accumulation of unpaid dividends shall bear
interest at a rate of six percent (6%) per annum.  At June 30, 2008 and
December 31, 2007, accrued and unpaid dividends related to the preferred stock
are $1,029,831 and $479,896, respectively. The Company’s Series A Preferred
Stock does not accrue dividends.





In the
event of any liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, and before any junior security of the
Company, the holders of preferred stock shall be entitled to be paid out of the
assets of the Company available for distribution to its stockholders an
amount per share equal to the stated value of the holders’ respective preferred
stock series plus the aggregate amount of accumulated but unpaid dividends on
each share of preferred stock.  If, upon a liquidation event, the
assets of the Company are insufficient to permit payment in full to such holders
of the aggregate amount that they are entitled to be paid by their respective
terms, then the entire assets, or proceeds thereof, available to be distributed
to the Company’s stockholders shall be distributed to the holders of the
preferred stock ratably in accordance with the respective amounts that would be
payable on such shares if all amounts payable were paid in full.  The
liquidation value of Series A, B, C, D, E, G, and H as of June 30, 2008 was
$155,000, $0, $0, $7,526,600, $1,512,677, $12,306,555,
and  $4,020,000, respectively.





The table
below sets forth the preferred stock outstanding as of June 30, 2008 and
December 31, 2007. Note that no shares of Series B or Series C Preferred
Stock were outstanding as of June 30, 2008 and December 31,
2007.


19





The
following table presents the preferred stock outstanding as of June
30:





June
      30,
              
              
              December
      31,2008
              
              
              2007Series
      A
              
              
              155
              
              
              
              155Series
      D
              
              
              695
              
              
              
              695Series
      E
              
              
              139
              
              
              
              139Series
      G
              
              
              1,200
              
              
              
              300Series
      H
              
              
              400
              
              
              
              -2,589
              
              
              
              1,289





Preferred
Stock Series A





As of
June 30, 2008, 155 shares of Series A Convertible Preferred Stock (“Series A
Preferred Stock”) were outstanding.  There were no issuances of Series A
Preferred Stock during the three and six month periods ended June 30,
2008.  Each share of Series A Preferred Stock is convertible into
2,000 shares of Class A common stock, subject to adjustment for stock dividend,
stock split or combination, reclassification, reorganization, consolidation,
merger or sale of all or substantially all of the assets or other corporate
event.  As of June 30, 2008, the outstanding shares of Series A
Preferred Stock were convertible into 310,000 shares of Class A Common
Stock.





Preferred
Stock Series B





Each
share of Series B Convertible Preferred Stock (“Series B Preferred Stock”) is
convertible at any time, at the option of the holder, into one share of Class A
common stock, subject to adjustment for stock dividends, stock split or
combination, reclassification, reorganization, consolidation, merger or sale of
all or substantially all of the assets or other corporate event.  
There were no issuances of Series B Preferred Stock during the three and six
month periods ended June 30, 2008.  As of June 30, 2008, no shares of
Series B Preferred Stock were outstanding.





Preferred
Stock Series C





Each
share of Series C Mandatory Convertible Preferred Stock (“Series C Preferred
Stock”) is deemed to have a value of $10,000 and is convertible at any time, at
the option of the holder, into such amount of shares of Class A common stock
purchasable for $10,000 on the day of conversion at the lesser of $2.88 or
seventy-five percent (75%) of the lowest closing bid price during the five days
immediately prior to the conversion date (the “Series C Conversion
Price”).  The Series C Conversion Price is subject to adjustment for
stock dividends, stock split or combination, reclassification, reorganization,
consolidation, merger or sale of all or substantially all of the assets or other
corporate event. There were no issuances of Series C Preferred Stock during
the three and six month periods ended June 30, 2008.  As of June 30,
2008, no shares of Series C Preferred Stock were outstanding.





Preferred
Stock Series D





As of
June 30, 2008, 694.6 shares of Series D Preferred Stock were
outstanding.  There were no issuances of Series D Preferred Stock
during the three and six month periods ended June 30, 2008.  Each
share of Series D Preferred Stock is convertible at any time after the second
anniversary date of issuance, at the option of the holder, into that number of
shares of Class A Common Stock equal to $10,000 divided by $0.01 (the “Series D
Conversion Price”).  The Series D Conversion Price is subject to
adjustment for certain events, including the payment of a dividend payable in
capital stock of the Company, any stock split, combination, or reclassification
and certain issuances of Class A Common Stock or securities convertible into or
exercisable for Class A Common Stock at a price per share or conversion price
less than the then applicable Series D Conversion Price.  In the event
of certain corporate changes, including any consolidation or merger in which the
Company is not the surviving entity, sale or transfer of all or substantially
all of the Company’s assets, certain share exchanges and certain distributions
of property or assets to the holders of Class A Common Stock, the holders of the
Series D Preferred Stock have the right to receive upon conversion, in lieu of
shares of Class A Common Stock otherwise issuable, such securities and/or other
property as would have been issued or payable as a result of such corporate
change with respect to or in exchange for the Class A Common Stock issuable upon
conversion of the Series D Preferred Stock.  The shares of Series D
Preferred Stock, generally, become convertible into Class A Common Stock two
years after issuance.  As of June 30, 2008, the outstanding shares of
Series D Preferred Stock, assuming that all shares of Series D Preferred Stock
have been outstanding for at least two years, would have been convertible into
694,600,000 shares of Class A Common Stock.  If on July 15, 2011, any
share of Series D Preferred Stock remains outstanding and a registration
statement covering the resale of all of the Class A Common Stock underlying the
Series D Preferred Stock is effective and has been effective for 90 days prior
to such date, the Company must convert each share of the Series D Preferred
Stock into Class A Common at the then applicable Series D Conversion
Price.


20





In
connection with the Series D Preferred Stock, the Company recorded an aggregate
beneficial conversion feature of $6,410,000.  The Company accounted
for the beneficial conversion feature in accordance with EITF Issue No. 00-27,
Application of Issue
No 98-5 to Certain Convertible Instruments (“EITF 00-27”) and EITF
Issue No. 98-5, Accounting for
Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios (“EITF 98-5”).  The resulting discounts
have been accreted as a dividend to the preferred shareholders from the date of
issuance to the preferred stock’s mandatory conversion date, using the effective
yield method.  Accretion recognized for the three and six months ended June
30, 2008 was $65,479 and $116,064, respectively.  Upon the adoption of
EITF 08-4, the Company will record a retrospective adjustment of approximately
$353,000 to beginning retained earnings to reflect accretion of this discount to
the earliest conversion date.





Preferred
Stock Series E





Each
share of Series E Preferred Stock is convertible after the second anniversary of
the issuance date of such shares, at the option of the holder, into that number
of shares of Class A Common stock equal to $10,000 divided by $0.02 (the “Series
E Conversion Price”). The Series E Conversion Price is subject to
adjustment for certain events, including the payment of a dividend payable in
capital stock of the Company, any stock split, combination, or reclassification
and certain issuances of Class A Common stock or securities convertible into or
exercisable for Class A Common stock at a price per share or conversion price
less than the then applicable Series E Conversion Price.  In the event
of certain corporate changes, including any consolidation or merger in which the
Company is not the surviving entity, sale or transfer of all or substantially
all of the Company’s assets, certain share exchanges and certain distributions
of property or assets to the holders of Class A Common stock, the holders of the
Series E Preferred Stock have the right to receive upon conversion, in lieu of
shares of Class A Common stock otherwise issuable, such securities and/or other
property as would have been issued or payable as a result of such corporate
change with respect to or in exchange for the Class A Common stock issuable upon
conversion of the Series E Preferred Stock.





The
Company at its option may call for redemption of all the Series E Preferred
Stock at any time, provided (a) the closing trading price of the Class A Common
stock exceeds $0.50 per share (as quoted on the principal exchange, including
for this purpose, the Nasdaq National Market on which it is then listed, or if
it is not so listed, the closing bid price per share for such stock, as reported
by Nasdaq, the OTC Bulletin Board, the National Quotation Bureau, Incorporated
or other similar service which regularly reports closing bid quotations for such
stock) for 15 trading days during any 20-trading day period; and (b) there is at
the time of the call for redemption by the Corporation, and has been for the
period specified in (a) above preceding such call, an effective registration
statement covering the resale of the shares of Class A Common stock underlying
the Series E Preferred Stock.  The Company shall effect any redemption of
the Series E Preferred Stock by paying in cash in exchange for each share of
Series E Preferred Stock to be redeemed a sum equal to 150% of the stated value
of such shares of Series E Preferred Stock plus all accruing dividends accrued
but unpaid thereon, whether or not declared, with respect to such
share.





As of
June 30, 2008, there were 139 shares of Series E Preferred Stock
outstanding.  There were no issuances of Series E Preferred Stock during
the three and six month periods ended June 30, 2008.  The shares of
Series E Preferred Stock, generally, become convertible into Class A Common
Stock two years after issuance. As of June 30, 2008, the outstanding shares
of Series E Preferred Stock, assuming that all shares of Series E Preferred
Stock have been outstanding for at least two years, would have been convertible
into 69,500,000 shares of Class A Common stock.  If on July 15, 2011,
any share of Series E Preferred Stock remains outstanding and a registration
statement covering the resale of all of the Class A Common stock underlying the
Series E Preferred Stock is effective and has been effective for 90 days prior
to such date, the Company must convert each share of the Series E Preferred
Stock into Class A Common stock at the then applicable Conversion
Price.





In
connection with the Series E Preferred Stock, the Company recorded an aggregate
beneficial conversion feature of $970,000.  The Company accounted for the
beneficial conversion feature in accordance with EITF 00-27 and EITF 98-5.
 The resulting discounts are accreted as a dividend to the preferred
shareholders from the date of issuance to the preferred stock’s mandatory
conversion date, using the effective yield method.  Accretion recognized
for the three and six months ended June 30, 2008 was $8,450 and $15,441,
respectively.  Upon the adoption of EITF 08-4, the Company will record
a retrospective adjustment of approximately $105,000 to beginning retained
earnings to reflect accretion of this discount to the earliest conversion
date.





Preferred
Stock Series G





Each
share of Series G Preferred Stock is convertible at any time, at the option of
the holder, into that number of shares of Class A Common stock equal to $10,000
divided by $5.00 (the “Series G Conversion Price”). The Series G Conversion
Price is subject to adjustment for certain events, including the payment of a
dividend payable in capital stock of the Company, any stock split, combination,
or reclassification and certain issuances of Class A Common stock or securities
convertible into or exercisable for Class A Common stock at a price per share or
conversion price less than the then applicable Series G Conversion
Price. In the event of certain corporate changes, including any
consolidation or merger in which the Company is not the surviving entity, sale
or transfer of all or substantially all of the Company’s assets, certain share
exchanges and certain distributions of property or assets to the holders of
Class A Common stock, the holders of the Series G Preferred Stock have the right
to receive upon conversion, in lieu of shares of Class A Common stock otherwise
issuable, such securities and/or other property as would have been issued or
payable as a result of such corporate change with respect to or in exchange for
the Class A Common stock issuable upon conversion of the Series G Preferred
Stock.  In addition, if on November 7, 2009, the Series G Conversion
Price then in effect is higher than the current market price of the Company’s
Class A Common stock, then the Series G Conversion Price shall be reduced to
such current market price  (provided that the current market price
shall never be less than $0.01).  If on July 15, 2011, any share of
Series G Preferred Stock remains outstanding and a registration statement
covering the resale of all of the Class A Common stock underlying the Series G
Preferred Stock is effective and has been effective for 90 days prior to such
date, the Company must convert each share of the Series G Preferred Stock into
Class A Common at the then applicable Conversion Price.


21





If the
Conversion Price is reduced below $1.50 as a result of an adjustment on November
7, 2009, the Company may, within ten (10) days after November 7, 2009, elect to
redeem all, but not less than all, of the outstanding Series G Preferred Stock
by paying cash in exchange for each share to be redeemed in an amount equal to
150% of the stated value, less all dividends paid thereon.





On
January 31, 2008, March 13, 2008 and April 30, 2008, the Company issued 300, 400
and 200 shares of its Series G Mandatory Convertible Preferred Stock (“Series G
Preferred Stock”) for proceeds of $3,000,000, $4,000,000 and $2,000,000,
respectively.





In
connection with the Series G Preferred Stock issued on March 13, 2008 and April
30, 2008, detachable warrants for 45,000,000 and 22,500,000 shares of Class
A Common stock, respectively, exercisable for five years at an exercise price of
$0.375 were issued.  As the holders of the warrants have the ability,
under certain circumstances, to require cash settlement these warrants are
classified as liabilities in accordance with SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (“SFAS
150”).  The fair value of the warrants was determined by a third
–party valuation specialist based upon the Black-Scholes-Merton Option Pricing
Model.





At June
30, 2008 the fair value of these warrants is $11,475,000.  For the six
months ended June 30, 2008, the effect of mark-to-market adjustments was a gain
of $4,725,000 and has been recorded as “Change in fair value of redeemable
warrants” within the accompanying Statements of Operations.  See Note
11 for fair additional value disclosure information.





As the
fair value of the warrants at issuance exceeded the proceeds, the preferred
stock has no recorded value and losses of $7,250,000 and $2,950,000 representing
the excess of the fair value of the warrants over the proceeds were recorded at
March 13, 2008 and April 30, 2008 respectively.





In the
event certain circumstances require cash settlement of these warrants, the
warrant agreement provides for a specific pricing method and assumptions which
can result in a different settlement value than the fair value at which the
Company has recorded the warrants on the Balance Sheet.  The aggregate
settlement value, if settlement were to occur on June 30, 2008, as calculated in
accordance with the warrant agreements was $9,450,000.





As of
June 30, 2008, 1,200 shares Series G Preferred Stock were outstanding and
convertible into 2,400,000 Class A Common shares.





Preferred
Stock Series H





Each
share of Series H Preferred Stock is convertible at any time, at the option of
the holder, into that number of shares of Class A Common stock equal to $10,000
divided by $5.00 (the “Series H Conversion Price”). The Series H Conversion
Price is subject to adjustment for certain events, including the payment of a
dividend payable in capital stock of the Company, any stock split, combination,
or reclassification and certain issuances of Class A Common stock or securities
convertible into or exercisable for Class A Common Stock at a price per share or
conversion price less than the then applicable Series H Conversion
Price.  In the event of certain corporate changes, including any
consolidation or merger in which the Company is not the surviving entity, sale
or transfer of all or substantially all of the Company’s assets, certain share
exchanges and certain distributions of property or assets to the holders of
Class A Common stock, the holders of the Series H Preferred Stock have the right
to receive upon conversion, in lieu of shares of Class A Common stock otherwise
issuable, such securities and/or other property as would have been issued or
payable as a result of such corporate change with respect to or in exchange for
the Class A Common stock issuable upon conversion of the Series H Preferred
Stock.  In addition, if on November 7, 2009 the Series H Conversion
Price then in effect is higher than the current market price of the Company’s
Class A Common stock, then the Series H Conversion Price shall be reduced to
such current market price (provided that the current market price shall
never be less than $0.01).  If on July 15, 2011, any share of Series H
Preferred Stock remains outstanding and a registration statement covering the
resale of all of the Class A Common stock underlying the Series H Preferred
Stock is effective and has been effective for 90 days prior to such date, the
Company must convert each share of the Series H Preferred Stock into Class A
Common stock at the then applicable Conversion Price.





If the
Conversion Price is reduced below $1.50 as a result of an adjustment on November
7, 2009, the Company may, within ten (10) days after November 7, 2009, elect to
redeem all, but not less than all, of the outstanding Series H Preferred Stock
by paying cash in exchange for each share to be redeemed in an amount equal to
150% of the stated value, less all dividends paid thereon.





On June
2, 2008, the Company issued 400 shares of its Series H Convertible Preferred
Stock (“Series H Preferred Stock”) and a warrant agreement to acquire 45,000,000
shares of the Company’s Class A Common stock, exercisable for five (5) years at
an exercise price of $0.375, for an aggregate cash purchase price of
$4,000,000.  As the holders of the warrants have the ability, under
certain circumstances, to require cash settlement these warrants are liabilities
in accordance with SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (“SFAS
150”).  The fair value of the warrants was determined by a third-party
valuation specialist based upon the Black-Scholes-Merton Option Pricing
Model.


22





At June
30, 2008, the fair value of these warrants is $7,650,000.  For the six
months ended June 30, 2008, the effect of mark-to-market adjustments was a gain
of $900,000 and has been recorded as “Change in fair value of redeemable
warrants” within the accompanying statements of operations.  See Note
11 for additional fair value disclosure information.





As the
fair value of the warrants at issuance exceeded the proceeds, the preferred
stock has no recorded value and a loss representing the excess of the fair value
of the warrants over the proceeds of $4,550,000 was recorded at June 2,
2008.





In the
event certain circumstances require cash settlement of these warrants, the
warrant agreement provides for a specific pricing method and assumptions which
can result in a different settlement value than the fair value at which the
Company has recorded the warrants on the Balance Sheet. The aggregate settlement
value, if settlement were to occur on June 30, 2008 as calculated in accordance
with the warrant agreements was $6,300,000.





As of
June 30, 2008, 400 shares Series H Preferred Stock were outstanding and
convertible into 800,000 Class A Common shares.





NOTE
9 – COMMON STOCK





The
Company has authorized one billion three hundred sixty million (1,360,000,000)
Class A Common shares and one hundred twenty million (120,000,000) Class B
Common shares.  On all matters required by law to be submitted to a
vote of the holders of common stock, each share of Class A Common stock is
entitled to one vote per share, and each share of Class B Common stock is
entitled to five votes.





NOTE
10 – WARRANTS AND SHARE-BASED AWARDS





Warrants





During
the three and six months ended June 30, 2008, the Company issued warrants to
purchase an aggregate of 45,200,000 and 118,193,217 shares of common stock,
respectively.  During the three and six months ended June 30, 2007, 0 and
9,625,000 warrants were issued, respectively. At June 30, 2008, there were
145,766,067 and 17,711,600 warrants outstanding to purchase Class A and Class B
Common stock, respectively, exercisable at varying prices through
2013. Certain of these warrants are liability instruments issued in
connection with preferred stock and convertible promissory notes. These warrants
are classified as liability instruments because, under certain conditions, the
holders may require cash settlement.  At June 30, 2008, 114,768,217
warrants were classified as liabilities.  No warrants were classified
as liabilities at December 31, 2007.  The remaining warrants are
compensatory warrants, issued to employees and others in exchange for
services.





The
following table summarizes this warrant activity:





Class
      A WarrantsSix
      Months Ended June 30,2008
              
              
              2007Warrants
              
              
              Weighted
                Average
                Exercise
      Price
              
              Warrants
              
              
              Weighted
                Average
                Exercise
      PriceWarrants
      outstanding, beginning of period
              
              
              20,452,850
              
              
              $
              0.35
              
              
              
              7,747,000
              
              
              $
              0.33Warrants
      issued
              
              
              118,193,217
              
              
              
              0.38
              
              
              
              9,625,000
              
              
              
              0.13Warrants
      cancelled or expired
              
              
              (145,000
              )
              
              
              0.09
              
              
              
              (550,400
              )
              
              
              0.03Warrants
      exercised
              
              
              (700,000
              )
              
              
              0.17
              
              
              
              (3,210,000
              )
              
              
              0.01Warrants
      outstanding, end of period
              
              
              137,801,067
              
              
              $
              0.38
              
              
              
              13,611,600
              
              
              $
              0.27
  Class
      B WarrantsSix
      Months Ended June 30,2008
              
              
              2007Warrants
              
              
              Weighted
                Average
                Exercise
      Price
              
              Warrants
              
              
              Weighted
                Average
                Exercise
      PriceWarrants
      outstanding, beginning of period
              
              
              7,965,000
              
              
              $
              0.44
              
              
              
              4,100,000
              
              
              $
              0.06Warrants
      issued
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Warrants
      cancelled or expired
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Warrants
      exercised
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Warrants
      outstanding, end of period
              
              
              7,965,000
              
              
              $
              0.44
              
              
              
              4,100,000
              
              
              $
              0.06


23





The
following table summarizes the status of warrants outstanding and exercisable at
June 30, 2008:





Outstanding
      and Exercisable WarrantsExercise
      Price
              
              Number
      of
                Warrants
              Weighted
      Average Remaining
                Contractual
      Life
                in
      Years$             0.01
              
              707,850
              
              2.03$           0.025
              
              6,000,000
              
              3.74$             0.10
              
              350,000
              
              2.82$             0.15
              
              200,000
              
              1.05$             0.16
              
              1,800,000
              
              1.91$             0.30
              
              3,700,000
              
              3.73$             0.32
              
              50,000
              
              4.21$           0.375
              
              114,368,217
              
              4.82$             0.38
              
              1,000,000
              
              4.95$             0.39
              
              200,000
              
              4.57$             0.40
              
              25,000
              
              4.93$             0.50
              
              13,465,000
              
              4.43$             1.00
              
              125,000
              
              4.75$             1.25
              
              1,300,000
              
              1.53143,291,067





As of
June 30, 2008, there was $1,466,826 of total unrecognized compensation cost
related to non-vested warrants that is expected to be recognized over a
weighted-average period of 1.04 years. The intrinsic value of warrants
exercised during the six-month period ended June 30, 2008 and June 30, 2007 was
$144,000 and $1,212,600, respectively. The fair value of warrants vested as
of June 30, 2008 was $54,156,105. The weighted average fair value per share
of warrants granted during the six-month period ended June 30, 2008 was
$0.38.





During
the three and six-months ended June 30, 2008 and June 30, 2007, stock-based
compensation recognized relating to the issuance of warrants to employees and
consultants was $378,763, $461,318, $1,207,500, and $1,207,500,
respectively. Compensation expense was determined using the Black-Scholes
Option Model with a volatility ranging between 212% and 249%, a risk free
interest rate ranging between 2.78% and 4.48% , a life of five years and a zero
dividend rate.





Stock
Awards Issued





The
following table details the stock awards that were granted and issued during the
six months ended June 30, 2008 and June 30, 2007 for various purposes, such as
employment compensation and for goods and services. The Company’s stock
awards consist of Class A and Class B Common stock.  The grant date fair
value is based on the share price as of the award date. For the three and
six months ended June 30, 2008, $713,750 and $725,750, respectively, of
share-based compensation was recognized within the Statement of
Operations. For the three and six month period ended June 30, 2007, $77,900
and $3,257,900, respectively, of share-based compensation was recognized within
the Statement of Operations.





Award
      Date
              Award
      Type
              
              Number
      of Shares
              
              
              Grant
      Date Fair
                Value
      of Stock
                Awards20083/3/2008
              Class
      A Common
              
              
              25,000
              
              
              $
              12,0004/1/2008
              Class
      A Common
              
              
              1,000,000
              
              
              
              450,0006/1/2008
              Class
      A Common
              
              
              400,000
              
              
              
              160,0006/2/2008
              Class
      A Common
              
              
              50,000
              
              
              
              20,5005/14/2008
              Class
      A Common
              
              
              225,000
              
              
              
              83,2501,700,000
              
              
              $
              725,75020071/15/2007
              Class
      A Common
              
              
              3,000,000
              
              
              $
              105,0001/31/2007
              Class
      B Common
              
              
              20,500,000
              
              
              
              3,075,0004/12/2007
              Class
      A Common
              
              
              60,000
              
              
              
              17,9006/27/2007
              Class
      A Common
              
              
              200,000
              
              
              
              60,00023,760,000
              
              
              $
              3,257,900


24


Stock-Based
Compensation Expense





For the
three and six months ended June 30, 2008 and 2007, the Company recognized
stock-based compensation expense, including both expense related to compensatory
warrants and expense related to share awards, within the Statement of Operations
as follows:





Three
      Months Ended
              
              
              Six
      Months EndedJune
      30,
              
              
              June
      302008
              
              
              2007
              
              
              2008
              
              
              2007Stock-based
      compensation:Professional
      fees
              
              $
              912,869
              
              
              $
              77,900
              
              
              $
              1,007,424
              
              
              $
              535,400Payroll
      and employee benefits
              
              
              179,644
              
              
              
              -
              
              
              
              179,644
              
              
              
              3,960,000Total
              
              $
              1,092,513
              
              
              $
              77,900
              
              
              $
              1,187,068
              
              
              $
              4,495,400





NOTE
11 – ASSETS AND LIABILITIES MEASURED AT FAIR VALUE





Recurring
Fair Value Measurements





Financial
instruments which are measured at estimated fair value in the consolidated
financial statements include certain redeemable and other non-compensatory
warrants.  The fair value of these warrants was determined by an
independent valuation specialist using the Black-Scholes-Merton Option Pricing
method.





Liabilities
measured at estimated fair value on a recurring basis and their corresponding
fair value hierarchy are summarized as follows:




June
      30, 2008Fair
      Value Measurements at Reporting Date UsingSignificantUnobservableInputs
              
              
              Total(Level
      3)
              
              
              Fair
      ValueReedemable
      warrants
              
              $
              19,442,597
              
              
              $
              19,442,597Non-compensatory
      warrants
              
              
              16,000
              
              
              
              16,000Total
      liabilities
              
              $
              19,458,597
              
              
              $
              19,458,597





The
Company has categorized its assets and liabilities measured at fair value into
the three-level fair value hierarchy, as defined in Note 3, based upon the
priority of inputs to the respective valuation
techniques.  Liabilities included within level 3 of the fair value
hierarchy presented in the preceding table include:  (1) warrant
instruments which contain redemption provisions which under certain
circumstances may require cash settlement and (2) certain non-compensatory
warrants.  The valuation methodology uses a combination of observable
and unobservable inputs in calculating fair value.





The
changes in level 3 liabilities measured at fair value on a recurring basis are
summarized as follows:





Fair
      Value MeasurementsUsing
      Significant Unobservable Unputs(Level
      3)Warrants(Gain)
      or LossReclassification
              
              
              
              
              
              Recognized
      inBalance
              
              
              of
              
              
              
              
              
              Earnings
      From
              
              
              BalanceBeginning
      of
              
              
              Warrants
      as
              
              
              
              
              
              Change
      in Fair
              
              
              EndPeriod
              
              
              Liabilities
              
              
              Issuance
              
              
              Value
              
              
              of
      PeriodFor
      the Six Months Ended June 30, 2008Redeemable
      warrants
              
              $
              -
              
              
              $
              -
              
              
              $
              25,254,419
              
              
              $
              (5,811,822
              )
              
              $
              19,442,597Non-compensatory
      warrants
              
              
              -
              
              
              
              44,000
              
              
              
              -
              
              
              
              (28,000
              )
              
              
              16,000Total
              
              $
              -
              
              
              $
              44,000
              
              
              $
              25,254,419
              
              
              $
              (5,839,822
              )
              
              $
              19,458,597For
      the Three Months Ended June 30, 2008Redeemable
      warrants
              
              $
              12,150,000
              
              
              $
              -
              
              
              $
              14,004,419
              
              
              $
              (6,711,822
              )
              
              $
              19,442,597Non-compensatory
      warrants
              
              
              44,000
              
              
              
              -
              
              
              
              -
              
              
              
              (28,000
              )
              
              
              16,000Total
              
              $
              12,194,000
              
              
              $
              -
              
              
              $
              14,004,419
              
              
              $
              (6,739,822
              )
              
              $
              19,458,597


25


For the
three and six months ended June 30, 2008, total unrealized losses of $760,178
and $8,910,178, respectively, are included in earnings in the Statement of
Operations caption “Change in fair value of redeemable
warrants.”  Unrealized losses for the three and six months ended June
30, 2008 include losses on initial issuance of warrants of $7,500,000 and
$14,750,000, respectively.





NOTE 12 –
RELATED PARTY TRANSACTIONS





During
the six month period ending June 30, 2008, LifeGuard marketed a membership
product which it licenses from DirectMed, a company thirty-three percent (33%)
owned by the President of LifeGuard.   LifeGuard pays DirectMed a
branding fee based on the number of memberships sold.  During the six
month period ended June 30, 2008, LifeGuard paid DirectMed $239,753 in branding
fees.  Accounts payable at June 30, 2008 associated with DirectMed
were $610,217.





At June
30, 2008, the Company had Notes Payable totaling $18,592 due to LifeGuard
Marketing Corporation, a company fifty (50) percent owned by the President of
LifeGuard.  This note is non-interest bearing.





As part
of the acquisition agreement between the Company and JRM, the Company assumed
$287,143 of liabilities of which $159,536 and $69,240 represent personal credit
card balances and business credit lines, respectively.  The Company will
continue to pay the monthly required payments for eighteen (18) months and will
continue to do so if the eighteen (18) month minimum sales target of JRM is
met.  The liabilities are personally guaranteed by two of the Senior Vice
Presidents of the JRM Division and are recorded within the Company’s notes and
loans payable category of the balance sheet. As of June 30, 2008, the
outstanding balance of said liabilities was $212,254.





The
Chairman and Chief Executive Officer of the Company is of Counsel and a
non-participating attorney with a law firm which regularly represents the
Company on various matters.  The firm has billed the Company $0 and
$85,170 for legal services for the three and six months ended June 30,
2008.  The Chairman does not share directly or indirectly any fee
revenue generated as a result of the firm’s representation of the
Company.





NOTE
13 – SUBSEQUENT EVENTS





On August
6, 2008, the Company favorably settled certain pending
litigation.  The settlement and the release of the contingent
liability to the Company for settlements, judgments and legal defense costs for
this litigation resulted in a reduction in the accrual for litigation in the
amount of $2,707,402.





On August
8, 2008, various stockholders converted 26,559,280 shares of Class B Common
stock into Class A Common stock.





On August
9, 2008, the Company received a call notice on certain promissory notes and
accrued interest.  On September 8, 2008, the Company paid $575,000 of
principal and $21,582 of accrued interest.


26


Item
2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS




On
December 17, 2008, the Board of Directors of the Company, after discussions with
the Company’s independent registered public accounting firm, McGladrey &
Pullen, LLP (“McGladrey”) and its former independent registered public
accounting firm Brimmer, Burek & Keelan LLP (“Brimmer”), determined it
necessary to restate the Company’s consolidated financial statements for the
quarterly period ended June 30, 2008 to correct the errors described
in the Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on December 18, 2008. Accordingly, the Company’s
consolidated interim financial statements previously filed for those periods
should no longer be relied upon and the Company’s press releases and similar
communications should no longer be relied upon to the extent that they relate
to such financial statements.
 
 Based on
the aforementioned, Part I Item 2 – Management’s Discussion and Analysis of
Financial Condition and Results of Operations has been amended
accordingly.


SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





Information
contained in this discussion, other than historical information, is considered
“forward-looking statements” that are subject to risks and
uncertainties.  These forward-looking statements include information
about possible or assumed future results of our business, financial condition,
liquidity, results of operations, plans and objectives including, without
limitation, statements about the Company’s ability to continue operations
through June 2009, the liability of the Company for claims made in pending
litigation, plans for future products, strengthening our relationship with our
various sales organizations, our marketing intentions, our anticipated products,
efforts to expand distribution channels, Zurvita’s anticipated growth in sales
and margins and our ability to achieve profitability.  In some cases,
you may identify forward-looking statements by words such as “may,” “should,”
“plan,” “intend,” “potential,” “continue,” “believe,” “expect,” “predict,”
“anticipate” and “estimate,” the negative of these words or other comparable
words. These statements are only predictions. One should not place undue
reliance on these forward-looking statements.  The forward-looking
statements are qualified by their terms and/or important factors, many of which
are outside the Company’s control, involve a number of risks, uncertainties and
other factors that could cause actual results and events to differ materially
from the statements made.  The forward-looking statements are based on
the Company’s beliefs, assumptions and expectations of our future performance,
taking into account information currently available to the
Company.  These beliefs, assumptions and expectations can change as a
result of many possible events or factors, including those events and factors
described in “Risk Factors” in the Company’s Annual Report on Form 10-KSB for
the year ended December 31, 2007 filed with the Securities and Exchange
Commission on April 15, 2008 (the “2007 Annual Report”), not all of which are
known to the Company.  If a change occurs, the Company’s business,
financial condition, liquidity and results of operations may vary materially
from those expressed in the aforementioned forward-looking
statements.  In addition, actual results in future periods may differ
materially from those expressed or implied in such forward-looking statements as
a result of many possible events or factors, including those events and factors
described in “Risk Factors” in the Company’s 2007 Annual Report.  The
Company will update this forward-looking information only to the extent required
under applicable securities laws. Neither the Company nor any other person
assumes responsibility for the accuracy or completeness of these forward-looking
statements.





The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and notes thereto, and other financial
information included elsewhere in this Form 10-Q.  This report
contains forward-looking statements that involve risks and
uncertainties.





INTRODUCTORY
OVERVIEW





The
Company was founded over 10 years ago and began selling memberships in our
discount vision program to retail customers in an effort to prove that a vision
discount plan with an ophthalmologic (a medical doctor specializing in eye care)
panel included would be not only accepted, but desired, by the general public
and prove to other marketers of various health plans the benefits of including
such a plan in their products.  We sold the plan on a retail-only basis for
many years proving that the general public did desire to have a vision plan with
their medical coverage.  Once proof of concept became a reality, we
shifted our emphasis to marketing our plan to marketers of health benefit plans.
 Marketing programs on a retail basis requires a broad national marketing
staff which we were not financially prepared to support, whereas a much smaller
staff is needed to market to others on a wholesale basis.  During the
period during which we were transitioning to and building up our wholesale
network, revenues decreased and losses increased.  Our retail
marketing efforts were reduced and we devoted most of our time to the continued
development of our wholesale network and developing contractual relationships
with other marketers of various health plans, including, but not limited to,
insurance companies and marketers of other discount plans such as dental, vision
(without a vision medical component), and prescription drugs.  Those
contracts did not produce a substantial amount of revenue but served to
establish the Company as having a product capable of not only servicing the
needs of the general public, but servicing the marketers of other healthcare
programs as a lead generator for their agents.  It also served to
position us with marketers of other healthcare programs in such a way as to
attract those marketers to the Company from a management
perspective.  We then initiated activity designed to increase the
scope of our product line; increase our distribution channels for our product
line and increase our ability to generate sales leads for our distribution
channels.  Integral to these goals was the hiring of executive
personnel, experienced in the design and marketing of various types of
healthcare programs ranging from discount programs to insured
components.  Additionally, it was important for us to further develop
the free eye exam component of our vision plan so that this component could
serve as a sales lead generator for a wide range of other healthcare
products.





STRATEGIC
INITIATIVES





In
January, 2007, we entered into long-term employment agreements with Mr. Jay
Shafer, the former president of Protective Marketing Enterprises, Inc. (“PME”),
and Mr. Guy Norberg, the former vice president of sales and marketing of PME. We
also entered into an agreement employing Mr. William Heneghan, former vice
president of operations for Innovative HealthCare Benefits, Inc., which had an
intimate relationship with PME.  Mr. Shafer now serves as our President,
Mr. Norberg serves as our Senior Vice President of Sales and Marketing and Mr.
Heneghan serves as our Director of Operations. Along with the hiring of Messrs.
Shafer, Norberg and Heneghan, we have also hired other staff members to support
our expanding programs and opened a second office near Orlando,
Florida.


27





During
2007, we concentrated our efforts on developing a wide range of both discount
and insured products, which we intended to market through a significant number
of distribution channels with whom Messrs. Shafer and Norberg had worked in the
past. We  contracted with a number of distribution channels
experienced not only in the sale of the types of products designed by us, but
also with the networks forming the components of our new product
line.  As a result, we have now positioned ourselves to provide not
only vision programs, but also discount medical doctor visit programs, hospital
savings programs, dental programs, hearing programs, chiropractic programs,
pharmacy programs, an emergency informational system called Contact 911,
long-term care programs, emergency medical travel and savings on alternative
medicine, vitamins and nutritional supplements.  Some program features
include access to a 24-hour nurse hotline, 24-hour counseling, a service which
can have medical histories delivered to medical service providers around the
world and the services of a personal patient advocate.  We are also in a
position to market limited medical indemnity and accident group insurance
programs.  In addition, we added a network product of state-licensed,
primary care physicians that diagnose routine, non-emergency, medical problems
and recommend treatment and prescribe medication with a phone call called
TelaDoc.  Further, we have also added Global MedNet, a program that
distributes personal medical records worldwide in the event of an emergency
medical crisis.





We
contracted with Chase Paymentech Solutions, LLC (“Paymentech”), who is one of
the world’s largest merchant acquirers accepting payments at the point of
sale.  During the same period, we simultaneously worked on developing
various electronic systems necessary not only for the sale of our products, but
also for the tracking of our revenue and payment of commissions to our sales
agents on a weekly basis – a payment schedule we believe is unique to the
healthcare industry.  Management believes that this type of payment
schedule will significantly strengthen our relationships with our various sales
organizations. On May 1, 2008, in a 60-day program build, we completed the
development of The Amacore Gateway  for transactions that include
direct response, call center and web enrollment integrating commerce engines,
our direct lease line to Paymentech and commission reconciliation for the
benefit of our marketing partners.  Further, this development allowed
us to transition existing Company business to a monthly renewal
model.





We also
entered into a strategic development agreement with Bridgeport,
Connecticut-based OPTIMUS Solutions Consulting LLC (OPTIMUS), a privately held
pioneer in the field of integrated solution development, as part of our
continuing strategic initiative to expand healthcare services distribution
channels. OPTIMUS has fully integrated the development of our back office system
with the OPTIMUS front-end, call center marketing system and they are on target
to launch two licensed call centers (containing licensed representatives able to
sell insurance products) that began to produce sales in the second quarter of
2008.  With the development now complete, the focus now will be on
expanding distribution through additional call center relationships under
OPTIMUS’s management.




On August
31, 2007, we acquired JRM Benefits Consultants, LLC (“JRM”) a ten-seat inbound
telemarketing call center with additional agent distribution channels available
to it.  On October 9, 2007, we acquired LifeGuard Benefit Services,
Inc. (“LifeGuard”), which brought us an additional 52 inbound telemarketing
seats plus significant agent distribution channels plus an array of additional
company-owned products complementary to those products already either owned or
otherwise being marketed by us.  LifeGuard also provides us with an
established vertical administrative electronic system capable of tracking
distribution, sales fulfillment, commission payments and a patient advocacy
program unique in the healthcare industry.  Prior to these
acquisitions, we had also contracted with OPTIMUS which provided us with access
to approximately 150 inbound telemarketing rooms plus additional distribution
channels, and OPTIMUS’s obligation to construct an additional electronic system,
customized to our needs, to track sales of our products through our various
distribution channels including affiliate internet marketing partners, credit
card service centers, infomercial inbound centers and banking
channels.





In
January 2008, the Company formed a wholly-owned subsidiary, Zurvita, Inc.
(“Zurvita”), to establish a multilevel marketing distribution channel that would
deliver products to the consumer directly.  Zurvita hired Mark Jarvis
as its President, a veteran in this field with a proven track record at building
sales.  Through Zurvita, the Company has begun to access a new market
for its existing products.  Zurvita’s official launch occurred on
February 29, 2008 and, with its sales force trained on only one product, Zurvita
achieved sales of approximately $556,000 and $869,000 for the three and six
months ended June 30, 2008.  We are extremely pleased with these
results and anticipate substantial growth in sales and margins as more of our
products are added to Zurvita’s portfolio.





On April
1, 2008, we acquired another distribution channel, US Health Benefits Group
(USHBG), a fifty-seat, inbound telemarketing call center that engages in the
marketing of association membership programs and health insurance plans to
individuals and families throughout the United States. USHBG is comprised
of three companies: U.S. Healthcare Plans, Inc. a health benefit discount
marketing company, On The Phone, Inc., a consulting company that receives
overrides on all healthcare sales, and US Health Benefits Group, Inc., a health
benefit plan marketing company. USHBG markets LifeGuard’s DirectMed
association membership program generating approximately $1 million a month in
gross revenue for LifeGuard, resulting in $500,000 per month in commission
revenue to USHGB. Since USHBG is a profitable enterprise on a stand-alone basis
and exclusively sells Direct Med, the acquisition not only afforded another
distribution channel but provides for cost savings on a consolidated basis as
commissions paid from LifeGuard to USHBG are eliminated.





During
the remainder of fiscal 2008, the Company is focusing its efforts on product and
business development to grow revenue and profitability.  Management is
also focused on controlling and reducing costs through subsidiary integration
and the centralizing of cross divisional functions.  By driving our
products through established distribution channels, we were able to achieve
total revenue for the six month period ended June 30, 2008 of $12,686,939 as
compared to $592,457 for the six months ended June 30, 2007.


28


RESULTS
OF OPERATIONS





Revenue:





The
Company markets health-related membership benefits programs, insurance programs
and other solutions to individuals, families and employer groups
nationwide.  Total revenue was $7,587,640 and $12,736,788 for the three and
six months ended June 30, 2008, an increase of approximately $7,155,050 and
$12,144,331 from total revenue of $432,590 and $592,457 for the respective
periods in 2007.  New product offerings, growth in the Company’s membership
base as well as the acquisitions of LifeGuard, JRM and USHBG contributed to the
significant increase in revenue earned during the three and six months
ended June 30, 2008.  Revenue from said acquisitions accounted for
$11,173,795 or ninety-one percent (92%) of the increase for the six month period
ended June 30, 2008. An allowance for sales refunds of $926,140 has been
included in membership fees.





Cost
of Sales:





For the
three and six months ended June 30, 2008, cost of sales was $5,234,832 and
$9,270,042.  Sales commissions represented 69% of cost of goods sold
for the three and six months ended June 30, 2008, respectively.  The
continuing increase in sales commissions as a percentage of cost of
sales  is due to sales incentives given to grow revenue.  As
a result of sales incentives, the Company’s second quarter revenue increased 47%
from the first quarter. Benefit cost represented 31% of cost of goods sold
for the three and six months ended June 30, 2008, respectively.





Gross
Profit:





The
Company’s gross profit percentage was 31% and 27% for the three and six month
periods ended June 30, 2008, respectively,  The second quarter
increase in gross profit is attributable to changes in the product mix
and  increased sales of products with a higher gross profit
percentage.





Operating
Expenses:





Our
operating expenses for the three and six month periods ended June 30, 2008 were
$6,828,552 and $12,882,296,respectively, as compared to $1,095,350 and
$6,121,909 for the three and six month periods ended June 30, 2007:





Three
      Months Ended June 30,
              
              
              Six
      Months Ended June 30,Increase
              
              
              
              
              
              
              
              
              Increase2008
              
              
              2007
              
              
              (Decrease)
              
              
              2008
              
              
              2007
              
              
              (Decrease)Depreciation
              
              $
              78,922
              
              
              $
              2,435
              
              
              $
              76,487
              
              
              $
              125,902
              
              
              $
              4,436
              
              
              $
              121,466Amortization
              
              
              1,001,142
              
              
              
              -
              
              
              
              1,001,142
              
              
              
              1,715,171
              
              
              
              -
              
              
              
              1,715,171Office-related
      expenses
              
              
              554,139
              
              
              
              97,410
              
              
              
              456,729
              
              
              
              912,782
              
              
              
              161,578
              
              
              
              751,204Professional
      fees
              
              
              (163,620
              )
              
              
              233,194
              
              
              
              (396,814
              )
              
              
              557,533
              
              
              
              2,097,807
              
              
              
              (1,540,274
              )Payroll
      and benefits
              
              
              2,280,438
              
              
              
              587,915
              
              
              
              1,692,523
              
              
              
              4,103,691
              
              
              
              3,524,940
              
              
              
              578,751Travel
              
              
              337,756
              
              
              
              115,091
              
              
              
              222,665
              
              
              
              639,385
              
              
              
              226,403
              
              
              
              412,982Selling
      and marketing
              
              
              2,739,775
              
              
              
              59,305
              
              
              
              2,680,470
              
              
              
              4,827,832
              
              
              
              106,745
              
              
              
              4,721,087Total
      operating expenses
              
              $
              6,828,552
              
              
              $
              1,095,350
              
              
              $
              5,733,202
              
              
              $
              12,882,296
              
              
              $
              6,121,909
              
              
              $
              6,760,387




Depreciation
and amortization expense, which is computed on a straight-line method over the
assets estimated lives, for the three and six months ended June 30, 2008, was
$1,080,064 and $1,841,073, respectively, an increase of $1,077,629 and
$1,836,637 over the same prior-year period due to the inclusion of the
amortization of intangible assets with finite lives purchased in the LifeGuard,
JRM and USHBG acquisitions.





Office-related
costs include rent, insurance, utilities and office maintenance. For the
three month period ended June 30, 2008, said costs were $135,264, $21,614,
$167,524 and $229,737.  For the six months ended June 30, 2008, said costs
were $225,546, $41,695, $222,399 and $423,142, respectively. The increase
of $456,729 and $751,204 for the three and six month periods ended June 30, 2008
is a result of rent and significant telephone costs associated with subsidiaries
that were acquired subsequent to June 30, 2007.  These subsidiaries
contain call center operations for selling products and/or handle customer
service.


29





Professional
fees consist of consulting, contract labor, legal costs and litigation accruals
and accounting fees.  For the three month period ended June 30, 2008, said
costs were $1,077,585, $31,214, $(1,511,225) and $238,806.  For the
six months ended June 30, 2008, said costs were $1,201,160, $153,760,
$(1,361,879) and $564,492, respectively.  The decrease of $396,814 and
$1,540,274, respectively, for the three and six month period is attributable to
reversing a litigation contingency of $2,707,402 as a result of a favorable
settlement (see Note 18 – Subsequent Events to the financial statements
contained in this report).  Excluding the effects of the litigation
contingency reversal in the second quarter, professional fees increased
$1,167,128 as a result of legal fees incurred for defending the Company in
various litigation matters as well as audit fees incurred for the recent
acquisition of USHBG.





Payroll
and related expenses for the three and six months ended June 30, 2008 were
$2,280,438 and $4,103,691, respectively, an increase of $1,692,523 and $578,751
over the same prior-year periods. Payroll and benefits have increased as a
result of Company expansion and recent acquisitions.





Business
travel expenses for the three and six months ended June 30, 2008 were $337,756
and $639,385, respectively, an increase of $222,665 and $412,982 over the same
period prior-year periods.  The increase resulted mainly from additional
travel required in negotiating contracts for the Company’s new programs,
promoting additional sales, acquisitions and completing the financings that
occurred during the first six months of 2008.





Selling
and marketing for the three and six months ended June 30, 2008 were $2,739,775
and $4,827,832, respectively, an increase of $2,680,470 and $4,721,087 over the
same prior-year periods.





Other
Income/ Expense





Interest
expense:





Interest
expense for the three and six months ended June 30, 2008 was $94,633 and
$130,170, respectively, compared to $84,739 and $113,851, respectively, for the
same period in 2007.  Growth in notes payable and unpaid accrued
dividends on preferred stock between the two comparable periods
contributed to the increase in interest expense.





Loss
on conversion of note payable:





Loss on
conversion of notes payable was $0 and $242,647 for the three and six months
ended June 30, 2008, while no such loss was incurred during the three and six
months ended June 30, 2007.





Loss
on change in fair value of redeemable warrants:





Pursuant
to FASB Statement No 150, redeemable warrants are recorded at the fair value
with changes in their fair value reflected in the Company’s condensed
consolidated statements of operations.  For the three and six months
ended June 30, 2008, the loss on change in fair value of redeemable warrants was
$760,178 and $8,910,178, while no such loss was incurred during the three and
six months ended June 30, 2007.  The loss is a non-cash item not
effecting operating cash flows.





Net
loss:





The
Company’s net loss amounted to $5,322,596 and $18,673,719 for the three and six
months ended June 30, 2008 as compared to $1,065,596 and $6,027,500 for the
three and six months ended June 30, 2007.  Change in fair value of
redeemable warrants, significant business development efforts, significant
professional fees, payroll costs, business travel, and sales and marketing costs
have contributed to the Company’s losses.





Preferred
stock dividends and accretion:





Preferred
stock dividends and accretion amounted to $388,969 and $664,075 for the three
and six months ended June 30, 2008 compared to $99,735 and $141,110 for the same
period in 2007.  The increase from 2007 for all said periods was due to
additional preferred stock issued by the Company during late fiscal 2007 and
within the six month period ended June 30, 2008.





Loss
per common share:





Loss per
common share amounted to $0.04 and $0.13 for the three and six months ended June
30, 2008, respectively, compared to $0.01 and $0.06 for the three and six months
ended June 30, 2007.





OFF
BALANCE SHEET ARRANGEMENTS





We do not
have any off balance sheet arrangements as of June 30, 2008.


30





LIQUIDITY
AND CAPITAL RESOURCES





The
following table compares our cash flows for the six month period ended June 30,
2008:





For
      the Six Months EndedJune
      30, 2008
              
              
              June
      30, 2007Net
      cash used by operating activities
              
              $
              (11,988,826
              )
              
              $
              (1,985,571
              )Net
      cash used by investing activities
              
              
              (1,245,673
              )
              
              
              (100,001
              )Net
      cash provided by financing activities
              
              
              13,128,394
              
              
              
              5,561,600Net
      increase (decrease) in cash
              
              $
              (106,105
              )
              
              $
              3,476,028





Future
minimum rental payments required under the Company’s operating leases that have
initial or remaining non-cancelable lease terms in excess of one year on a
fiscal year basis are as follows:





2008
              
              $
              223,3202009
              
              
              275,6072010
              
              
              215,1702011
              
              
              124,039$
              838,136





Long-term
debt consists of promissory notes and capital lease obligations. Future
minimum payments on capital leases on a fiscal year basis are as follows
(1):





2008
              
              $
              169,1972009
              
              
              37,2542010
              
              
              17,2042011
              
              
              14,962Thereafter
              
              $
              238,617





(1)
            Does
      not include interest





Funds
from operations are the anticipated source to fulfill these
commitments.





Since its
inception, the Company has met its capital needs principally through sales of
its equity and debt securities, including sales of common stock upon the
exercise of outstanding warrants. We have used the proceeds from the
exercise of warrants and our other sales of securities to pay virtually all of
the costs and expenses we have incurred over the past 12 years.  These
costs and expenses included operating expenses, such as salary expenses,
professional fees, rent expenses and other general and administrative expenses
discussed above, and the costs of sales discussed above to the extent such costs
of sales exceeded our revenue.  In addition, while the majority of the
consideration we paid in our recent acquisitions consisted of the Company’s
Class A Common stock, cash consideration was also paid as part of the purchase
price.





We
believe that our current cash resources, together with anticipated revenue, will
be sufficient to sustain our current planned operations for the next 12 months.
 The Company raised $13,000,000 from its primary stockholder in four
tranches completed in January 2008, March 2008, April 2008 and June
2008. Although management believes that the Company’s current cash position
and anticipated revenue in 2008 will be sufficient to meet its current levels of
operations, additional cash resources may be required should the Company not
meet its sales targets, exceed its projected operating costs, wish to accelerate
sales or complete one or more acquisitions or if unanticipated expenses arise or
are incurred. If additional cash resources are needed, the Company may sell
additional equity or convertible debt securities which would result in
additional dilution to our shareholders.  The issuance of additional debt
would result in increased expenses and could subject us to covenants that may
have the effect of restricting our operations.





The
Company does not currently maintain a line of credit or term loan with any
commercial bank or other financial institution and has not made any other
arrangements to obtain additional financing. We can provide no assurance
that we will not require additional financing. Likewise, we can provide no
assurance that if we need additional financing that it will be available in an
amount or on terms acceptable to us, if at all.  If we are unable to
obtain additional funds when they are needed or if such funds cannot be obtained
on terms favorable to us, we may be unable to execute upon our business plan or
pay our costs and expenses as they are incurred, which could have a material,
adverse effect on our business, financial condition and results of
operations.


31





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
applicable





Item
4T.  Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





Our
management, with the participation of our principal executive and principal
financial officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act)
as of the end of the period covered by this quarterly report on Form 10-Q.
 Based on this evaluation, our principal executive and principal financial
officer concluded that our disclosure controls and procedures are ineffective to
ensure that information we are required to disclose in reports that we file or
submit under the Exchange Act (i) is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and (ii) is
accumulated and communicated to our management, including our principal
executive and principal financial officers, as appropriate to allow timely
decisions regarding required disclosure.  Presently, our disclosure
controls and procedures are not designed adequately to provide reasonable
assurance that such information is accumulated and communicated to our
management.  This conclusion was based on the material weaknesses
identified with regard to internal controls over financial reporting, as
described in the Company’s Annual Report for the year ended December 31,
2007.





There was
no change in our internal control over financial reporting that occurred during
the quarter covered by this Quarterly Report on Form 10-Q that materially
affected, or is reasonably likely to materially affect, our control over
financial reporting.


32





PART
II - OTHER INFORMATION





Item
1. Legal Proceedings





Except
for the case discussed below, as of June 30, 2008, there were no other material
changes in the Company’s legal proceedings as previously disclosed in the
Company’s 2007 Annual Report and Quarterly Report for the period ended March 31,
2008 (the “March 31 Quarterly Report”).  Please refer to the 2007
Annual Report and the March 31 Quarterly Report for additional information
regarding legal proceedings.





On August
6, 2008, the Company favorably settled the litigation pending in The Court of
Common Pleas for Hamilton County, Ohio, Case No. A 0511133, captioned, Richard
Abrahamson, Plaintiff vs. The Amacore Group, Inc., F/K/A Eye Care International,
Inc. and Clark A. Marcus, Defendants, alleging breach of promissory notes,
breach of oral loan agreements, action on account of promissory notes and oral
agreements, breach of third-party beneficiary contracts, breach of fiduciary
duty to issue share certificate upon gift of share to plaintiff, breach of
fiduciary duties and unjust enrichment. Actual damages alleged are in excess of
$3,900,000, not including interest.  An additional $2,400,000 in
punitive damages is also claimed.  The amended complaint also asserts
the right to recover attorney’s fees.  The parties exchanged a mutual
general release and litigation has been dismissed with
prejudice.  Terms of the settlement are confidential.





Item
2. Unregistered Sales of Equity and Use of Proceeds





On March
31, 2008, the Company entered into a Private Stock Purchase Agreement with
Raymond L. Dirks for the sale of 150,000 shares of its Class A Common stock to
Mr. Dirks for an aggregate purchase price of $500.00.  The shares
issued by the Company in this transaction were issued in a private placement
transaction in reliance upon an exemption from registration pursuant to Section
4(2) of the Securities Act of 1933, as amended (the “Act”).





On April
25, 2008, the Company entered into promissory note agreements and warrant
agreements with 5 private investors.  For the said investors, the purchase
price of the respective notes were $195,000, $95,000, $95,000, $95,000, and
$95,000, respectively.  In addition, the warrant entitlements for said
investors were 633,569; 308,662; 308,662; 308,662 and 308,662.





Item
3. Defaults Upon Senior Securities





The
information set forth in Note
7 – Notes and Loans Payableto the financial statements contained in this
reportis
incorporated herein by reference.





Approximately
$801,450 of the notes in default listed in Note 7 – Notes and Loans
Payable, to the financial statements contained in this report, are held
by investors who have been supporters of the Company over the past
years.  The Company is in the process of negotiating a conversion to
equity for these notes.  While the Company believes that such a
conversion is likely, it cannot assure that this will be the eventual
outcome.





Two of
the notes in default listed in Note 7 – Notes and Loans Payableto the financial statements contained in this report, totaling
approximately $385,000, are currently in dispute by the Company.  The
Company believes that these notes are not payable but has retained the notes on
the balance sheet at June 30, 2008 and will continue to do so until such notes
are legally extinguished.





Item
4. Submission of Matters to a Vote of Security Holders.





On May 8,
2008, shareholders voted to amend the Certificate of Designation of Preferred
Stock Series G.





Item
5. Other Information.





On June
16, 2008, the Board of Directors of the Company appointed Scott Smith, 56, as
the Company’s Chief Operating Officer, effective June 16, 2008.




Since
December 2007, Mr. Smith served as Chief Operating Officer of
LifeGuard.  Mr. Smith served as Chief Marketing Officer of ECOM PPO
Advisors Inc., a technology company that assists companies in maximizing their
preferred provider discounts and savings,from 2006 through
2007.  From 2004 to 2006, Mr. Smith served in several senior executive
positions at Insurance Capital Management, Inc., a holding company focusing on
insurance marketing and discount benefit programs, including President and Chief
Executive Officer.  Prior to 2004, Mr. Smith served as President and
Chief Executive Officer of National Health Insurance Company, a life, health and
annuity insurance company which specialized in health insurance for self
employed individuals and qualified annuities in the 403(b) teachers
market.


33





The
Company and Mr. Smith entered into an Employment Agreement commencing on June
16, 2008 and ending on June 16, 2011.  Under the agreement, Mr.
Smith’s initial annual base salary is $250,000, subject to annual increases as
determined by the Board.  The annual percentage increase in such
salary shall be no less than the percentage increase in the consumer price index
for the Dallas, Texas metropolitan area for the applicable year.  Mr.
Smith is also entitled to receive an annual “special bonus” as follows: one half
percent (0.50%) of the Company’s pre-tax profits of the preceding fiscalyear up to the first
$1,000,000 of such pre-tax profits; plus three quarters of a percent (0.75%) of
the Company’s pre-tax profits over $1,000,000 and up to $2,000,000; plus one
percent (1%) of all pre-tax profits over $2,000,000 and up to $4,000,000; plus
one and one quarter percent (1.25%) for all pre-tax profits over
$4,000,000.  Mr. Smith may also receive other bonuses as the Board
deems appropriate.  Mr. Smith is eligible to participate in all
employee benefit programs generally afforded to other senior executives of the
Company.





Mr. Smith
also received a warrant to purchase 1,000,000 shares of the Company’s Class A
common stock.  This warrant vests in annual increments of 250,000
shares on July 1 of each of the years 2008 through 2011, inclusive, provided
that Mr. Smith remains employed with the Company on each such vesting
date.  The warrant exercise price and term is $0.38 and 5 years,
respectively, and expires on June 13, 2013.  A copy of the employment
agreement is filed herewith as Exhibit 10.8 and is incorporated herein by
reference.





If Mr.
Smith terminates his employment as a result of the Company’s uncured breach of
his agreement or in the event that 50% of the equity securities of the Company
are acquired by any single person or group at an average acquisition price of at
least $5.00 per share and Mr. Smith’s employment is terminated within twelve
months of such event other than for cause, then Mr. Smith shall be entitled to
receive a lump sum amount equal to the sum of the following: (i) accrued but
unpaid salary; (ii) accrued but unpaid expenses; (iii) accrued but unpaid
bonuses; (iv) unissued warrants; and (v) the total compensation which would have
been payable to Mr. Smith through the greater of the remaining term of the
agreement as of the date of termination or three years following the
termination.  In addition, any outstanding warrants held by Mr. Smith
shall become fully vested and exercisable as of the termination
date.  If Mr. Smith is terminated for cause (as defined in the
agreement), he is entitled to receive an amount equal to the sum of accrued but
unpaid expenses and bonuses plus the net salary compensation which would have
been paid through the termination date.  All unvested securities shall
be forfeited as of the termination date.





Mr. Smith
also entered into the Company’s form of Confidentiality Non-Competition
Agreement.





A copy of
the employment agreement is filed herewith as Exhibit 10.7 and is incorporated
herein by reference.


34





Item
6. Exhibits





(a)
      Exhibits:





2.1.1
      Stock Purchase Agreement between the Company, US Health Benefits Group,
      Inc., US Healthcare Plans, Inc., On the Phone, Inc. and stockholders,
      dated March 31, 2008 and effective April 1, 2008 (incorporated by
      reference to Exhibit 2.1 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission on April 4, 2008).
              
              2.1.2
      Addendum to Stock Purchase Agreement between the Company, US Health
      Benefits Group, Inc., US Healthcare Plans, Inc., On the Phone, Inc. and
      stockholders, dated April 3, 2008 (incorporated by reference to Exhibit
      2.2 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on April 4, 2008).
              
              3.1.1
      Certificate of Incorporation, as amended (incorporated by reference to
      Exhibit 3.1 to the Current Report on Form 8-K filed on January 18,
      2008).
              
              3.1.2
      Certificate of Designation of Series A Convertible Preferred Stock
      (incorporated by reference to Exhibit 3.3 to Form 10SB12G/A filed on
      September 18, 2000).
              
              3.1.3
      Certificate of Designation of Series C Convertible Preferred Stock
      (incorporated by reference to the Company’s 2007 Annual
      Report).
              
              3.1.4
      Certificate of Designation of Series D Convertible Preferred Stock
      (incorporated by reference to the Company’s 2007 Annual
      Report).
              
              3.1.5
      Certificate of Designation of Series E Convertible Preferred Stock
      (incorporated by reference to the Company’s 2007 Annual
      Report).
              
              3.1.6  Amended
      and Restated Certificate of Designation of Series G Convertible Preferred
      Stock (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K
      filed with the Securities and Exchange Commission on May 6,
      2008).
              
              3.1.7
      Certificate of Designation of Series H Convertible Preferred Stock
      (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed
      with the Securities and Exchange Commission on June 6, 2008).
              
              10.1
      Preferred Stock Purchase Agreement by and between the Company and Vicis
      Capital Master Fund dated April 30, 2008 (incorporated by reference to
      Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on May 6, 2008).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated April 30, 2008 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      May 6, 2008).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated April 30, 2008 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on May 6, 2008).
              
              10.4
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated June 2, 2008 (incorporated by reference to Exhibit 10.1
      to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on June 6, 2008).
              
              10.5
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated June 2, 2008 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      June 6, 2008).
              
              10.6
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated June 2, 2008 (incorporated by reference to Exhibit 10.3
      to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on June 6, 2008).
              
              10.7
      Employment with Chief Operating Officer.
              
              10.8
      Warrant Agreement with Chief Operating Officer.
              
              31.1 Certification of Chief Executive Officer
      Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
              
              31.2 Certification of the Chief Financial
      Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
              
              32.1
      Certification of the Chief Executive Officer  and Chief
      Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.




35











SIGNATURES





In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the
Company has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





Dated: March 25,
      2009
            /s/Jay
      ShaferJay
      ShaferPresident
      and Chief Executive OfficerDated: March 25,
      2009
            /s/Scott
      SmithScott
      SmithChief
      Financial Officer



















36


EXHIBIT
INDEX








2.1.1
      Stock Purchase Agreement between the Company, US Health Benefits Group,
      Inc., US Healthcare Plans, Inc., On the Phone, Inc. and stockholders,
      dated March 31, 2008 and effective April 1, 2008 (incorporated by
      reference to Exhibit 2.1 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission on April 4, 2008).
              
              2.1.2
      Addendum to Stock Purchase Agreement between the Company, US Health
      Benefits Group, Inc., US Healthcare Plans, Inc., On the Phone, Inc. and
      stockholders, dated April 3, 2008 (incorporated by reference to Exhibit
      2.2 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on April 4, 2008).
              
              3.1.1
      Certificate of Incorporation, as amended (incorporated by reference to
      Exhibit 3.1 to the Current Report on Form 8-K filed on January 18,
      2008).
              
              3.1.2
      Certificate of Designation of Series A Convertible Preferred Stock
      (incorporated by reference to Exhibit 3.3 to Form 10SB12G/A filed on
      September 18, 2000).
              
              3.1.3
      Certificate of Designation of Series C Convertible Preferred Stock
      (incorporated by reference to the Company’s 2007 Annual
      Report).
              
              3.1.4
      Certificate of Designation of Series D Convertible Preferred Stock
      (incorporated by reference to the Company’s 2007 Annual
      Report).
              
              3.1.5
      Certificate of Designation of Series E Convertible Preferred Stock
      (incorporated by reference to the Company’s 2007 Annual
      Report).
              
              3.1.6  Amended
      and Restated Certificate of Designation of Series G Convertible Preferred
      Stock (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K
      filed with the Securities and Exchange Commission on May 6,
      2008).
              
              3.1.7
      Certificate of Designation of Series H Convertible Preferred Stock
      (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed
      with the Securities and Exchange Commission on June 6, 2008).
              
              10.1
      Preferred Stock Purchase Agreement by and between the Company and Vicis
      Capital Master Fund dated April 30, 2008 (incorporated by reference to
      Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on May 6, 2008).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated April 30, 2008 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      May 6, 2008).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated April 30, 2008 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on May 6, 2008).
              
              10.4
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated June 2, 2008 (incorporated by reference to Exhibit 10.1
      to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on June 6, 2008).
              
              10.5
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated June 2, 2008 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      June 6, 2008).
              
              10.6
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated June 2, 2008 (incorporated by reference to Exhibit 10.3
      to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on June 6, 2008).
              
              10.7
      Employment with Chief Operating Officer.
              
              10.8
      Warrant Agreement with Chief Operating Officer.


31.1
      Certification of Chief Executive Officer Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
      Certification of the Chief Financial Officer Pursuant to Section 302 of
      the Sarbanes-Oxley Act of 200232.1
      Certification of the Chief Executive Officer  and Chief
      Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.