UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549




FORM
10-Q





(Mark
One)


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




For the
quarterly period ended September 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 November 17, 2008:


153,884,987
Class A Common Shares


1,873,882 Class
B Common Shares






















THE
AMACORE GROUP, INC.





FORM
10-Q




PART I
- FINANCIAL INFORMATION





Page
      No.Item
      1. Financial Statements (Unaudited).Condensed
      Consolidated Balance Sheets - September 30, 2008 and December 31,
      2007
            3Condensed
      Consolidated Statements of Operations – For the Three and Nine Months
      Ended September 30, 2008 and 2007
            4Condensed
      Consolidated Statements of Cash Flows – For the Nine Months Ended
      September 30, 2008 and 2007
            5Notes to Interim
      Condensed Consolidated Financial Statements
            6Item
      2. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations.
            26Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk.
              
              Item
      4T. Controls and Procedures.
            31
              
              31








PART II
- OTHER INFORMATION





Page
      No.Item.
      1. Legal Proceedings.
            32Item
      2. Unregistered Sales of Equity and Use of Proceeds.
            32Item
      3. Defaults Upon Senior Securities.
            32Item
      4. Submission of Matters to a Vote of Security Holders.
            32Item
      5. Other Information.
            32Item
      6. Exhibits.
            33Signatures
            34








2






THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
  September
      30,
              
              
              December
      31,2008
              
              
              2007ASSETSCurrent
      assetsCash
              
              $
              541,802
              
              
              $
              2,161,042Restricted
      cash
              
              
              -
              
              
              
              316,935Accounts
      receivable (net of $50,662 and $0 allowancefor
      doubtful accounts in 2008 and 2007, respectively)
              
              
              355,372
              
              
              
              470,049Non-trade
      receivables – related party
              
              
              23,511
              
              
              
              64,385Inventory
              
              
              23,891
              
              
              
              37,814Deferred
      expenses
              
              
              3,695,694
              
              
              
              1,023,798Deposits
      and advances
              
              
              936,046
              
              
              
              61,236Total
      current assets
              
              
              5,576,316
              
              
              
              4,135,259Property,
      plant and equipment (net of accumulated depreciation of $338,302 and
      $132,387for
      2008 and 2007, respectively)
              
              
              878,216
              
              
              
              418,356Other
      assetsDeferred
      customer acquisition costs
              
              
              579,636
              
              
              
              -Goodwill
      and other intangible assets
              
              
              10,054,064
              
              
              
              14,725,250Other
              
              
              1,434,966
              
              
              
              -Total
      other assets
              
              
              12,068,666
              
              
              
              14,725,250Total
      assets
              
              $
              18,523,198
              
              
              $
              19,278,865LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilitiesAccounts
      payable
              
              $
              4,473,635
              
              
              $
              2,639,200Accounts
      payable - related party
              
              
              478,235
              
              
              
              590,888Loans
      and notes payable
              
              
              1,734,446
              
              
              
              1,414,530Accrued
      expenses and other liabilities
              
              
              2,336,398
              
              
              
              5,147,665Deferred
      compensation - related party
              
              
              324,851
              
              
              
              602,344Deferred
      revenue
              
              
              2,116,414
              
              
              
              1,409,984Deferred
      acquisition payments
              
              
              465,685
              
              
              
              -Total
      current liabilities
              
              
              11,929,664
              
              
              
              11,804,611Long-Term
      LiabilitiesCapital
      lease obligation
              
              
              63,212
              
              
              
              -Deferred
      acquisition payments
              
              
              772,609
              
              
              
              -Accrued
      dividends
              
              
              1,434,014
              
              
              
              479,896Fair
      value of redeemable warrants
              
              
              11,159,775
              
              
              
              -Total
      long-term liabilities
              
              
              13,429,610
              
              
              
              479,896Total
      liabilities
              
              
              25,359,274
              
              
              
              12,284,507Stockholders'
      (Deficit) EquityPreferred
      Stock, $.001 par value, 20,000,000 shares authorized;Series
      D mandatory convertible preferred stock; 694.6 shares
      authorized;694.6
      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; 1200 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
      I mandatory convertible preferred stock; 10,000 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, 1,360,000,000 shares authorized;151,834,329
      and 110,149,156 shares issued and outstanding for 2008 and 2007,
      respectively.
              
              
              151,835
              
              
              
              110,149Common
      Stock B, $.001 par value, 120,000,000 shares authorized;1,873,882
      and 27,563,802 shares issued and outstanding for 2008 and 2007,
      respectively.
              
              
              1,874
              
              
              
              27,563Additional
      paid-in capital
              
              
              101,112,410
              
              
              
              83,956,054Accumulated
      deficit
              
              
              (108,102,196
              )
              
              
              (77,099,408
              )Total
      stockholders' (deficit) equity
              
              
              (6,836,076
              )
              
              
              6,994,358Total
      liabilities and stockholders' (deficit) equity
              
              $
              18,523,198
              
              
              $
              19,278,865See
      notes to condensed consolidated financial
  statements








3




THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS
  (UNAUDITED)
  Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007REVENUESMembership
      fees
              
              $
              7,096,301
              
              
              $
              215,005
              
              
              $
              18,367,063
              
              
              $
              807,462Commissions
              
              
              404,953
              
              
              
              -
              
              
              
              1,083,734
              
              
              
              -Marketing
      fees and materials
              
              
              1,051,399
              
              
              
              -
              
              
              
              1,788,796
              
              
              
              -Total
      revenues
              
              
              8,552,653
              
              
              
              215,005
              
              
              
              21,239,593
              
              
              
              807,462COST
      OF SALESSales
      commissions
              
              
              4,577,399
              
              
              
              131,621
              
              
              
              10,949,551
              
              
              
              565,540Benefit
      and service cost
              
              
              1,393,609
              
              
              
              -
              
              
              
              4,303,312
              
              
              
              -Total
      cost of sales
              
              
              5,971,008
              
              
              
              131,621
              
              
              
              15,252,863
              
              
              
              565,540GROSS
      PROFIT
              
              
              2,581,645
              
              
              
              83,384
              
              
              
              5,986,730
              
              
              
              241,922OPERATING
      EXPENSESDepreciation
              
              
              100,036
              
              
              
              2,745
              
              
              
              225,939
              
              
              
              7,181Amortization
              
              
              1,001,142
              
              
              
              -
              
              
              
              2,725,834
              
              
              
              -Office-related
      expenses
              
              
              602,271
              
              
              
              128,565
              
              
              
              1,427,706
              
              
              
              290,143Professional
      fees
              
              
              1,583,485
              
              
              
              240,145
              
              
              
              2,141,098
              
              
              
              2,337,952Payroll
      and employee benefits
              
              
              2,299,556
              
              
              
              683,419
              
              
              
              6,500,665
              
              
              
              4,208,359Travel
              
              
              401,935
              
              
              
              123,828
              
              
              
              1,024,041
              
              
              
              350,231Selling
      and marketing
              
              
              3,351,142
              
              
              
              133,105
              
              
              
              8,115,736
              
              
              
              239,850Impairment
      loss on goodwill and other intangible assets
              
              
              15,308,944
              
              
              
              -
              
              
              
              15,308,944
              
              
              
              -Total
      operating expenses
              
              
              24,648,511
              
              
              
              1,311,807
              
              
              
              37,469,963
              
              
              
              7,433,716Loss
      from operations before other income and expense
              
              
              (22,066,866
              )
              
              
              (1,228,423
              )
              
              
              (31,483,233
              )
              
              
              (7,191,794
              )OTHER
      INCOME (EXPENSE)Interest
      income
              
              
              3,564
              
              
              
              30,425
              
              
              
              20,678
              
              
              
              80,147Interest
      expense
              
              
              (562,456
              )
              
              
              (59,485
              )
              
              
              (691,618
              )
              
              
              (173,336
              )Loss
      on conversion of note payable
              
              
              -
              
              
              
              -
              
              
              
              (242,653
              )
              
              
              -Change
      in fair value of redeemable warrants
              
              
              11,448,822
              
              
              
              -
              
              
              
              2,538,644
              
              
              
              -Other
              
              
              1,280
              
              
              
              -
              
              
              
              8,993
              
              
              
              -Total
      other income (expense)
              
              
              10,891,210
              
              
              
              (29,060
              )
              
              
              1,634,044
              
              
              
              (93,189
              )Net
      loss before income taxes
              
              
              (11,175,656
              )
              
              
              (1,257,483
              )
              
              
              (29,849,189
              )
              
              
              (7,284,983
              )Income
      taxes
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Net
      loss
              
              
              (11,175,656
              )
              
              
              (1,257,483
              )
              
              
              (29,849,189
              )
              
              
              (7,284,983
              )Preferred
      stock dividend and accretion
              
              
              (489,524
              )
              
              
              (180,789
              )
              
              
              (1,153,599
              )
              
              
              (449,897
              )Net
      loss available to common stockholders
              
              $
              (11,665,180
              )
              
              $
              (1,438,272
              )
              
              $
              (31,002,788
              )
              
              $
              (7,734,880
              )Basic
      and diluted loss per share
              
              $
              (0.08
              )
              
              $
              (0.01
              )
              
              $
              (0.21
              )
              
              $
              (0.08
              )Basic
      and diluted weighted average number of  common shares
      outstanding
              
              
              149,297,612
              
              
              
              98,893,979
              
              
              
              145,866,798
              
              
              
              97,458,644See
      notes to condensed consolidated financial
  statements








4




THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFor
      the Nine Months Ended September 30, 2008 and 20072008
              
              
              2007Cash
      flows from operating activitiesNet
      loss
              
              $
              (29,849,189
              )
              
              $
              (7,284,982
              )Adjustment
      to reconcile net loss to net cashused
      in operating activities:Amortization
      of intangible assets
              
              
              2,725,834
              
              
              
              -Amortization
      of discount on notes payable
              
              
              504,419
              
              
              
              -Depreciation
              
              
              225,939
              
              
              
              7,181Gain
      on change in fair value of redeemable and noncompensatory
      warrants
              
              
              (17,288,644
              )
              
              
              -Loss
      on impairment of goodwill and other intangible assets
              
              
              15,308,944
              
              
              
              -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
              
              
              1,870,586
              
              
              
              4,471,526Changes
      in operating assets and liabilities:Decrease
      in accounts receivable
              
              
              184,618
              
              
              
              4,354Decrease
      in accounts receivable - related party
              
              
              40,874
              
              
              
              -Decrease
      in inventory and prepaid expenses
              
              
              13,923
              
              
              
              10,610Increase
      in deferred expenses
              
              
              (2,651,639
              )
              
              
              -Increase
      in deposits and advances
              
              
              (874,810
              )
              
              
              -Increase
      in deferred customer acquisition costs
              
              
              (579,636
              )
              
              
              -Increase
      in other assets
              
              
              (1,250,736
              )
              
              
              -(Decrease)
      Increase in accounts payable  and accrued
    expenses
              
              
              (1,113,811
              )
              
              
              110,500Decrease
      in deferred compensation
              
              
              (277,493
              )
              
              
              (416,034
              )Increase
      in deferred revenue
              
              
              706,430
              
              
              
              50,023Net
      cash used by operating activities
              
              
              (17,261,077
              )
              
              
              (3,046,822
              )Cash
      flows from investing activitiesAcquisition
      payment
              
              
              (1,215,568
              )
              
              
              (25,000
              )Purchase
      of property and equipment
              
              
              (340,588
              )
              
              
              (98,949
              )Purchase
      of certificate of deposit
              
              
              (184,230
              )
              
              
              -Decrease
      in restricted cash
              
              
              316,935
              
              
              
              -Net
      cash used by investing activities
              
              
              (1,423,451
              )
              
              
              (123,949
              )Cash
      flows from financing activitiesDeferred
      acquisition payments
              
              
              (134,092
              )
              
              
              -Equity
      issuance costs
              
              
              (510,000
              )
              
              
              -Net
      proceeds from credit card borrowing
              
              
              101,880
              
              
              
              -Payments
      made on notes payable
              
              
              (515,000
              )
              
              
              -Payments
      on and redemption of convertible notes
              
              
              (575,000
              )
              
              
              (75,000
              )Proceeds
      from exercise of common stock warrants
              
              
              122,000
              
              
              
              39,700Proceeds
      from private placement equity issuance
              
              
              500
              
              
              
              -Proceeds
      from promissory notes
              
              
              1,575,000
              
              
              
              5,213,000Proceeds
      from sale of preferred stock and redeemable warrants
              
              
              17,000,000
              
              
              
              -Net
      cash provided by financing activities
              
              
              17,065,288
              
              
              
              5,177,700(Decrease)
      increase in cash
              
              
              (1,619,240
              )
              
              
              2,006,929Cash,
      beginning of period
              
              
              2,161,042
              
              
              
              135,046Cash,
      end of period
              
              $
              541,802
              
              
              $
              2,141,975SUPPLEMENTAL
      INFORMATION:Cash
      paid for interest
              
              $
              43,521
              
              
              $
              53,519Cash
      paid for income taxes
              
              $
              -
              
              
              $
              -See
      notes to condensed consolidated financial statements








5





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 – 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 (consisting of
normal recurring accruals) considered necessary in order to make the financial
statements not misleading have been included. Results for the three and nine
month periods ended September 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
September 30, 2008, the Company had negative working capital of $6,353,348 and
an accumulated deficit of $108,102,196.  For the nine months ended
September 30, 2008 the Company had a net loss of $29,849,189. We believe that
without significant equity and debt investment from outside sources, the
Company will not be able to sustain our current planned operations for the
next 12 months.  During 2008, the Company has raised from an outside source
$19,500,000 of equity funding.




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.





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, impairment of goodwill and other
long-lived assets 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 $3,434,589
and $94,249 for the three months ended September 30, 2008 and 2007,
respectively, and $6,734,601 and $495,297 for the nine months ended September
30, 2008 and 2007, respectively, and were recorded as a reduction of revenue in
the accompanying statements of operations.





6





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
nine months ended September 30, 2008, revenue generated by
LifeGuard represented approximately 80% 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
nine months ended September 30, 2008, one of Lifeguard’s customers represented
51% of LifeGuard’s revenue or 50% of consolidated revenue.





At
certain times, the Company’s bank deposits exceed the amounts insured by the
FDIC. As of September 30, 2008, the Company had deposits in excess of FDIC
insured limits of $442,180.  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.





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
collectability, 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 September 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
September 30, 2008 and December 31, 2007, unamortized customer acquisition costs
of $2,734,354 and $0, respectively, are included in deferred expenses and
$579,636 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 nine months ended September 30,
2008.  Customer acquisition costs of $1,818,987 and $0 for the three
months ended September 30, 2008 and 2007, respectively, and $5,106,504 and $0
for the nine months ended September 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.





7





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





September
      30,
                2008
              
              
              December
      31,
                2007Computer
      hardware
              
              $
              137,651
              
              
              $
              418,804Furniture
      and fixtures
              
              
              505,393
              
              
              
              70,634Equipment
      and machinery
              
              
              385,733
              
              
              
              21,372Building
      improvements
              
              
              187,741
              
              
              
              39,9331,216,518
              
              
              
              550,743Less
      accumulated depreciation
              
              
              (338,302
              )
              
              
              (132,387
              )Total
              
              $
              878,216
              
              
              $
              418,356





Depreciation
expense including depreciation of assets held under capital leases, was $100,036
and $2,745 for the three months ended September 30, 2008 and 2007, respectively,
and $225,939 and $7,181 for the nine months ended September 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 (see Note 5).





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





Software
            3
      yearsCustomer
      and vendor relationships
            5
      yearsTradenames
            16
      months





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.






8




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.




Loss Per
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 nine months ended September30, 2008 and
2007:





Three
      Months Ended
                September
      30,
              
              
              Nine
      Months Ended
                September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Numerator:Net
      loss
              
              $
              (11,175,656
              )
              
              $
              (1,257,483
              )
              
              $
              (29,849,189
              )
              
              $
              (7,284,983
              )Less
      preferred stock dividends and accretion
              
              
              (489,524
              )
              
              
              (180,789
              )
              
              
              (1,153,599
              )
              
              
              (449,897
              )Net
      loss applicable to common stockholders
              
              $
              (11,665,180
              )
              
              $
              (1,438,272
              )
              
              $
              (31,002,788
              )
              
              $
              (7,734,880
              )Denominator:Weighted
      average basic and fully diluted shares outstanding
              
              
              149,297,612
              
              
              
              98,893,979
              
              
              
              145,866,798
              
              
              
              97,458,644Net
      loss per common share - basic and diluted
              
              $
              (0.08
              )
              
              $
              (0.01
              )
              
              $
              (0.21
              )
              
              $
              (0.08
              )





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 earnings per share because to do so would have been
antidilutive for the periods presented, are as follows:





As
      of September 30,2008
              
              
              2007Potentially
      dilutive securities outstanding at end of period:Common
      stock warrants
              
              
              190,817,717
              
              
              
              21,359,760Convertible
      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
              
              
              
              -Series
      I
              
              
              800,000
              
              
              
              -Total
              
              
              959,227,717
              
              
              
              758,269,760Weighted-average
      share equivalents outstanding
              
              
              862,094,874
              
              
              
              540,577,265









9





Fair Value
Measurements





Statement
of Financial Accounting Standard No. 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.  FAS 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 those 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.





Reclassifications





Certain
amounts for the prior period have been reclassified to conform to the current
period presentation.





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.





In
February 2008, the FASB issued Financial Staff Position (“FSP”) SFAS 157-2,
Effective Date of FASB
Statement No. 157FSP 157-2, which delays the effective date of SFAS
No. 157, Fair Value
Measurements (“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
us 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 EITF 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 after
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.






10




NOTE
3 – NON CASH INVESTING AND FINANCING ACTIVITIES





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





For
      the nine months endedSeptember
      30, 2008
              
              
              September
      30, 2007Beneficial
      conversion feature accretion
              
              $
              227,312
              
              
              $
              -Common
      stock issued as acquisition consideration
              
              
              9,000,000
              
              
              
              180,000Conversion
      of Common B stock to Common A stock
              
              
              25,689
              
              
              
              -Conversion
      value of notes payable and interest to common stock
              
              
              645,814
              
              
              
              52,000Conversion
      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
              
              
              -
              
              
              
              46,540Preferred
      stock dividends
              
              
              926,287
              
              
              
              449,897Reclassification
      of noncompensatory warrants from equity to liability
              
              
              44,000
              
              
              
              -Property
      and equipment acquired under capital lease
              
              
              63,212
              
              
              
              -





NOTE
4 – 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.





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 September 30, 2008, the Company’s
common stock had a trading price of $0.19 per share.  If the Company’s
common stock is trading at this price at the Share Adjustment Date, the Company
will be required to either issue 47,368,421 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.






11




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.  As disclosed in Note 5, an
impairment charge was recorded during the three months ended September 30, 2008
associated with the goodwill and intangible assets acquired in respect to the
USHBG 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 Nine Months EndedSeptember
      30, 2008
              
              
              September
      30, 2007Total
      revenues
              
              $
              21,564,687
              
              
              $
              5,161,358Net
      loss
              
              $
              (31,220,467
              )
              
              $
              (7,099,628
              )Basic
      and diluted loss per share
              
              $
              (0.21
              )
              
              $
              (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.





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 has completed the identification and valuation analysis of the
intangible assets acquired in respect to the LifeGuard
acquisition.  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 5).  Based upon the
finalized allocation, the Company has adjusted amortization
expense.





12





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
              
              
              4,281,662$
              16,144,662





Unaudited
pro forma operating data for the three and nine months ended September 30, 2007
presented as though JRM and LifeGuard had been acquired at January 1, 2007
follows.  The unaudited pro forma operating data does not purport to
represent what the Company’s 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 the Company’s 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 Nine MonthsEndedSeptember
      30, 2007Total
      revenues
              
              $
              6,017,777Net
      loss
              
              $
              (8,553,266
              )Basic
      and diluted loss per share
              
              $
              (0.09
              )





NOTE
5 – GOODWILL AND OTHER INTANGIBLE ASSETS





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





September
      30, 2008Gross
      Carrying
                Amount
              
              Accumulated
      Amortization
              
              Carrying
      Value
              
              Impairment
      Loss
              
              Adjusted
                Carrying
      ValueGoodwill
              
              $
              10,006,147
              
              
              $
              -
              
              
              $
              10,006,147
              
              
              $
              3,597,544
              
              
              $
              6,408,603Customer
      and vendor relationships
              
              
              16,262,000
              
              
              
              2,167,300
              
              
              
              14,094,700
              
              
              
              11,455,700
              
              
              
              2,639,000Software
              
              
              742,250
              
              
              
              211,614
              
              
              
              530,636
              
              
              
              -
              
              
              
              530,636Trademarks
      and tradenames
              
              
              1,130,900
              
              
              
              399,375
              
              
              
              731,525
              
              
              
              255,700
              
              
              
              475,825Total
              
              $
              28,141,297
              
              
              $
              2,778,289
              
              
              $
              25,363,008
              
              
              $
              15,308,944
              
              
              $
              10,054,064December
      31, 2007Gross
      Carrying
                Amount
              
              Accumulated
      Amortization
              
              Carrying
      Value
              
              Impairment
      Loss
              
              Adjusted
      Carrying
                ValueGoodwill
              
              $
              492,144
              
              
              $
              -
              
              
              $
              492,144
              
              
              $
              -
              
              
              $
              492,144Software
              
              
              708,250
              
              
              
              41,164
              
              
              
              667,086
              
              
              
              -
              
              
              
              667,086Unallocated
      assets
              
              
              13,566,020
              
              
              
              -
              
              
              
              13,566,020
              
              
              
              -
              
              
              
              13,566,020Total
              
              $
              14,766,414
              
              
              $
              41,164
              
              
              $
              14,725,250
              
              
              $
              -
              
              
              $
              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.




13




Amortization
expense related to all of the Company’s identifiable intangible assets for the
three months ended September 30, 2008 and 2007 was $1,001,142 and $0,
respectively, and for the nine months ended September 30, 2008 and 2007 was
$2,725,834 and $0, respectively.  Management estimates amortization
expense of approximately $3,480,265 over the next five years.  Future
amortization of intangible assets is shown in the following table:





2008
              
              $
              342,0252009
              
              
              1,013,0972010
              
              
              789,4742011
              
              
              602,6122012
              
              
              586,445Thereafter
              
              
              146,612Total
              
              $
              3,480,265





The
weighted-average remaining amortization period for customer and vendor
relationships, software and amortizable trademarks and trade names is 4.31
years, 2.10 years and 7 months, respectively.





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





Carrying
      ValueSeptember
      30,
                2008
              
              
              December
      31,
                2007Goodwill
              
              $
              6,408,603
              
              
              $
              492,144Trademarks
      and tradenames
              
              
              165,200
              
              
              
              -Total
              
              $
              6,573,803
              
              
              $
              492,144




Based on
the Company’s impairment analysis and consideration of the current and expected
future market conditions, we determined that goodwill and certain intangible
assets related to the JRM, LifeGuard and USHBG reporting units were impaired in
accordance with Statement of Financial Accounting Standards No. 142 (“SFAS
142”), Goodwill and Other
Intangible Assets and the Company recorded non-cash, pre-tax total
impairment charges of $305,444, $9,084,800 and $5,918,700, respectively. 
The analysis was conducted by independent valuation specialists.  The
decline in estimated fair values resulted from an analysis of the current
economic conditions, the Company’s performance to budget and the lower estimated
future cash flows.





Inherent
in management’s fair value determinations are certain judgments and estimates,
including projections of future cash flows, the discount rate reflecting the
risk inherent in future cash flows, the interpretation of current economic
indicators and market valuations and our strategic plans with regard to our
operations.  A change in these underlying assumptions would cause a change
in the results of the tests, which could cause the fair value of one or more
reporting units to be more or less than their respective carrying amounts.
 In addition, to the extent that there are significant changes in market
conditions or overall economic conditions or the Company’s strategic plans
change, it is possible that the Company’s conclusion regarding impairment could
change.





The
Company has recognized an aggregate impairment loss on goodwill and other
intangible assets in the amount of $15,308,944 for the three months ended
September 30, 2008.  This impairment loss has been included within the
Company’s loss from continuing operations under the caption “Impairment loss on
goodwill and other intangible assets.”  Of the aggregate impairment
loss, $3,597,544 was attributable to carrying amounts of goodwill.  The
following table details the impairment loss by intangible asset category as well
as by reporting unit.





Reporting
      UnitIntangible
      asset category:
              
              JRM
              
              
              LifeGuard
              
              
              USHBG
              
              
              TotalGoodwill
              
              $
              165,844
              
              
              $
              -
              
              
              $
              3,431,700
              
              
              $
              3,597,544Customer
      and vendor relationships
              
              
              113,900
              
              
              
              9,084,800
              
              
              
              2,257,000
              
              
              
              11,455,700Trademarks
      and tradenames
              
              
              25,700
              
              
              
              -
              
              
              
              230,000
              
              
              
              255,700$
              305,444
              
              
              $
              9,084,800
              
              
              $
              5,918,700
              
              
              $
              15,308,944





14





NOTE 6
- NOTES AND LOANS PAYABLE





Notes and
loans payable consist of the following as of September 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
              
              
              
              114,950Promissory
      notes payable to CEO bearing interest of 6% per annum; payable on
      demand
              
              
              500,000
              
              
              
              -Revolving
      consumer credit cards
              
              
              373,127
              
              
              
              228,557Capital
      lease obligation
              
              
              104,489
              
              
              
              -Promissory
      notes payable to related parties (on demand; noninterest
      bearing)
              
              
              18,592
              
              
              
              19,523Total
      notes and loans payable
              
              $
              1,797,658
              
              
              $
              1,414,530





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
September 30, 2008, all of the promissory notes payable are classified as
current due to either maturity dates or events of default.  The
following schedule details the future payments on capital leases:




2008
              
              $
              10,0312009
              
              
              40,9382010
              
              
              29,2512011
              
              
              17,6092012
              
              
              6,660$
              104,489




Approximately
$686,500 of the above listed notes in default are held by investors who have
been supporters of the Company over the past years.  The Company is in
the process of negotiating either a conversion to equity or a restructuring of
the terms of the notes.  For the nine months ended September 30, 2008,
the Company, upon notification by the noteholders, converted $450,000 of
outstanding notes payable including accrued interest of $97,211 into 5,649,300
shares of common stock.





On April
25, 2008, the Company issued $575,000 of convertible promissory notes with
detachable warrants to acquire 1,868,217 shares to investors and
shareholders.  The notes bear interest at10% 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 in the amount of $504,419.  The discount is amortized to
interest expense using the effective interest method.  On August 9,
2008, the Company received a call notice on these notes.  The Company
on September 8, 2008, paid $575,000 of principal and $21,582 of accrued
interest.  Unamortized discount of $479,544 existed at the time of
payoff and, consequently, was recognized as additional interest
expense.






15




NOTE
7 —PREFERRED STOCK





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





Series B,
C, D, E, G, H and I Preferred Stock are 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 September 30,
2008 and December 31, 2007, accrued and unpaid dividends related to the
preferred stock are $1,434,014 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 holder’s 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, H and I as of September 30, 2008
was $155,000, $0, $0, $7,639,206, $1,535,286, $12,486,555, $4,080,300 and
$4,028,667, respectively.





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





September
      30,
              
              
              December
      31,2008
              
              
              2007Series
      A
              
              
              155
              
              
              
              155Series
      D
              
              
              695
              
              
              
              695Series
      E
              
              
              139
              
              
              
              139Series
      G
              
              
              1,200
              
              
              
              300Series
      H
              
              
              400
              
              
              
              -Series
      I
              
              
              400
              
              
              
              -2,989
              
              
              
              1,289





Preferred
Stock Series A





As of
September 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 nine month periods ended September 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 September 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 nine
month periods ended September 30, 2008.  As of September 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 nine month periods ended September 30, 2008.  As
of September 30, 2008, no shares of Series C Preferred Stock were
outstanding.






16




Preferred
Stock Series D





As of
September 30, 2008, 694.6 shares Series D Preferred Stock were outstanding.
There were no issuances of Series D Preferred Stock during the three and nine
month periods ended September 30, 2008.  Each share of Series D
Preferred Stock is convertible at any time after the second anniversary of the
date of issuance, at the option of the holder, into that number of shares of
Class A Common Stock equal to the $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 September 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.





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 nine months ended September
30, 2008 was $84,769 and $200,834, 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
September 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 nine month periods ended September 30, 2008.  the shares of
Series E Preferred Stock, generally, become convertible into Class A Common
Stock two years after issuance.  As of September 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 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 nine months ended September 30, 2008 was $11,047 and $26,479,
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.






17




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 the
$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.





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 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
September 30, 2008, the fair value of these warrants is
$4,725,000.  For the nine months ended September 30, 2008, the effect
of mark-to-market adjustments was $11,475,000 and has been recorded as “Change
in fair value of redeemable warrants” within the accompanying Statements of
Operations.  See Note 10 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 losses representing the excess of the fair value
of the warrants over the proceeds of $7,250,000 and $2,950,000 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 September 30, 2008 as
calculated in accordance with the warrant agreements was
$5,400,000.





As of
September 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 the
$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 at the then applicable Conversion Price.





18





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.





At
September 30, 2008 the fair value of these warrants is
$3,150,000.  For the nine months ended September 30, 2008, the effect
of mark-to-market adjustments was $5,400,000 and has been recorded as “Change in
fair value of redeemable warrants” within the accompanying statements of
operations.  See Note 10 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 September 30, 2008, as
calculated in accordance with the warrant agreements was
$4,050,000.





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





Preferred
Stock Series I





Each
share of Series I 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 the
$10,000 divided by $5.00 (the “Series I Conversion Price”).  The
Series I 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 I
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 I 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
I Preferred Stock.  In addition, if on November 7, 2009 the Series I
Conversion Price then in effect is higher than the current market price of the
Company’s Class A Common Stock, then the Series I 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 I Preferred Stock remains outstanding and a registration statement
covering the resale of all of the Class A Common Stock underlying the Series I
Preferred Stock is effective and has been effective for 90 days prior to such
date, the Company must convert each share of the Series I Preferred Stock into
Class A Common 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 I 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.





So long
as there is an aggregate of not less than 363 shares of Series I Preferred Stock
and Series D Preferred Stock issued and outstanding (subject to appropriate
adjustment for any stock split, stock dividend combination or other similar
event with respect to the Series I Preferred Stock), the majority of the holders
of Series I Preferred Stock, voting exclusively as a separate class and with
each share of Series I Preferred Stock entitled to one vote, shall have the
right to nominate and elect two of the members of the Board of Directors of the
Corporation.





On
September 30, 2008, the Company issued 400 shares of its Series I Convertible
Preferred Stock (“Series I 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.






19




At
issuance, the fair value of the warrants was allocated to the warrants and the
residual value of $850,000 was allocated to the preferred stock.





At
September 30, 2008, the fair value of these warrants is
$3,150,000.  See Note 10 for additional fair value disclosure
information.





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 September 30, 2008, as
calculated in accordance with the warrant agreements was
$4,050,000.





As of
September 30, 2008, 400 shares Series I Preferred Stock were outstanding and
convertible into 800,000 Class A common shares.





NOTE
8 – 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.





During
the nine month period ended September 30, 2008, various shareholders converted
25,688,920 shares of Class B common shares to Class A common
shares.  As of September 30, 2008, 1,873,882 Class B Common shares
were outstanding.





NOTE
9 – WARRANTS AND SHARE-BASED AWARDS





Warrants





During
the three and nine months ended September 30, 2008, the Company issued warrants
to purchase an aggregate of 45,100,000 and 163,293,217 shares of common stock,
respectively.  During the three and nine months ended September 30, 2007,
75,000 and 9,700,000 warrants were issued, respectively.  At September
30, 2008, there were 182,852,717 and 7,965,000 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 conjunction 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 September 30, 2008, 159,768,217 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 WarrantsNine
      Months Ended September 302008
              
              2007Warrants
              
              
              Weighted
                Average
      Exercise Price
              
              Warrants
              
              
              Weighted
                Average
                Exercise
      PriceWarrants
      outstanding, beginning of period
              
              
              20,452,850
              
              
              $
              0.33
              
              
              
              7,747,000
              
              
              $
              0.27Warrants
      issued
              
              
              163,293,217
              
              
              
              0.38
              
              
              
              9,700,000
              
              
              
              0.13Warrants
      cancelled or expired
              
              
              (193,350
              )
              
              
              0.07
              
              
              
              (583,400
              )
              
              
              0.25Warrants
      exercised
              
              
              (700,000
              )
              
              
              0.17
              
              
              
              (3,272,000
              )
              
              
              0.01Warrants
      outstanding, end of period
              
              
              182,852,717
              
              
              $
              0.37
              
              
              
              13,591,600
              
              
              $
              0.23Class
      B WarrantsNine
      Months Ended September 302008
              
              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





20





The
following table summarizes the status of warrants outstanding at September 30,
2008:





Outstanding
      and Exercisable WarrantsExercise
      Price
              
              Number
      of
                Warrants
              Weighted
      Average
                Remaining
                Contractual
      Life
                in
      Years$             0.01
              
              659,500
              
              1.92$             0.03
              
              6,000,000
              
              3.49$             0.10
              
              350,000
              
              2.57$             0.15
              
              200,000
              
              0.80$             0.16
              
              1,800,000
              
              1.66$             0.30
              
              3,700,000
              
              3.48$             0.32
              
              50,000
              
              3.96$             0.34
              
              100,000
              
              4.77$           0.375
              
              159,368,217
              
              4.69$             0.38
              
              1,000,000
              
              4.70$             0.39
              
              200,000
              
              4.32$             0.45
              
              1,250,000
              
              2.50$             0.50
              
              13,465,000
              
              4.18$             0.60
              
              825,000
              
              4.34$             0.90
              
              25,000
              
              4.50$             1.00
              
              500,000
              
              4.50$             1.20
              
              25,000
              
              4.50$             1.25
              
              1,300,000
              
              1.28190,817,717





As of
September 30, 2008, there was $1,371,832 of total unrecognized compensation cost
related to non-vested warrants that is expected to be recognized over a
weighted-average period of one year  The intrinsic value of warrants
exercised during the nine-month period ended September 30, 2008 and September
30, 2007 was $144,000 and $1,225,480, respectively.  The market value
of warrants vested as of September 30, 2008 was $37,528,543. The weighted
average exercise price of warrants granted during the nine-month period ended
September 30, 2008 was $0.38.





During
the three and nine-months ended September 30, 2008 and September 30, 2007,
stock-based compensation recognized relating to the issuance of warrants to
employees and consultants was $320,042, $699,336, $23,500, and $1,261,000,
respectively.  Compensation expense was determined using the
Black-Scholes Option Model with a volatility ranging between 175% and 245%, a
risk free interest rate ranging between 2.78% and 4.52% , a life of five years
and a zero dividend rate.





21





Stock
Awards Issued





The
following table details the stock awards that were granted and issued during the
nine months ended September 30, 2008 and September 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 nine months ended September 30,
2008, $445,000 and $1,170,750, respectively, of share-based compensation was
recognized within the Statement of Operations.  For the three and nine
month period ended September 30, 2007, $53,600 and $3,311,500, 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
              
              
              
              83,2507/8/2008
              Class
      A Common
              
              
              200,000
              
              
              
              68,0008/25/2008
              Class
      A Common
              
              
              500,000
              
              
              
              145,0008/25/2008
              Class
      A Common
              
              
              50,000
              
              
              
              14,5008/25/2008
              Class
      A Common
              
              
              50,000
              
              
              
              14,5008/25/2008
              Class
      A Common
              
              
              50,000
              
              
              
              14,5008/25/2008
              Class
      A Common
              
              
              50,000
              
              
              
              14,5008/29/2008
              Class
      A Common
              
              
              600,000
              
              
              
              174,0003,200,000
              
              
              $
              1,170,75020071/15/2007
              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
              
              
              
              60,0009/1/2007
              Class
      A Common
              
              
              35,000
              
              
              
              12,6009/27/2007
              Class
      A Common
              
              
              100,000
              
              
              
              41,00023,895,000
              
              
              $
              3,311,500





Stock-Based
Compensation Expense





For the
three and nine months ended September 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
              
              
              Nine
      Months EndedSeptember
      30,
              
              
              September
      30,2008
              
              
              2007
              
              
              2008
              
              
              2007Stock-based
      compensation:Professional
      fees
              
              $
              556,264
              
              
              $
              64,500
              
              
              $
              1,481,664
              
              
              $
              599,900Payroll
      and employee benefits
              
              
              208,778
              
              
              
              12,600
              
              
              
              388,422
              
              
              
              3,972,600Total
              
              $
              765,042
              
              
              $
              77,100
              
              
              $
              1,870,086
              
              
              $
              4,572,500





22





NOTE
10 – 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:





September
      30, 2008Fair
      Value Measurements at Reporting Date UsingSignificantUnobservableInputs
              
              
              Total(Level
      3)
              
              
              Fair
      ValueReedemable
      warrants
              
              $
              11,155,775
              
              
              $
              11,155,775Non-compensatory
      warrants
              
              
              4,000
              
              
              
              4,000Total
      liabilities
              
              $
              11,159,775
              
              
              $
              11,159,775





The
Company has categorized its assets and liabilities measured at fair value into
the three-level fair value hierarchy, as defined in Note 2, based upon the
priority of inputs to 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 Loss Recognized
              
              
              BalanceBalance
              
              
              Reclassification
      of
              
              
              
              
              
              in
      Earnings From
              
              
              EndBeginning
      of
                Period
              
              
              Warrants
      as Liabilities
              
              
              Issuance
              
              
              Change
      in
                Fair
      Value
              
              
              of
                PeriodFor
      the Nine Months Ended September 30, 2008Redeemable
      warrants
              
              $
              -
              
              
              $
              -
              
              
              $
              28,404,419
              
              
              $
              (17,248,644
              )
              
              $
              11,155,775Non-compensatory
      warrants
              
              
              -
              
              
              
              44,000
              
              
              
              -
              
              
              
              (40,000
              )
              
              
              4,000Total
              
              $
              -
              
              
              $
              44,000
              
              
              $
              28,404,419
              
              
              $
              (17,288,644
              )
              
              $
              11,159,775For
      the Three Months Ended September 30, 2008Redeemable
      warrants
              
              $
              19,442,597
              
              
              $
              -
              
              
              $
              3,150,000
              
              
              $
              (11,436,822
              )
              
              $
              11,155,775Non-compensatory
      warrants
              
              
              16,000.00
              
              
              
              -
              
              
              
              -
              
              
              
              (12,000
              )
              
              
              4,000Total
              
              $
              19,458,597
              
              
              $
              -
              
              
              $
              3,150,000
              
              
              $
              (11,448,822
              )
              
              $
              11,159,775




For the
three and nine months ended September 30, 2008, total unrealized gains of
$11,448,822 and $2,538,644, respectively, are included in earnings in the
Statement of Operations caption “Change in fair value of redeemable
warrants.”  Unrealized gains for the nine months ended September 30,
2008 are net of losses on initial issuance of warrants of
$14,750,000.




23




Nonrecurring
Fair Value Measurements





The
following table presents the assets and liabilities carried on the balance sheet
by level within the fair value hieararchy as of September 30, 2008 for which a
nonrecurring change in fair value has been recorded during the three and nine
months ended September 30, 2008:





Fair
      Value
              
              
              Significantat
              
              
              Unobservable
              
              
              TotalSeptember
      30,
                2008
              
              
              Inputs
                (Level
      3)
              
              
              Gains
                (Losses)$
              6,408,603
              
              
              $
              6,408,603
              
              
              $
              (3,597,544
              )3,645,461
              
              
              
              3,645,461
              
              
              
              (11,711,400
              )$
              10,054,064
              
              
              $
              10,054,064
              
              
              $
              (15,308,944
              )





In
accordance with SFAS 142, goodwill and other intangible assets with carrying
amounts of $10,006,147 and $15,356,861, respectively, were written down to their
fair values of $6,408,603 and $3,645,461, respectively, resulting in impairment
charges of $3,597,544 and $11,711,400, respectively.  The market
approach was used to estimate fair value of goodwill and other intangible
assets.  This valuation technique utilized a significant number of
unobservable inputs.





NOTE 11
- RELATED PARTY TRANSACTIONS





During
the nine month period ending September 30, 2008, LifeGuard marketed a membership
product which it licenses from DirectMed, a company 33% owned by the President
of LifeGuard.   LifeGuard pays DirectMed a branding fee based on the
number of memberships sold. During the nine month period ended September
30, 2008, LifeGuard paid DirectMed $377,504 in branding
fees.  Accounts payable at September 30, 2008 associated with
DirectMed were $478,235.





At
September 30, 2008, the Company had notes payable totaling $18,592 due to
LifeGuard Marketing Corporation, a company 50% 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 18 months and will continue to do so if
the 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 September 30, 2008, the
outstanding balance of these personal credit cards and business credit lines was
$207,167.





The
Company and its new Chief Executive Officer entered into a promissory note in
the amount of $500,000 payable to the Chief Executive Officer on August 15,
2008.  The promissory note bears interest at 6% and is payable upon
demand.  On September 9, 2008, the Company paid the promissory note with
accrued interest of $2,137.





On
September 25, 2008, the Company and its new Chief Executive Officer entered into
a second promissory note in the amount of $500,000 payable to the Chief
Executive Officer.  The promissory note bears interest at 6% and is
payable upon demand.  As of September 30, 2008, the principal balance
remains outstanding and the company has recorded accrued interest expense of
$411.





NOTE
12 – SUBSEQUENT EVENTS





On
October 3, 2008, the Company received a notice to exercise 2,000,000 warrants at
an exercise price of $0.025.  Total proceeds received were
$50,000.





On
October 6, 2008, the Company issued 200 shares of Series I Preferred Stock
with a warrant to purchase 22,500,000 shares of Class A Common Stock at an
exercise price of $0.375 for $2,000,000 (see Note 7).





Effective
October 14, 2008, Clark A. Marcus resigned from his position as Chairman 
and member of the Board of Directors of the Company.





On
October 20, 2008, the Company and its Chief Executive Officer entered into a
promissory note payable to the Chief Executive Officer for
$300,000.  The promissory note bears interest at 6% and is payable
upon demand.





On
November 3, 2008, the former Secretary to the Board of Directors notified the
Company of his request to convert 1,573,882 shares of Class B Common Stock to an
equal number of shares of Class A Common Stock.





On
November 6, 2008, the Company received $2,500,000 of funding from its primary
stockholder.  Terms of the funding have yet to be
determined.




Effective December 17,
2008, Jay Shaffer resigned from his position as President of the Company and Guy
Norberg was appointed as his replacement.





24





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








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 September 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. 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.





Introductory
Overview





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





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 a
close relationship with PME.  Mr. Shafer now serves as our Chief Executive
Officer, Mr. Norberg serves as our President 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.





During
2007, we concentrated our efforts on developing a wide range of both discount
and insured products.  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, travel emergency medical care 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.






25




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, 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), 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 call center marketing system and they launched 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 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.  LifeGuard also provides us with additional agent distribution
channels and 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.





In
January 2008, the Company formed a wholly-owned subsidiary, Zurvita, Inc.
(“Zurvita”), to establish a multilevel marketing distribution channel to deliver
products to the consumer directly.  Zurvita hired Mark Jarvis as its
President.  Through Zurvita, the Company has an added distribution
channel to market its existing and future products.  The Company is
currently working on developing and/or securing new products, including products
developed both internally and by third parties, to market through
Zurvita.





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 and US Health
Benefits Group, Inc., a health benefit plan marketing company. USHBG
markets LifeGuard’s products that are DirectMed branded.  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.





In August
2008, the Company underwent a restructuring of its executive team and Board of
Directors.  As part of this restructuring, Clark A. Marcus, Giuseppi
Crisafi and Dr. Jerry Katzman resigned as Chief Executive Officer, Chief
Financial Officer and Chief Medical Officer, respectively, and as members of our
Board of Directors.  In addition, Dr. Arnold Finestone, Dr. William
Koch, Sharon Kay Ray and Arthur Yeap resigned as members of our Board of
Directors.  Jay Shafer and G. Scott Smith were appointed as Chief
Executive Officer and Interim Chief Financial Officer, respectively, and Guy
Norberg, Shad Stastney and Chris Phillips were appointed as members of the Board
of Directors.  In December 2008, Mr. Shafer resigned as President and
Guy Norberg was appointed as his replacement.  Mr. Shafer continues to
serve as our Chief Executive Officer.





Mr.
Stastney is the Chief Operating Officer and Head of Research for Vicis Capital,
LLC and Mr. Phillips is a Managing Director of Vicis Capital,
LLC.  Vicis Captial, LLC’s affiliate, Vicis Capital Master Fund, holds
virtually all of the Company’s outstanding preferred stock and a significant
number of shares of Company common stock.





The
Company remains focused its efforts on both product and business development to
grow revenue and attain profitability.  Management is also focused on
controlling costs through increased subsidiary integration which includes the
elimination of duplicative functions within affiliated subsidiaries and
centralizing certain functions common to both Amacore and its
subsidiaries.





RESULTS
OF OPERATIONS





Revenue:





Total
revenue was $8,552,653 and $21,239,593 for the three and nine months ended
September 30, 2008, an increase of approximately $8,337,648 and
$20,432,131 from total revenue of $215,005 and $807,462 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, which occurred in
September 2007, October 2007 and April 2008, respectively, contributed to the
significant increase in revenue earned during the three and nine months
ended September 30, 2008 compared to the corresponding prior year period.
 Revenue from these acquisitions accounted for $17,867,367 or 84% of total
revenue for the nine month period ended September 30, 2008 and accounted for
$6,900,947 or 81% of total revenue for the three month period ended September
30, 2008.  A reserve for estimated sales refunds of $1,532,462 has
been included in membership fees as of September 30, 2008.





26





Cost
of Sales:





For the
three and nine months ended September 30, 2008, cost of sales was $5,971,008 and
$15,252,863 compared to $131,621 and $565,540 for the three and nine months
ended September 30, 2007.  For the three months ended September 30, 2008,
sales commissions accounted for $4,577,399 or 77% of cost of sales compared to
$131,621 or 100% for the three months ended September 30, 2007.  For the
nine months ended September 30, 2008, sales commissions accounted for
$10,949,551 or 72% of cost of sales compared to $565,540 or 100% for
the nine months ended September 30, 2007.  The overall increase in
cost of sales as well as the sales commission component of cost of sales is
directly related to the increase in the Company’s revenue.





For the
three and nine months ended September 30, 2008, medical benefit cost accounted
for $1,393,609 or 23% and $4,303,312 or 28%, respectively, compared to $0 or 0%
for the three and nine months ended September 30, 2007.  The increase in
medical benefit cost is directly related to the sales of products in 2008 that
contain a medical benefit cost component.





Gross
Profit Percentage:





The
Company’s gross profit percentage (gross profit divided by total revenue) was
30% and 28% for the three and nine month periods ended September 30, 2008,
respectively, compared to 39% and 30% for the three and nine month periods ended
September 30, 2007.  The decrease is attributable to an increase in
commission-based sales incentives, product sales mix and increased volume of
products with a medical benefit cost component.





Operating
Expenses:





Our
operating expenses for the three and nine month periods ended September 30, 2008
were $24,648,511 and $37,469,963, respectively, as compared to $1,311,807 and
$7,433,716 for the three and nine month periods ended September 30,
2007.





The table
below sets forth components of our operating expenses for the three and nine
months ended September, 2008 compared to the corresponding prior year
periods:





Three
      Months Ended September 30,
              
              
              Nine
      Months Ended September 30,Increase
              
              
              
              
              
              
              
              
              Increase2008
              
              
              2007
              
              
              (Decrease)
              
              
              2008
              
              
              2007
              
              
              (Decrease)Depreciation
              
              $
              100,036
              
              
              $
              2,745
              
              
              $
              97,291
              
              
              $
              225,939
              
              
              $
              7,181
              
              
              $
              218,758Amortization
              
              
              1,001,142
              
              
              
              -
              
              
              
              1,001,142
              
              
              
              2,725,834
              
              
              
              -
              
              
              
              2,725,834Office
      related expenses
              
              
              602,271
              
              
              
              128,565
              
              
              
              473,706
              
              
              
              1,427,706
              
              
              
              290,143
              
              
              
              1,137,563Professional
      fees
              
              
              1,583,485
              
              
              
              240,145
              
              
              
              1,343,340
              
              
              
              2,141,098
              
              
              
              2,337,952
              
              
              
              (196,854
              )Payroll
      and benefits
              
              
              2,299,556
              
              
              
              683,419
              
              
              
              1,616,137
              
              
              
              6,500,665
              
              
              
              4,208,359
              
              
              
              2,292,306Travel
              
              
              401,935
              
              
              
              123,828
              
              
              
              278,107
              
              
              
              1,024,041
              
              
              
              350,231
              
              
              
              673,810Selling
      and marketing
              
              
              3,351,142
              
              
              
              133,105
              
              
              
              3,218,037
              
              
              
              8,115,736
              
              
              
              239,850
              
              
              
              7,875,886Impairment
      loss on goodwilland
      other intangible assets
              
              
              15,308,944
              
              
              
              -
              
              
              
              15,308,944
              
              
              
              15,308,944
              
              
              
              -
              
              
              
              15,308,944Total
      operating expenses
              
              $
              24,648,511
              
              
              $
              1,311,807
              
              
              $
              23,336,704
              
              
              $
              37,469,963
              
              
              $
              7,433,716
              
              
              $
              30,036,247




Depreciation
and amortization expense, which is computed on a straight-line method over
the assets’ estimated lives, for the three and nine months ended September 30,
2008, was $1,101,178 and $2,951,733, respectively, an increase of $1,098,433 and
$2,944,592 over the same prior year period due to the inclusion of amortization
of the fair value of intangible assets with finite lives purchased in the
LifeGuard and USHBG acquisitions.





Office
related costs include rent, insurance, utilities and office
maintenance. For the three month period ended September 30, 2008, said
costs were $142,734, $20,389, $194,537 and $244,611, respectively.  For the
nine months ended September 30, 2008, said costs were $368,280, $62,084 $416,936
and $580,406, respectively.  The increase of  $473,706 and
$1,137,563 for the three and nine month periods ended September 30, 2008 is a
result of rent and significant telephone costs associated with subsidiaries that
were acquired subsequent to September 30, 2007.  These subsidiaries contain
call center operations for selling products and/or handling customer
service.





Professional
fees consist of consulting, accounting fees, contract labor, legal costs and
litigation accruals. For the three month period ended September 30, 2008, said
costs were $919,937, $131,791, $180,037 and $351,720.  For the nine months
ended September 30, 2008, said costs were $1,121,178, $696,282, $333,797 and
$(1,010,159), respectively.  The increase of $1,343,340 for the three
months ended September 30, 2008 is attributable to significant legal costs
incurred by the Zurvita and Corporate divisions during that quarter. 
Professional fees year to date include the effects of reversing a litigation
contingency of $2,707,402 during the second quarter as a result of a favorable
legal settlement.  Excluding the effects of the litigation contingency
reversal in the second quarter, professional fees increased for the nine months
ended September 30, 2008, $2,510,548 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.





27





Payroll
and related expenses for the three and nine months ended September 30, 2008 were
$2,299,556 and $6,500,665, respectively, an increase of $1,616,137 and
$2,292,306 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 nine months ended September 30, 2008 were
$401,935 and $1,024,041, respectively, an increase of $278,107 and $673,810 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 nine months ended September 30, 2008.





Selling
and marketing expense for the three and nine months ended September 30, 2008
were $3,351,142 and $8,115,736 respectively, an increase of $3,218,037 and
$7,875,886 over the same prior year periods.  The acquired operations of
JRM, LifeGuard and USHBG have contributed to the significant increase in selling
and marketing expense.  In addition, significant lead cost that did
not result in billable sales was incurred with direct marketers of the Company’s
LifeGuard Health Options product as well as sales
incentives.  Commissions paid to direct response marketers that
billable sales are capitalized and then amortized to cost of sales over the
expected membership life while commissions paid on leads that do not result in
billable sales are expensed in the period in which paid as there is no probable
future economic benefit associated with these costs.





Based on
the Company’s impairment tests and consideration of the current and expected
future market conditions, we determined that goodwill and certain intangible
assets related to the JRM, LifeGuard and USHBG reporting units were impaired in
accordance with Statement of Financial Accounting Standards (“SFAS”) 142,
Goodwill and Other Intangible Assets and the Company recorded non-cash, pre-tax
total impairment charges of $305,444, $9,084,800 and $5,918,700, respectively.
The analysis was conducted by independent valuation specialists. The decline in
estimated fair values resulted from an analysis of the current economic
conditions, the Company’s performance to budget and the lower estimated future
cash flows.  This loss is a non cash transaction.





Other
Income (Expense)





Interest
expense:





Interest
expense for the three and nine months ended September 30, 2008 was $562,456 and
$691,618, respectively, compared to $59,485 and $173,336, respectively, for the
same period in 2007.  Growth in the notes payable and unpaid accrued
dividend balances of 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 $242,653 for the nine months ended September 30,
2008 while no such loss was incurred during the nine months ended September 30,
2007.





Change
in fair value of redeemable warrants:





Pursuant
to FASB Statement No. 150, redeemable warrants are recorded at fair value with
changes in their fair value reflected in the Company’s condensed consolidated
statements of operations.  For the three and nine months ended
September 30, 2008, the gain on change in fair value of redeemable warrants was
$11,448,822 and $2,538,644, respectively, while no such gain or loss was
incurred during the three and nine months ended June 30, 2007.  The
gain is a non cash item not effecting operating cash flows.





Net
loss:





The
Company’s net loss amounted to $11,175,656 and $29,849,189 for the three and
nine months ended September 30, 2008 as compared to $1,257,483 and
$7,284,983 for the three and nine months ended September 30,
2007.  Impairment of goodwill and other intangible assets, significant
business development efforts, significant professional fees, payroll costs,
business travel, and sales and marketing costs have contributed to the Company’s
losses.





The
LifeGuard, Zurvita and USHBG divisions’ net losses represent 52%, 8%, and 37% of
the total net loss for the three month period, respectively, and 49%, 12% and
25% of the total net loss for the nine month period ended September 30,
2008.  LifeGuard’s net loss is attributable to significant impairment of
goodwill and other intangible assets as well as significant lead cost incurred
that did not result in billable sales related to its LifeGuard Health Options
product. Zurvita’s net loss was mainly attributable to significant legal
costs incurred in several matters.  USHBG division’s net loss resulted
from significant impairment of goodwill and other intangible
assets.





28





Preferred
stock dividends and accretions:





Preferred
stock dividends and accretions amounted to $489,524 and $1,153,599 for the three
and nine months ended September 30, 2008 compared to $180,789 and $449,897
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 nine month period ended September 30, 2008.





Loss
per common share:





Loss per
common share amounted to $0.08 and $0.21 for the three and nine months ended
September 30, 2008, respectively, compared to $0.01 and $0.08 for the three and
nine months ended September 30, 2007.





OFF
BALANCE SHEET ARRANGEMENTS





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





LIQUIDITY
AND CAPITAL RESOURCES





The
following table compares our cash flows for the nine month period ended
September 30, 2008 to the corresponding prior fiscal year:





For
      the Nine Months EndedSeptember
      30, 2008
              
              
              September
      30, 2007Net
      cash used by operating activities
              
              $
              (17,261,077
              )
              
              $
              (3,046,822
              )Net
      cash used by investing activities
              
              
              (1,423,451
              )
              
              
              (123,949
              )Net
      cash provided by financing activities
              
              
              17,065,288
              
              
              
              5,177,700Net
      increase (decrease) in cash
              
              $
              (1,619,240
              )
              
              $
              2,006,929




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
              
              $
              153,1742009
              
              
              459,8092010
              
              
              345,6482011
              
              
              258,4532012
              
              
              138,449Thereafter
              
              
              440,733$
              1,796,266




Future
minimum payments under capital lease obligations on a fiscal year basis are as
follows (1)





2008
              
              $
              10,0312009
              
              
              40,9382010
              
              
              29,2512011
              
              
              17,6092012
              
              
              6,660$
              104,489





(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.





29





We
believe that without significant equity and debt investment from outside
sources, the Company will not be able to sustain its current planned operations
for the next 12 months.  During 2008, the Company has raised from an
outside source $19,500,000 of equity funding.  In order to raise
capital, 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.  We
can provide no assurance that additional financing 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.





Currently,
the Company does not maintain a line of credit or term loan with any commercial
bank or other financial institution.  The Company has $1,320,042 of
outstanding notes payable as of September 30, 2008





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.








30





PART
II - OTHER INFORMATION








Item
1. Legal Proceedings





As of
September 30, 2008, there were no material changes in the Company’s legal
proceedings as previously disclosed in the Company’s 2007 Annual Report and
Quarterly Reports for the periods ended March 31, 2008 (the “March 31 Quarterly
Report”) and June 30, 2008 (the “June 30, Quarterly Report”).  Please
refer to the 2007 Annual Report, the March 31 Quarterly Report, and June 30
Quarterly Report for additional information regarding legal proceedings. 
The Company settled various matters during the nine months ended September 30,
2008, none of which were material to the Company.





Item
2. Unregistered Sales of Equity and Use of Proceeds





Item
3. Defaults Upon Senior Securities





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





Approximately
$686,500 of the notes in default listed in Note 6 – 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 either a
conversion to equity or debt restructuring.





Notes in
default listed in Note 6 –
Notes and Loans Payableto the financial statements contained in this
report, totaling approximately $114,950, 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 September 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.





None





Item
5. Other Information.





None





31





Item
6. Exhibits





(a)
      Exhibits:






3.1
      Certificate of Designation of Series I Convertible Preferred Stock filed
      with the Delaware Secretary of State on September 30, 2008 (incorporated
      by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on
      September 30, 2008).
              
              10.1
      Preferred Stock Purchase Agreement by and between the Company and Vicis
      Capital Master Fund dated September 30, 2008 (incorporated by reference to
      Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on September 30, 2008).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated September 30, 2008 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      September 30, 2008).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated September 30, 2008 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on September 30, 2008).
              
              10.4
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated October 6, 2008 (incorporated by reference to
      Exhibit 10.4 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on October 6, 2008).
              
              10.5
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated October 6, 2008 (incorporated by reference to Exhibit 10.5 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      October 6, 2008).
              
              10.6
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated October 6, 2008 (incorporated by reference to
      Exhibit 10.6 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on October 6, 2008).
              
              10.7
      Separation Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Clark A. Marcus (incorporated by reference to Exhibit 10.1 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      August 26, 2008).
              
              10.8
      Consulting Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Clark A. Marcus (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      August 26, 2008).
              
              10.9
      Separation Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Giuseppe Crisafi (incorporated by reference to Exhibit 10.3 to
      the Company’s Form 8-K filed with the Securities and Exchange Commission
      on August 26, 2008).
              
              10.10
      Separation Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Jerry Katzman M.D. (incorporated by reference to Exhibit
      10.4 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on August 26, 2008).





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.





32








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:December 22,
      2008
            /s/Jay
      ShaferJay
      ShaferChief
      Executive OfficerDated:December 22,
      2008
            /s/Scott
      SmithScott
      SmithInterim
      Chief Financial Officer








33





EXHIBIT
INDEX





3.1
      Certificate of Designation of Series I Convertible Preferred Stock filed
      with the Delaware Secretary of State on September 30, 2008. (incorporated
      by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on
      September 30, 2008).
              
              10.1
      Preferred Stock Purchase Agreement by and between the Company and Vicis
      Capital Master Fund dated September 30, 2008 (incorporated by reference to
      Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on September 30, 2008).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated September 30, 2008 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      September 30, 2008).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated September 30, 2008 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on September 30, 2008).
              
              10.4
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated October 6, 2008 (incorporated by reference to
      Exhibit 10.4 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on October 6, 2008).
              
              10.5
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated October 6, 2008 (incorporated by reference to Exhibit 10.5 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      October 6, 2008).
              
              10.6
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated October 6, 2008 (incorporated by reference to
      Exhibit 10.6 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on October 6, 2008).
              
              10.7
      Separation Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Clark A. Marcus (incorporated by reference to Exhibit 10.1 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      August 26, 2008).
              
              10.8
      Consulting Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Clark A. Marcus (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      August 26, 2008).
              
              10.9
      Separation Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Giuseppe Crisafi (incorporated by reference to Exhibit 10.3 to
      the Company’s Form 8-K filed with the Securities and Exchange Commission
      on August 26, 2008).
              
              10.10
      Separation Agreement, dated August 25, 2008, between The Amacore Group,
      Inc. and Jerry Katzman M.D. (incorporated by reference to Exhibit
      10.4 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on August 26, 2008).


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.









34