UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
DC 20549




FORM
10-Q





(Mark
One)


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




For the
quarterly period ended March 31, 2009





o     
Transition report pursuant to  Section 13 or 15(d) of the Securities
Exchange Act of 1934




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.)








Maitland
      Promenade 1, 485 North Keller Road, Suite 450Maitland,
      Florida 32751(Address
      of principal executive offices) (zip
code)







(407)
      805-8900(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 has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o   No o


Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  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 March 31, 2009:


1,028,764,
296 Class A Common Shares


200,000
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
                                3Condensed
      Consolidated Statements of Operations
                                4Condensed
      Consolidated Statements of Cash Flows
                                5Notes
      to Interim Condensed Consolidated Financial Statements
                                6Item
      2.   Management’s Discussion and Analysis of Financial
      Condition and Results of Operations.
                                23Item
      3.   Quantitative and Qualitative Disclosures about Market
      Risk.
                                30Item
      4.   Controls and Procedures.
                                30


PART II
- OTHER INFORMATION





Page
      No.Item
      1.   Legal Proceedings.
                      31Item
      1a. Risk Factors.
                      31Item
      2.   Unregistered Sales of Equity Securities and Use of
      Proceeds.
                      31Item
      3.   Defaults Upon Senior Securities.
                      31Item
      4.   Submission of Matters to a Vote of Security
      Holders.
                      31Item
      5.   Other Information.
                      31Item
      6.   Exhibits.
                      32Signatures
                      33





2


THE
      AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED BALANCE SHEETS(Unaudited)March
      31, 2009
                            
                            
                            December
      31, 2008ASSETSCurrent
      assetsCash
                            
                            $
                            3,055,751
                            
                            
                            $
                            238,437Accounts
      receivable
                            
                            
                            606,219
                            
                            
                            
                            612,945Non-trade
      receivables - related party
                            
                            
                            25,298
                            
                            
                            
                            26,699Inventory
                            
                            
                            23,891
                            
                            
                            
                            23,891Deferred
      expenses
                            
                            
                            2,721,795
                            
                            
                            
                            2,816,952Deposits
      and advances
                            
                            
                            305,151
                            
                            
                            
                            287,130Total
      current assets
                            
                            
                            6,738,105
                            
                            
                            
                            4,006,054Property,
      plant and equipment (net of accumulated depreciation of $557,081 and
      $447,709for
      2009 and 2008, respectively)
                            
                            
                            1,201,034
                            
                            
                            
                            863,537Deferred
      customer acquisition costs
                            
                            
                            369,736
                            
                            
                            
                            407,297Goodwill
      and other intangible assets
                            
                            
                            9,421,561
                            
                            
                            
                            9,744,891Deposits
      and other assets
                            
                            
                            1,911,801
                            
                            
                            
                            2,172,321Total
      assets
                            
                            $
                            19,642,237
                            
                            
                            $
                            17,194,100LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilitiesAccounts
      payable
                            
                            $
                            2,332,591
                            
                            
                            $
                            3,064,721Accounts
      payable - related party
                            
                            
                            485,028
                            
                            
                            
                            524,633Loans
      and notes payable
                            
                            
                            1,142,627
                            
                            
                            
                            1,059,373Notes
      payable - related party
                            
                            
                            818,592
                            
                            
                            
                            833,092Accrued
      expenses and other liabilities
                            
                            
                            1,745,503
                            
                            
                            
                            2,429,315Deferred
      compensation - related party
                            
                            
                            85,023
                            
                            
                            
                            82,954Deferred
      acquisition payments
                            
                            
                            479,760
                            
                            
                            
                            472,670Deferred
      revenue
                            
                            
                            2,591,833
                            
                            
                            
                            2,752,365Total
      current liabilities
                            
                            
                            9,680,957
                            
                            
                            
                            11,219,123Non-current
      liabilitiesCapital
      lease obligation
                            
                            
                            261,070
                            
                            
                            
                            52,900Deferred
      acquisition payments
                            
                            
                            524,035
                            
                            
                            
                            648,399Deferred
      compensation - related party
                            
                            
                            293,325
                            
                            
                            
                            315,364Accrued
      dividends
                            
                            
                            1,340,944
                            
                            
                            
                            879,575Fair
      value of warrants
                            
                            
                            11,016,569
                            
                            
                            
                            13,315,364Total
      non-current liabilities
                            
                            
                            13,435,943
                            
                            
                            
                            15,211,602Total
      liabilities
                            
                            
                            23,116,900
                            
                            
                            
                            26,430,725Stockholders'
      DeficitPreferred
      Stock, $.001 par value, 20,000,000 shares authorized;Series
      G mandatory convertible preferred stock; 1,200 shares
      authorized;1,200
      shares issued and outstanding for 2009 and 2008.
                            
                            
                            1
                            
                            
                            
                            1Series
      H mandatory convertible preferred stock; 400 shares
      authorized;400
      shares issued and outstanding for 2009 and 2008.
                            
                            
                            -
                            
                            
                            
                            -Series
      I mandatory convertible preferred stock; 10,000 shares
      authorized;1,650
      and 850 shares issued and outstanding for 2009 and 2008,
      respectively.
                            
                            
                            2
                            
                            
                            
                            -Series
      A mandatory convertible preferred stock; 1,500 shares
      authorized;155
      shares issued and outstanding for 2009 and 2008.
                            
                            
                            -
                            
                            
                            
                            -Common
      Stock A, $.001 par value, 1,360,000,000 shares authorized;
      1,028,764,296and
      1,008,806,919 shares issued and outstanding for 2009 and 2008,
      respectively.
                            
                            
                            1,028,764
                            
                            
                            
                            1,008,807Common
      Stock B, $.001 par value, 120,000,000 shares authorized;
      200,000shares
      issued and outstanding for 2009 and 2008.
                            
                            
                            200
                            
                            
                            
                            200Additional
      paid-in capital
                            
                            
                            113,629,126
                            
                            
                            
                            109,295,378Accumulated
      deficit
                            
                            
                            (118,132,756
                            )
                            
                            
                            (119,541,011
                            )Total
      stockholders' deficit
                            
                            
                            (3,474,663
                            )
                            
                            
                            (9,236,625
                            )Total
      liabilities and stockholders' deficit
                            
                            $
                            19,642,237
                            
                            
                            $
                            17,194,100The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.




3


THE AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONSFor
      the Three Months Ended March 31, 2009 and 2008(Unaudited)2009
                                  
                                  
                                  2008REVENUESCommissions
                                  
                                  $
                                  413,963
                                  
                                  
                                  $
                                  136,743Marketing
      fees and materials
                                  
                                  
                                  736,057
                                  
                                  
                                  
                                  267,098Membership
      fees
                                  
                                  
                                  6,286,505
                                  
                                  
                                  
                                  4,635,009Total
      revenues
                                  
                                  
                                  7,436,525
                                  
                                  
                                  
                                  5,038,850COST
      OF SALESBenefit
      and service cost
                                  
                                  
                                  1,097,991
                                  
                                  
                                  
                                  1,296,236Sales
      commissions
                                  
                                  
                                  3,573,199
                                  
                                  
                                  
                                  2,741,332Total
      cost of sales
                                  
                                  
                                  4,671,190
                                  
                                  
                                  
                                  4,037,568GROSS
      PROFIT
                                  
                                  
                                  2,765,335
                                  
                                  
                                  
                                  1,001,282OPERATING
      EXPENSESAmortization
                                  
                                  
                                  341,591
                                  
                                  
                                  
                                  714,031Depreciation
                                  
                                  
                                  109,372
                                  
                                  
                                  
                                  46,980Office
      related expenses
                                  
                                  
                                  706,747
                                  
                                  
                                  
                                  358,643Payroll
      and employee benefits
                                  
                                  
                                  2,307,229
                                  
                                  
                                  
                                  1,823,253Professional
      fees
                                  
                                  
                                  2,030,819
                                  
                                  
                                  
                                  721,153Selling
      and marketing
                                  
                                  
                                  1,829,928
                                  
                                  
                                  
                                  1,975,125Travel
                                  
                                  
                                  138,937
                                  
                                  
                                  
                                  301,629Total
      Operating Expenses
                                  
                                  
                                  7,464,623
                                  
                                  
                                  
                                  5,940,814Loss
      from operations before other income and expense
                                  
                                  
                                  (4,699,288
                                  )
                                  
                                  
                                  (4,939,532
                                  )OTHER
      INCOME (EXPENSE)Gain
      (loss) on change in fair value of warrants
                                  
                                  
                                  6,618,795
                                  
                                  
                                  
                                  (8,150,000
                                  )Interest
      expense
                                  
                                  
                                  (80,486
                                  )
                                  
                                  
                                  (35,537
                                  )Interest
      income
                                  
                                  
                                  3,001
                                  
                                  
                                  
                                  14,872Loss
      on conversion of note payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (242,653
                                  )Other
                                  
                                  
                                  14,400
                                  
                                  
                                  
                                  1,995Total
      other income (expense)
                                  
                                  
                                  6,555,710
                                  
                                  
                                  
                                  (8,411,323
                                  )Net
      income (loss) before income taxes
                                  
                                  
                                  1,856,422
                                  
                                  
                                  
                                  (13,350,855
                                  )Income
      taxes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net
      income (loss)
                                  
                                  
                                  1,856,422
                                  
                                  
                                  
                                  (13,350,855
                                  )Preferred
      stock dividend and accretion
                                  
                                  
                                  (448,167
                                  )
                                  
                                  
                                  (275,106
                                  )Net
      income (loss) available to common stockholders
                                  
                                  $
                                  1,408,255
                                  
                                  
                                  $
                                  (13,625,961
                                  )Basic
      earnings (loss) per share
                                  
                                  $
                                  0
                                  
                                  
                                  $
                                  (0.10
                                  )Basic
      weighted average number of  common shares
      outstanding
                                  
                                  
                                  1,013,456,275
                                  
                                  
                                  
                                  140,981,596Diluted
      earnings (loss) per share
                                  
                                  $
                                  0
                                  
                                  
                                  $
                                  (0.10
                                  )Diluted
      weighted average number of  common shares
      outstanding
                                  
                                  
                                  1,352,104,809
                                  
                                  
                                  
                                  140,981,596The
      accompanying notes are an integral part of these condensed consolidated
      financial statements.
 
   4


THE AMACORE GROUP, INC.CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWSFor
      the Three Months ended March 31, 2009 and 2008(Unaudited)2009
                          
                          
                          2008Cash
      flows from operating activities:Net
      income (loss)
                          
                          $
                          1,856,422
                          
                          
                          $
                          (13,350,855
                          )Adjustments
      to reconcile net income (loss) to net cash used in operating
      activities:Amortization
      of intangible assets
                          
                          
                          341,591
                          
                          
                          
                          714,031Depreciation
                          
                          
                          109,372
                          
                          
                          
                          46,980(Gain)
      loss on change in fair value of warrants
                          
                          
                          (6,618,795
                          )
                          
                          
                          900,000Loss
      on conversion of note payable
                          
                          
                          -
                          
                          
                          
                          242,653Loss
      on the issuance of warrants
                          
                          
                          -
                          
                          
                          
                          7,250,000Share-based
      payments to employees and consultants
                          
                          
                          80,227
                          
                          
                          
                          94,556Changes
      in operating assets and liabilitiesDecrease
      (increase) in accounts receivable
                          
                          
                          6,726
                          
                          
                          
                          (26,847
                          )Decrease
      (increase) in non-trade receivables - related party
                          
                          
                          1,401
                          
                          
                          
                          (11,084
                          )Decrease
      (increase) in deferred expenses
                          
                          
                          95,157
                          
                          
                          
                          (1,256,490
                          )Increase
      in deposits and advances
                          
                          
                          (18,021
                          )
                          
                          
                          (26,578
                          )Decrease
      (increase) in deferred customer acquisition costs
                          
                          
                          37,561
                          
                          
                          
                          (253,839
                          )Decrease
      in deposits and other assets
                          
                          
                          260,520
                          
                          
                          
                          -Decrease
      in accounts payable and accrued expenses
                          
                          
                          (849,864
                          )
                          
                          
                          (85,568
                          )Decrease
      in deferred compensation - related party
                          
                          
                          (19,970
                          )
                          
                          
                          (40,730
                          )(Decrease)
      increase in deferred revenue
                          
                          
                          (160,532
                          )
                          
                          
                          250,411Net
      cash used in operating activities
                          
                          
                          (4,878,205
                          )
                          
                          
                          (5,553,360
                          )Cash
      flows from investing activities:Purchase
      of property and equipment
                          
                          
                          (182,557
                          )
                          
                          
                          (220,169
                          )Increase
      in restricted cash
                          
                          
                          -
                          
                          
                          
                          (250,000
                          )Net
      cash used in investing activities
                          
                          
                          (182,557
                          )
                          
                          
                          (470,169
                          )Cash
      flows from financing activities:Deferred
      acquisition payments
                          
                          
                          (117,274
                          )
                          
                          
                          -Equity
      issuance costs
                          
                          
                          -
                          
                          
                          
                          (380,000
                          )Net
      proceeds from credit card borrowing
                          
                          
                          36,044
                          
                          
                          
                          63,361Payments
      on capital lease obligations
                          
                          
                          (27,194
                          )
                          
                          
                          (22,916
                          )Payments
      made on notes payable
                          
                          
                          (14,500
                          )
                          
                          
                          (15,932
                          )Proceeds
      from exercise of common stock warrants
                          
                          
                          1,000
                          
                          
                          
                          42,000Proceeds
      from private placement equity issuance
                          
                          
                          -
                          
                          
                          
                          500Proceeds
      from sale of preferred stock and warrants
                          
                          
                          8,000,000
                          
                          
                          
                          7,000,000Net
      cash provided by financing activities
                          
                          
                          7,878,076
                          
                          
                          
                          6,687,013Increase
      in cash
                          
                          
                          2,817,314
                          
                          
                          
                          663,484Beginning
      cash
                          
                          
                          238,437
                          
                          
                          
                          2,161,042Ending
      cash
                          
                          $
                          3,055,751
                          
                          
                          $
                          2,824,526SUPPLEMENTAL
      INFORMATION:Cash
      paid for interest
                          
                          $
                          29,625
                          
                          
                          $
                          2,229Cash
      paid for income taxes
                          
                          $
                          -
                          
                          
                          $
                          -The
      accompanying notes are an integral part of these 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. (the “Company,” “Amacore,” “we,” “our,” and “us” all refer
to The Amacore Group, Inc. together with its consolidated subsidiaries) is
primarily a provider and marketer of healthcare-related products, including
healthcare benefits, dental and vision networks, and administrative services
such as billing, fulfillment, patient advocacy, claims administration and
servicing.  The healthcare-related membership programs primarily
marketed by the Company include limited and major medical programs, supplemental
medical and discount dental programs for individuals and
families.  The Company distributes these products and services through
various distribution methods such as its agent network, direct response
marketing companies, DRTV (Direct Response TV), inbound call centers, in-house
sales representatives, network marketing and affinity marketing
partners.  The Company’s secondary line of business is to provide and
market membership programs through these same marketing
channels.  These membership programs utilize the same back office and
systems creating marketing efficiencies to provide low cost ancillary products
such as pet insurance, home warranty, involuntary unemployment insurance, and
accident insurance.





The
Company operates through five different business divisions:





·
            LifeGuard Benefit Services
      Division – This division generates revenue primarily from the sale
      of healthcare benefit membership plans and provides product fulfillment,
      customer support, membership billing, claims administration, provider
      membership network maintenance and information technology.  The
      Company operates this division through LifeGuard Benefit Services, Inc., a
      wholly owned subsidiary of the Company
  (“LifeGuard”).





·
            U.S. Health Benefits Group
      Division – This is an inbound lead generation telemarketing
      operation primarily marketing major and limited medical benefit
      plans.  The Company operates this division through US Health
      Benefits Group, Inc., US Healthcare Plans, Inc. and On the Phone, Inc.,
      each a wholly owned subsidiary of the Company  (collectively,
      “USHBG”).





·
            Zurvita Marketing
      Division– This division is a network marketing company
      that sells healthcare products, financial services, and consumer products
      to individuals and families. The Company operates this division through
      Zurvita, Inc., a wholly owned subsidiary of the Company
      (“Zurvita”).





·
            JRM Benefits Consultants
      Division – This division markets various financial services and
      healthcare products through its telemarketing center and agent
      distribution network to individuals, families and employer
      groups.  The Company operates this division through JRM Benefits
      Consultants, LLC, a wholly owned subsidiary of the Company
      (“JRM”).





·
            Corporate and Other
      Division – This division provides management and financial support
      to the Company’s various divisions and is responsible for corporate
      governance and compliance. The Company operates this division through The
      Amacore Group, Inc. and its wholly owned subsidiary Amacore Direct
      Marketing, Inc.  Other legal entities such as LBI Inc. and LBS
      Acquisition Corp. which do not have any activity are included within the
      other division segments.  These entities were originally created
      for strategic transaction purposes.





Management’s Assessment of
Liquidity





At March
31, 2009, the Company had negative working capital of approximately $2.9
million, and accumulated deficit of approximately $118.1 million.  For
the three months ended March 31, 2009, the Company had an operating loss of
approximately $4.7 million, net income of approximately $1.9 million, and
negative cash flows from operating activities of approximately $4.9
million.





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 2009, the Company has raised from an outside source $8
million 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  stockholders. 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.




6





NOTE
2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES





The
accompanying condensed consolidated balance sheet as of December 31, 2008, which
was derived from audited financial statements, and the unaudited condensed
consolidated financial statements as of March 31, 2009 and 2008 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 month period ended March 31, 2009 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2009.  For further information, refer to the financial
statements and footnotes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2008.





Principles
of Consolidation





The
accompanying condensed consolidated financial statements include the accounts of
Amacore and its wholly-owned subsidiaries, Amacore Direct Marketing Inc., JRM,
LBI, LifeGuard, USHBG, and Zurvita.  Intercompany balances and
transactions have been eliminated in consolidation.





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 and
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 and chargebacks totaled approximately $816
thousand and $1 million for the three months ended March 31, 2009 and 2008,
respectively and were recorded as a reduction of revenue in the accompanying
statements of operations.  Estimate for an allowance for refunds and
chargebacks totaled approximately $348 thousand and $350 thousand at March 31,
2009 and 2008, respectively and were included in accrued expenses and other
liabilities in the accompanying balance sheets.





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 access, on an annual basis, to various marketing and
promotional materials and tools as well as access to customized management
reports; accordingly, revenue from marketing fees is recognized over an annual
period.  The Company also earns ancillary revenue from the sale of
marketing materials to third parties.  Revenue is recognized when
marketing materials are delivered.





Concentration of Credit
Risk





For the
three months ended March 31, 2009, revenue generated by LifeGuard represented
approximately 77% 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
three months ended March 31, 2009, one third-party-telemarketing-company that
sells certain LifeGuard products represents approximately 36% of LifeGuard’s
revenue and approximately 28% of consolidated revenue.





7





At
certain times, the Company’s bank deposits exceed the amounts insured by the
FDIC. As of March 31, 2009, the Company had deposits in excess of FDIC insured
limits of $2.9 million.  Should the financial institution cease
operations when the Company’s deposit balances exceed FDIC insured limits, it
could be a significant disruption to the Company’s cash flow.  Management
continually monitors the Company’s banking relationships to manage this
risk.  In addition, a majority of the Company’s credit card processing
is with one merchant processor.





Use of
Estimates





The
preparation of the Company’s condensed consolidated financial statements in
conformity with U.S.GAAP 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 requiring a high degree of
management’s subjective judgments include the allowance for sales refunds and
chargebacks, capitalization of certain assets, depreciable/amortizable lives,
impairment of  long-lived assets, the expected volatility of common
stock, and the fair value of common stock and warrants issued for services as
well as the allocation of proceeds from the issuance of debt and equity
instruments.  Due to the uncertainty inherent in such estimates,
actual results may differ from these estimates.





Accounts
Receivable





Accounts
receivable are stated at estimated net realizable value.  Accounts
receivable are primarily comprised of balances due from sales of 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, the fact that a majority of payments are
made by credit card and an assessment of specific accounts, no allowance was
required at March 31, 2009 or December 31, 2008.





Property, Plant and
Equipment





Property,
plant and equipment are recorded at cost.  The cost 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, 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.





Deferred 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 March
31, 2009 and December 31, 2008, unamortized customer acquisition costs of $1.4
million and $1.6 million, respectively, are included in deferred expenses and
$370 thousand and $407 thousand, 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.  Customer acquisition costs of $0 thousand
and $1.3 million for the three months ended March 31, 2009 and 2008,
respectively, are included in selling and marketing in the accompanying
statements of operations.





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.





For
purposes of testing goodwill impairment, each of our reportable segments is a
reporting unit. We review each reporting unit for possible goodwill
impairment by comparing the estimated fair value of each respective reporting
unit to the carrying value of that reporting unit’s net assets. If the estimated
fair value exceeds the net assets, no goodwill impairment is deemed to exist. If
the fair value of the reporting unit does not exceed the carrying value of that
reporting unit’s net assets, we then perform, on a notional basis, a purchase
price allocation applying the guidance of Statement of Financial Accounting
Standards No. 141, Business
Combinations (SFAS 141) by allocating the reporting unit’s fair value to
the fair value of all tangible and identifiable intangible assets with residual
fair value representing the implied fair value of goodwill of that reporting
unit.  The carrying value of goodwill for the reporting unit is
written down to this implied value.


8








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.





Advertising
Costs





Advertising
costs are charged to expense as incurred. For the three months ended March 31,
2009 and 2008, advertising costs were approximately $81 thousand and $6
thousand, respectively.





Stock-Based
Compensation





The
Company accounts for share-based payments in accordance with Statement of
Financial Accounting Standards 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.  SFAS
123R 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 Pricing Model
in computing the fair value of warrant instrument issuances and uses closing
market prices in computing the fair value of Common A and Common B stock
issuances.




The
Company determines the measurement date of its share-based payments made to
non-employees in accordance EITF 96-18, Accountingfor 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.




Convertible
Instruments





The
Company reviews the terms of convertible debt and equity securities for
indications that bifurcation is required, and separate accounting for the
embedded conversion feature. Generally, embedded conversion features where the
ability to physical or net-share settle the conversion option is not within the
control of the Company are bifurcated and accounted for as derivative financial
instruments. Bifurcation of the embedded derivative instrument requires
allocation of the proceeds first to the fair value of the embedded derivative
instrument with the residual allocated to the debt or equity instrument. The
resulting discount to the face value of the debt instruments is amortized
through periodic charges to interest expense using the effective interest
rate method.  The resulting discount to the redemption value of
convertible preferred securities is accreted through periodic charges to
dividends over the period to the earliest conversion date.





Derivative Financial
Instruments





The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow or market risks. However, certain other financial
instruments, such as warrants to purchase the Company’s common stock and the
embedded conversion features of debt and preferred instruments that are indexed
to the Company’s common stock are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement, (b) physical or net share
settlement is not within the control of the Company, or (c) based on its
settlement provisions, the instrument is determined not to be indexed to the
Company’s common stock.  In such instances, net-cash settlement is
assumed for financial accounting and reporting. Such financial instruments are
initially recorded at fair value and subsequently adjusted to fair value at the
close of each reporting period. Fair value for option-based derivative financial
instruments is determined using the Black-Scholes Option Pricing
Model.





Other
convertible instruments that are not derivative financial instruments are
accounted for pursuant to EITF 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios (EITF 98-5) and EITF 00-27, Application of Issue No. 98-5 to
Certain Convertible Instruments (EITF 00-27) by recording the
intrinsic value of the embedded conversion feature as a discount from the
initial value of the instrument and accreted back to face value over the term of
the instrument or to the earliest conversion date as applicable using the
effective interest rate method.





9





Income
Taxes




We
account for income taxes under Statement of Financial Accounting Standards No.
109, Accounting for Income
Taxes (SFAS 109).  Under SFAS 109, deferred tax assets and
liabilities are recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases.  Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
reverse.  The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.  A valuation allowance is provided against deferred tax
assets based on the weight of available evidence when it is more likely than not
that some or all of the deferred tax assets will not be realized.





When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others may be
subject to uncertainty about the merits of the position taken or the amount of
the position that would be ultimately sustained.  The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, we believe it is more likely than not that the
position will be sustained upon examination, including the resolution of appeals
or litigation processes, if any.  Tax positions taken are not offset
or aggregated with other positions.  Tax positions that meet the
more-likely-than-not recognition threshold are measured as the largest amount of
tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority.  The portion of the
benefits associated with tax positions taken that exceeds the amount measured as
described above is reflected as a liability for unrecognized tax benefits in the
accompanying balance sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination. Interest and
penalties associated with unrecognized tax benefits are classified as income tax
expense in the statement of operations.





Fair Value
Measurements





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





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





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





Level
      3
            Unobservable
      inputs that are supported by little or no market activity and are
      significant to the fair value of the assets or
      liabilities.  Unobservable inputs reflect the reporting entity’s
      own assumptions about the assumptions that market participants would use
      in pricing the asset or liability.  Level 3 assets and
      liabilities include 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.





10


Earnings Per
Share





The
Company follows the provisions of Statement of Financial Accounting Standard
No. 128, Earnings Per
Share (SFAS 128) which requires the disclosure of basic and diluted
earnings per common share for all periods presented.  Basic earnings
(loss) per share are calculated by dividing net income (loss) available to
common stockholders by the weighted average number of shares of common stock
outstanding for the period. Diluted earnings (loss) per share is calculated by
dividing the net income (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 for warrants and the
if converted method for convertible preferred stock and convertible debt.
Convertible debt and warrants, officer, employee and non-employee stock options
that are considered potentially dilutive are included in the fully diluted
shares calculation as long as the effect is not
anti-dilutive.  Contingently issuable shares are included in the
computation of basic earnings (loss) per share when the issuance of the shares
is no longer contingent and in the computation of diluted earnings (loss) per
share based on the number of shares issuable as if the end of the reporting
period were the end of the contingency period.  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.





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 three months
ended:




March
      31,
                      2009
                    
                    
                    March
      31,
                      2008Beneficial
      conversion feature accretion
                    
                    $
                    -
                    
                    
                    $
                    57,566Conversion
      value of notes payable and interest to preferred stock
                    
                    
                    -
                    
                    
                    
                    645,814Payment
      of accounts payable with common stock
                    
                    
                    592,721
                    
                    
                    
                    -Preferred
      stock dividends
                    
                    
                    448,167
                    
                    
                    
                    217,540Property
      and equipment acquired under capital lease obligations
                    
                    
                    282,574
                    
                    
                    
                    161,567Reclassification
      of noncompensatory warrants from equity to liability
                    
                    
                    -
                    
                    
                    
                    44,000




NOTE
4 – GOODWILL AND OTHER INTANGIBLE ASSETS





The
following table reflects the components of goodwill and other intangible assets
as of March 31, 2009 and December 31, 2008:




March
      31, 2009GrossCarrying
                        
                        
                        Accumulated
                        
                        
                        CarryingAmount
                        
                        
                        Amortization
                        
                        
                        AmountGoodwill
                        
                        $
                        6,408,605
                        
                        
                        $
                        -
                        
                        
                        $
                        6,408,605Customer
      and vendor relationships
                        
                        
                        2,639,000
                        
                        
                        
                        293,221
                        
                        
                        
                        2,345,779Software
                        
                        
                        581,314
                        
                        
                        
                        123,709
                        
                        
                        
                        457,605Trademarks
      and tradenames
                        
                        
                        475,825
                        
                        
                        
                        266,253
                        
                        
                        
                        209,572Total
                        
                        $
                        10,104,744
                        
                        
                        $
                        683,183
                        
                        
                        $
                        9,421,561






December
      31, 2008GrossCarrying
                        
                        
                        Accumulated
                        
                        
                        CarryingAmount
                        
                        
                        Amortization
                        
                        
                        AmountGoodwill
                        
                        $
                        6,408,605
                        
                        
                        $
                        -
                        
                        
                        $
                        6,408,605Customer
      and vendor relationships
                        
                        
                        2,639,000
                        
                        
                        
                        146,610
                        
                        
                        
                        2,492,390Software
                        
                        
                        563,052
                        
                        
                        
                        61,856
                        
                        
                        
                        501,196Trademarks
      and tradenames
                        
                        
                        475,825
                        
                        
                        
                        133,125
                        
                        
                        
                        342,700Total
                        
                        $
                        10,086,482
                        
                        
                        $
                        341,591
                        
                        
                        $
                        9,744,891






11




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.




Amortization
expense related to all of the Company’s identifiable intangible assets for the
three months ended March 31, 2009 and 2008 was $342 thousand and $714 thousand,
respectively.   Future amortization of intangible assets is shown
in the following table:




2009
                        
                        $
                        683,9272010
                        
                        
                        807,0472011
                        
                        
                        619,5042012
                        
                        
                        590,6672013
                        
                        
                        146,611Thereafter
                        
                        
                        -Total
                        
                        $
                        2,847,756




The
weighted-average remaining amortization period for customer and vendor
relationships, software and amortizable trademarks and trade names is 4 years,
1.64 years and 1 month, respectively.





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





March
      31,
                        2009
                      
                      
                      December
      31,
                        2008Goodwill
                      
                      $
                      6,408,605
                      
                      
                      $
                      6,408,605Trademarks
      and tradenames
                      
                      
                      165,200
                      
                      
                      
                      165,200$
                      6,573,805
                      
                      
                      $
                      6,573,805






NOTE 5 – LOANS
AND NOTES PAYABLE





Loans and
Notes payable consist of the following:




March
      31,
                      2009
                    
                    
                    December
      31,
                      2008Promissory
      notes payable to investors and stockholders; bearing interest ranging from
      8% to 10% per annum; due through December 2006; currently in
      default
                    
                    $
                    425,000
                    
                    
                    $
                    425,000Convertible
      promissory notes payable to investors and stockholders; bearing interest
      ranging from 10% to 11% per annum; due through December 2006; currently in
      default
                    
                    
                    100,000
                    
                    
                    
                    100,000Promissory
      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 Company Executives bearing interest of 6% per annum;
      payable on demand
                    
                    
                    800,000
                    
                    
                    
                    814,500Revolving
      consumer credit cards
                    
                    
                    414,529
                    
                    
                    
                    378,485Capital
      lease obligations, at interest rates ranging from 5.2% to
    10%
                    
                    
                    349,218
                    
                    
                    
                    93,838Promissory
      notes payable to related parties (on demand; noninterest
      bearing)
                    
                    
                    18,592
                    
                    
                    
                    18,592Total
      loans and notes payable
                    
                    $
                    2,222,289
                    
                    
                    $
                    1,945,365




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 March
31, 2009 and December 31, 2008, all of the promissory notes payable are
classified as current due to either maturity dates or events of
default.






12




The
following schedule details the future payments on capital leases:




Current
                      
                      $
                      115,5262010
                      
                      
                      96,7272011
                      
                      
                      90,4612012
                      
                      
                      73,5732013
                      
                      
                      47,595Total
      minimum payments
                      
                      
                      423,882Less:
      Amount representing interest
                      
                      
                      (74,664
                      )Present
      value of capital lease obligations
                      
                      
                      349,218Less:
      Current Portion
                      
                      
                      (88,148
                      )Long-term
      capital lease obligations
                      
                      $
                      261,070





NOTE 6
– ASSETS AND LIABILITIES MEASURED AT FAIR VALUE





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 Option Pricing
Model.





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




March
      31, 2009Fair
      Value Measurements at Reporting Date UsingSignificantUnobservableInputs
                                          
                                          
                                          Total(Level
      3)
                                          
                                          
                                          Fair
      ValueWarrants
                                          
                                          $
                                          11,016,569
                                          
                                          
                                          $
                                          11,016,569Total
      liabilities
                                          
                                          $
                                          11,016,569
                                          
                                          
                                          $
                                          11,016,569




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 or were
determined, based on their settlement provisions, not to be indexed to the
Company’s stock and (2) certain non-compensatory warrants.  The
valuation methodology uses a combination of observable and unobservable inputs
in calculating fair value.







13




The
changes for the three months ended March 31, 2009 in level 3 liabilities
measured at fair value on a recurring basis are summarized as
follows:





Using
      Significant Unobservable Inputs(Level
      3)Warrants
  Balance
                              Beginning
      of
                            Period
                          
                          
                          Reclassification
                              of
      Warrants as
                            Liabilities
                          
                          
                          Issuance
                          
                          
                          (Gain)
      Recognized
                                in
      Earnings
                              from
      Change in
                            Fair
      Value
                          
                          
                          Balance
                              End
      of
                            PeriodFor
      the Three Months Ended March 31, 2009Warrants
                          
                          $
                          13,315,364
                          
                          
                          $
                          -
                          
                          
                          $
                          4,320,000
                          
                          
                          $
                          (6,618,795
                          )
                          
                          $
                          11,016,569




For the
three months ended March 31, 2009, total unrealized gains (losses) of
approximately $6.6 million, are included in earnings in the Statement of
Operations caption “Gain (loss) on change in fair value of
warrants.”





Fair
value of Financial Instruments





The fair
values of accounts receivable and accounts payable approximate the carrying
values due to the short term nature of these instruments.  The fair
values of the notes payable approximate their carrying amounts as interest rates
on these obligations are representative of estimated market rates available to
the Company on similar instruments.





NOTE 7
—PREFERRED STOCK





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





On March
5, 2009, the Board of Directors of the Company approved the elimination of
series B, C, D, E, J, and K Preferred Stock.




Series 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 Class A 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 March 31,
2009 and December 31, 2008, accrued and unpaid dividends related to the
preferred stock are $1.3 million and $880 thousand, 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, G, H, and I as of March 31, 2009 were $155
thousand, $12.9 million, $4.2 million and $16.8 million,
respectively.






14





The table
below sets forth the preferred stock outstanding as of March 31, 2009 and
December 31, 2008.




March
      31,
                            
                            
                            December
      31,2009
                            
                            
                            2008Series
      A
                            
                            
                            155
                            
                            
                            
                            155Series
      G
                            
                            
                            1,200
                            
                            
                            
                            1,200Series
      H
                            
                            
                            400
                            
                            
                            
                            400Series
      I
                            
                            
                            1,650
                            
                            
                            
                            8503,405
                            
                            
                            
                            2,605




Series APreferred
Stock





As of
March 31, 2009, 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 month period ended March 31,
2009.  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 certain other
corporate events.  As of March 31, 2009, the outstanding shares of
Series A Preferred Stock were convertible into 310,000 shares of Class A common
stock.






Series G Preferred
Stock





Each
share of Series G Convertible Preferred Stock (“Series G Preferred Stock”) is
convertible at any time, at the option of the holder, into that number of shares
of Class A common stock equal to $10,000 divided by $5.00 (the “Series G
Conversion Price”).  The Series G Conversion Price is subject to
adjustment for certain events, including the payment of a dividend payable in
capital stock of the Company, any stock split, combination, or reclassification
and certain issuances of Class A common stock or securities convertible into or
exercisable for Class A common stock at a price per share or conversion price
less than the then applicable Series G Conversion Price.  In the event
of certain corporate changes, including any consolidation or merger in which the
Company is not the surviving entity, sale or transfer of all or substantially
all of the Company’s assets, certain share exchanges and certain distributions
of property or assets to the holders of Class A common stock, the holders of the
Series G Preferred Stock have the right to receive upon conversion, in lieu of
shares of Class A common stock otherwise issuable, such securities and/or other
property as would have been issued or payable as a result of such corporate
change with respect to or in exchange for the Class A common stock issuable upon
conversion of the Series G Preferred Stock.  In addition, if on
November 7, 2009, the Series G Conversion Price then in effect is higher than
the current conversion price of the Company’s Class A Common Stock, then the
Series G Conversion Price shall be reduced to such current conversion
price (provided that the conversion price shall not be reduced below
$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 stock at the then applicable
Series G Conversion Price.





If the
Series G 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.





No shares
of Series G Preferred Stock were issued during the three month period ended
March 31, 2009.





As of
March 31, 2009, 1,200 shares of Series G Preferred Stock were outstanding and
convertible into 2,400,000 Class A common shares.






15




Series HPreferred
Stock





Each
share of Series H Convertible Preferred Stock (“Series H Preferred Stock”) is
convertible at any time, at the option of the holder, into that number of shares
of Class A common stock equal to $10,000 divided by $5.00 (the “Series H
Conversion Price”).  The Series H Conversion Price is subject to
adjustment for certain events, including the payment of a dividend payable in
capital stock of the Company, any stock split, combination, or reclassification
and certain issuances of Class A common stock or securities convertible into or
exercisable for Class A common stock at a price per share or conversion price
less than the then applicable Series H Conversion Price.  In the event
of certain corporate changes, including any consolidation or merger in which the
Company is not the surviving entity, sale or transfer of all or substantially
all of the Company’s assets, certain share exchanges and certain distributions
of property or assets to the holders of Class A common stock, the holders of the
Series H Preferred Stock have the right to receive upon conversion, in lieu of
shares of Class A common stock otherwise issuable, such securities and/or other
property as would have been issued or payable as a result of such corporate
change with respect to or in exchange for the Class A common stock issuable upon
conversion of the Series H Preferred Stock.  In addition, if on
November 7, 2009, the Series H Conversion Price then in effect is higher than
the current market price of the Company’s Class A common stock, then the Series
H Conversion Price shall be reduced to such current conversion
price (provided that the conversion price shall not be reduced below
$0.01).  If on July 15, 2011, any share of Series H Preferred Stock
remains outstanding and a registration statement covering the resale of all of
the Class A common stock underlying the Series H Preferred Stock is effective
and has been effective for 90 days prior to such date, the Company must convert
each share of the Series H Preferred Stock into Class A common stock at the then
applicable Series H Conversion Price.





If the
Series H 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.





No shares
of Series H Preferred Stock were issued during the three month period ended
March 31, 2009.





As of
March 31, 2009, 400 shares of Series H Preferred Stock were outstanding and
convertible into 800,000 Class A common shares.





Series IPreferred
Stock





Each
share of Series I Convertible Preferred Stock (“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 $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 conversion price shall not be reduced below $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 stock at the then applicable Series I
Conversion Price.


If the
Series I 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
Company.




16





In
January and March 2009, the Company issued 400 shares each (800 shares total) of
its Series I Preferred Stock and a warrant agreement to acquire 45,000,000
shares each (90,000,000 shares total) 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 $8,000,000.  Due to certain settlement provisions,
these warrants were determined not to be indexed to the Company’s stock under
the provisions of EITF Issue No. 07-5, Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock, and are
therefore classified as liabilities.  The fair value of the warrants
was determined by a third–party valuation specialist based upon the
Black-Scholes Option Pricing Model.




At
issuance, the fair value of the warrants was allocated to the warrants and the
residual value of approximately $3.7 million was allocated to the Series I
Preferred Stock.





At March
31, 2009, the fair value of these warrants is approximately $3.4
million. The effect of mark-to market adjustments was a decrease in value
of $945 thousand and has been recorded as “Gain on change in fair value of
warrants” within the accompanying Statement of Operations.  See
Note 11 for additional fair value disclosure information.





As of
March 31, 2009, 1,650 shares of Series I Preferred Stock were outstanding and
convertible into 3,300,000 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 stock shares and one hundred twenty million (120,000,000) Class B
common stock shares.  On all matters required by law to be submitted
to a vote of the holders of common stock, each share of Class A common stock is
entitled to one vote per share, and each share of Class B common stock is
entitled to five votes.





NOTE 9
– WARRANTS AND SHARE-BASED AWARDS





Employee Stock Incentive
Plan




In 1997
the Company adopted a Stock Incentive Plan (the “Plan”). The Plan is
administered by the Board of Directors or a committee thereof and provides for
options to purchase 750,000 shares of Class A common stock to be granted under
the Plan to employees including officers, directors, independent contractors and
consultants to the Company.  The Plan authorizes the issuance of incentive
stock options (“ISOs”), as defined in the Internal Revenue Code of 1986, as
amended, non-qualified stock options (“NQSOs”) and stock appreciation rights
(“SARs”).  Consultants and directors who are not also employees of the
Company are eligible for grants of only NQSOs and SARs. The exercise price of
each ISO may not be less than 100% of the fair market value of the common stock
at the time of grant, except that in the case of a grant to an employee who owns
10% or more of the outstanding Class A common stock of the Company or a
subsidiary of the Company, the exercise price may not be less than 110% of the
fair market value on the date of grant. The exercise price of each NQSO or SAR
may not be less than 85% of the fair market value of the Class A common stock at
the time of grant. Generally, options shall vest at 20%, per year, and shall be
outstanding for ten years. As of March 31, 2009 and December 31, 2008, no
options have been granted under the Plan.





Warrants





During
the three months ended March 31, 2009, the Company issued warrants to purchase
an aggregate of 90,000,000 shares of Class A common stock.  At March 31,
2009, there were outstanding warrants to purchase approximately 321.3 million
and 8.0 million shares of Class A and Class B common stock, respectively,
exercisable at varying prices through 2014.





The
following table summarizes the status of all warrants outstanding and
exercisable at March 31, 2009:




Class
      AOutstanding
      and Exercisable WarrantsRange
      of
                                          Exercise
                                          Prices
                                        Number
      of
                                          Warrants
                                        Weighted
                                          Average
                                          Exercise
                                          Price
                                        Weighted
                                          Average
                                          Remaining
                                          Contractual
      Life
                                          in
      Years$0.01
      to $0.49
                                        310,293,217
                                        
                                        $            0.37
                                        4.43$0.50
      to $0.99
                                        7,250,000
                                        
                                        $            0.50
                                        3.69$1.00
      to $1.49
                                        1,450,000
                                        
                                        $            1.23
                                        1.11318,993,217
                                        
                                        $            0.38
                                        4.40








17




Class
      BOutstanding
      and Exercisable WarrantsRange
      of
                                        Exercise
                                        Prices
                                      Number
      of
                                        Warrants
                                      Weighted
                                        Average
                                        Exercise
                                        Price
                                      Weighted
                                        Average
                                        Remaining
                                        Contractual
      Life
                                        in
      Years$0.01
      to $0.49
                                      1,500,000
                                      
                                      $            0.16
                                      1.16$0.50
      to $0.99
                                      6,465,000
                                      
                                      $            0.50
                                      3.68$1.00
      to $1.49
                                      -
                                      
                                      $         
              -
                                      -7,965,000
                                      
                                      $            0.44
                                      3.21


Equity Awards
Issued





The
following tables detail the equity award activity during 2009.  As of
three months ended March 31, 2009, there were no equity awards issued for
various purposes, such as employment compensation and for goods and services.
The Company’s equity awards consist of both common stock and warrants to
purchase common stock. In the event warrants are exercised, the Company will
issue the corresponding authorized and available Class A common
stock.





Equity
Warrants





The
following tables summarize the activity for compensatory warrants classified as
equity:





Class
      A WarrantsThree
      Months Ended March 31,2009Warrants
                                                            
                                                            
                                                            
                                                            Weighted
                                                              Average
                                                              Exercise
                                                              Price
                                                            
                                                            
                                                            Weighted
                                                              Average
                                                              Remaining
      Contractual
                                                              Term
                                                            
                                                            
                                                            Aggregate
                                                              Intrinsic
                                                              ValueOutstanding
      at December 31, 2008
                                                            
                                                            
                                                            13,125,000
                                                            
                                                            
                                                            
                                                            $
                                                            0.46
                                                            
                                                            
                                                            
                                                            3.76
                                                            
                                                            
                                                            $
                                                            -Issued
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Cancelled
      or expired
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Exercised
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -Outstanding
      at March 31, 2009
                                                            
                                                            
                                                            13,125,000
                                                            
                                                            
                                                            
                                                            $
                                                            0.46
                                                            
                                                            
                                                            
                                                            3.51
                                                            
                                                            
                                                            $
                                                            -Exercisable,
      at March 31, 2009
                                                            
                                                            
                                                            11,400,000
                                                            
                                                            
                                                            
                                                            $
                                                            0.43
                                                            
                                                            
                                                            
                                                            3.43
                                                            
                                                            
                                                            $
                                                            -







Class
      B WarrantsThree
      Months Ended March 31,2009Warrants
                                
                                
                                Weighted
                                  Average
                                  Exercise
      Price
                                
                                
                                Weighted
                                  Average
                                  Remaining
      Contractual
                                  Term
                                
                                
                                Aggregate
                                  Intrinsic
                                  ValueOutstanding
      at December 31, 2008
                                
                                
                                7,965,000
                                
                                
                                $
                                0.44
                                
                                
                                
                                3.46
                                
                                
                                $
                                -Issued
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Cancelled
      or expired
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Exercised
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -
                                
                                
                                
                                -Outstanding
      and exercisable at March 31, 2009
                                
                                
                                7,965,000
                                
                                
                                $
                                0.44
                                
                                
                                
                                3.21
                                
                                
                                $
                                -




18
  A summary
of the status of all of the Company's non-vested equity warrants as of March 31,
2009, and the changes during the three months ended March 31, 2009, is presented
below.  There were no non-vested outstanding Class B equity warrants
outstanding as of March 31, 2009 and December 31, 2008, nor were there any
issuances during the quarter.




Class
      A Equity WarrantsThree
      Months EndedMarch
      31, 2009Warrants
                            
                            
                            Weighted
                              Average
                              Grant-Date
                              Fair
      ValueNon-vested
      at December 31, 2008
                            
                            
                            1,925,000
                            
                            
                            $
                            0.41Issued
                            
                            
                            -
                            
                            
                            
                            -Vested
                            
                            
                            (200,000
                            )
                            
                            
                            0.43Exercised
                            
                            
                            -
                            
                            
                            
                            -Non-vested
      at March 31, 2009
                            
                            
                            1,725,000
                            
                            
                            $
                            0.41




As of
March 31, 2009, there was approximately $428.7 thousand of total unrecognized
compensation cost related to non-vested warrants that is expected to be
recognized over a weighted-average period of 2.2 years.  The intrinsic
value of warrants exercised during the three month period ended March 31, 2009
and March 31, 2008 was $0 and $34 thousand, respectively.  The total
fair value of warrants vested during the three month period ended of March 31,
2009 was $86 thousand. The weighted average grant date fair value of
warrants granted during the three month periods ended March 31, 2009 and 2008
was $0 and $0.43, respectively.





Liability
Warrants





Certain
of these warrants are liability instruments issued in conjunction with preferred
stock and convertible promissory notes.  These warrants are classified
as liability instruments in accordance with EITF Issue No. 00-19, Accounting for Derivative Financial
Instruments Indexed to and potentially settled in a Company’s Own Stock
as net share settlement is not considered within the Company’s control and EITF
Issue No. 07-5, Determining
Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stockdue to non-standard anti-dilutive provisions. At
March 31, 2009, there were warrants to purchase 308 million shares of Class A
and Class B common stock that were classified as liabilities.  The
remaining warrants are compensatory warrants, issued to employees and others in
exchange for services.





The fair
value of each option award classified as a liability on the balance sheet is
estimated on the date of the grant using the Black-Scholes Option Pricing Model
that uses the assumptions noted in the following table. Expected volatility is
based on the historical volatility of the Company’s stock. The risk-free rate
for periods within the contractual life of the option is based on the U.S.
Treasury Strip yield curve in effect at the time of grant. The expected term of
options granted represents the period of time that options granted are expected
to be outstanding.





Assumptions
used to determine the fair value of the stock options and warrants granted are
as follows:





March
      31, 2009Weighted
      average values:Expected
      dividends
                    0%Expected
      volatility
                    117%
      - 131%Risk
      free interest rate
                    1.46%
      - 1.69%Expected
      life
                    
                    5 years







19




A summary
of the status of the Company's non-compensatory warrants classified as
liabilities on the balance sheet is presented below.




Three
      Months EndedMarch
      31, 2009Warrants
                            
                            
                            Weighted
                              Average
                              Exercise
                              Price
                            
                            
                            Weighted
                              Average
                              Remaining
      Contractual
                              Term
                            
                            
                            Aggregate
                              Intrinsic
                              ValueOutstanding
      at December 31, 2008
                            
                            
                            218,368,217
                            
                            
                            $
                            0.37
                            
                            
                            
                            4.47
                            
                            
                            $
                            458,500Granted
                            
                            
                            90,000,000
                            
                            
                            
                            0.38
                            
                            
                            
                            -
                            
                            
                            
                            -Exercised
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Cancelled
      or Expired
                            
                            
                            (150,000
                            )
                            
                            
                            0.01
                            
                            
                            
                            -
                            
                            
                            
                            -Outstanding
      at March 31, 2009
                            
                            
                            308,218,217
                            
                            
                            $
                            0.37
                            
                            
                            
                            4.43
                            
                            
                            $
                            210,000Exercisable
      at March 31, 2009
                            
                            
                            307,593,217
                            
                            
                            $
                            0.37
                            
                            
                            
                            4.43
                            
                            
                            $
                            210,000




A summary
of the status of all of the Company's non-vested liability warrants as of March
31, 2009, and the changes during the three months ended March 31, 2009, is
presented below.  There were no non-vested outstanding Class B
liability warrants outstanding as of March 31, 2009 and December 31, 2008, nor
were there any issuances during the quarter.


Class
      A Liability WarrantsThree
      Months Ended ,March
      31, 2009Warrants
                            
                            
                            Weighted
                              Average
                              Grant-Date
                              Fair
      ValueNon-vested
      at December 31, 2008
                            
                            
                            1,250,000
                            
                            
                            $
                            0.45Granted
                            
                            
                            -
                            
                            
                            
                            -Vested
                            
                            
                            (625,000
                            )
                            
                            
                            0.45Forfeited
                            
                            
                            -
                            
                            
                            
                            -Non-vested
      at March 31, 2009
                            
                            
                            625,000
                            
                            
                            $
                            0.45





Stock Awards
Issued





During
the three months ended March 31, 2009 and 2008, 19,757,377 and 25,000 thousand
shares of common stock were issued for various purposes, such as employment
compensation and for goods and services, respectively.  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 months ended March 31, 2009 and 2008, $0 and $12,000, respectively, of
share-based compensation was recognized within the Statement of
Operations.





Stock-Based Compensation
Expense





For the
three months ended March 31, 2009 and 2008, 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:




For
      the Three Months EndedMarch
      31,2009
                            
                            
                            2008Stock-based
      compensation:Professional
      fees
                            
                            $
                            -
                            
                            
                            $
                            94,556Payroll
      and employee benefits
                            
                            
                            80,227
                            
                            
                            
                            -Total
                            
                            $
                            80,227
                            
                            
                            $
                            94,556







20





NOTE 10
- RELATED PARTY TRANSACTIONS





As part
of the acquisition agreement between the Company and JRM, the Company assumed
$287 thousand of liabilities of which $163 thousand and $69 thousand represented
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 JRM and are recorded within the Company’s notes and loans
payable category of the Balance Sheet.  As of March 31, 2009 and
December 31, 2008, the outstanding balance of these personal credit cards and
business credit lines was $198 thousand and $203 thousand,
respectively.





LifeGuard
markets a membership product, which it licenses from DirectMed, a company 33%
owned by an employee and former majority shareholder of LifeGuard.  
LifeGuard pays DirectMed a branding fee based on the number of memberships
sold. During the three month periods ended March 31, 2009 and 2008,
LifeGuard paid DirectMed approximately $121 thousand and $60 thousand,
respectively, in branding fees.  In addition, LifeGuard owed
DirectMed approximately $485 thousand and $524 thousand as of March 31, 2009 and
December 31, 2008, respectively, for unpaid branding fees.  Branding
fees are included in sales commissions in the accompanying Statements of
Operations.





In 2008,
the Company and Jay Shafer (Chief Executive Officer) entered into promissory
notes in the amount of $800 thousand  payable to Jay Shafer evidencing
loans made by Mr. Shafer to the Company.  The promissory notes bear
interest at 6% and are payable upon demand.  As of March 31, 2009, the
principal balance remains outstanding and the Company has recorded accrued
interest expense of approximately $231 thousand.





NOTE
11 – SEGMENT ANALYSIS




The
Company's reportable segments are strategic business units that offer different
products and services and have separate management teams and each respective
segment’s financial performance is analyzed separately for making operational
and financial decisions. The business units represent five reportable segments:
JRM, LBI, LifeGuard, USHBG, Zurtiva and Corporate and Other. The LifeGuard
segment is the Company’s operations division consisting of product fulfillment,
customer support, membership billing, claims administration, provider membership
network maintenance and information technology.  LifeGuard generates
revenue primarily from the sale of healthcare benefit membership plans. USHBG
segment is an outbound telemarketing company primarily marketing major and
limited medical benefit plans.  The Zurvita segment is a multi-level
marketing company that sells healthcare, financial services and consumer
products to individuals and families.  The JRM segment markets various
financial services and healthcare products through its telemarketing center and
agent distribution network to individuals, families and employer groups. The
Corporate and Other segment provides management and financial support to the
Company’s various divisions as well as performs corporate governance and
compliance. The Corporate and Other segment recognizes residual revenue from
agreements entered into prior to the acquisitions of LifeGuard, JRM and
USHBG.




The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on operating earnings of the respective business segments.





Summarized
financial information concerning the Company's reportable segments is shown in
the following:




For
      the Three Months Ended March 31, 2009LifeGuard
                            
                            
                            USHBG
                            
                            
                            Zurvita
                            
                            
                            JRM
                            
                            
                            Corporate
      and Other
                            
                            
                            TotalTotal
      revenue
                            
                            $
                            5,716,789
                            
                            
                            $
                            1,267,911
                            
                            
                            $
                            1,133,139
                            
                            
                            $
                            54,627
                            
                            
                            $
                            146,811
                            
                            
                            $
                            8,319,277Net
      income (loss) before in income taxes
                            
                            $
                            (434,405
                            )
                            
                            $
                            (373,549
                            )
                            
                            $
                            (1,252,680
                            )
                            
                            $
                            (151,513
                            )
                            
                            $
                            4,068,569
                            
                            
                            $
                            1,856,422Income
      taxes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      income (loss)
                            
                            $
                            (434,405
                            )
                            
                            $
                            (373,549
                            )
                            
                            $
                            (1,252,680
                            )
                            
                            $
                            (151,513
                            )
                            
                            $
                            4,068,569
                            
                            
                            $
                            1,856,422Total
      assets held
                            
                            $
                            8,468,843
                            
                            
                            $
                            6,214,944
                            
                            
                            $
                            1,528,827
                            
                            
                            $
                            184,752
                            
                            
                            $
                            4,577,806
                            
                            
                            $
                            20,975,172






21




For
      the Three Months Ended March 31, 2008LifeGuard
                            
                            
                            USHBG
                            
                            
                            Zurvita
                            
                            
                            JRM
                            
                            
                            Corporate
      and Other
                            
                            
                            TotalTotal
      revenue
                            
                            $
                            4,360,248
                            
                            
                            $
                            -
                            
                            
                            $
                            313,334
                            
                            
                            $
                            49,921
                            
                            
                            $
                            315,347
                            
                            
                            $
                            5,038,850Net
      loss before income taxes
                            
                            $
                            (2,738,663
                            )
                            
                            $
                            -
                            
                            
                            $
                            (463,957
                            )
                            
                            $
                            (123,163
                            )
                            
                            $
                            (10,025,072
                            )
                            
                            $
                            (13,350,855
                            )Income
      taxes
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            -Net
      loss
                            
                            $
                            (2,738,663
                            )
                            
                            $
                            -
                            
                            
                            $
                            (463,957
                            )
                            
                            $
                            (123,163
                            )
                            
                            $
                            (10,025,072
                            )
                            
                            $
                            (13,350,855
                            )Total
      assets held
                            
                            $
                            19,268,123
                            
                            
                            $
                            -
                            
                            
                            $
                            263,464
                            
                            
                            $
                            492,020
                            
                            
                            $
                            3,397,973
                            
                            
                            $
                            23,421,580






Total
depreciation and amortization expense for the three months ended March 31, 2009
for LifeGuard, USHBG, Zurvita, JRM and Corporate and Other was $245 thousand,
$182 thousand, $8 thousand, $1 thousand and $15 thousand,
respectively.  For the three months ended March 31, 2008, total
depreciation and amortization expense for LifeGuard, USHBG, Zurvita, JRM and
Corporate and Other was $744 thousand, $0, $0, $6 thousand and $11 thousand,
respectively.





A
reconciliation of segment revenue and assets to consolidated revenue and assets
is as follows:


March
      31,
                                2009
                              
                              
                              March
      31,
                                2008RevenuesTotal
      revenues for reportable segments
                              
                              $
                              8,319,277
                              
                              
                              $
                              5,038,850Elimination
      of intersegment revenues
                              
                              $
                              (882,752
                              )
                              
                              
                              -Total
      consolidated revenue
                              
                              $
                              7,436,525
                              
                              
                              $
                              5,038,850Net
      Income (Loss)Total
      Income or Loss for reportable segments
                              
                              $
                              1,856,422
                              
                              
                              $
                              (13,350,855
                              )Elimination
      of intersegment profits
                              
                              
                              -
                              
                              
                              
                              -Total
      Income (Loss)
                              
                              $
                              1,856,422
                              
                              
                              $
                              (13,350,855
                              )AssetsTotal
      assets for reportable segements
                              
                              $
                              20,975,172
                              
                              
                              $
                              23,421,580Elimination
      of intersegment receivables
                              
                              
                              (1,332,935
                              )
                              
                              
                              -Total
      consolidated assets
                              
                              $
                              19,642,237
                              
                              
                              $
                              23,421,580







22


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 March 2010, 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-K for the year ended December 31, 2008 filed with the
Securities and Exchange Commission on March 31, 2009 (the “2008 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.





Introduction





Management’s
discussion and analysis of results of operations and financial condition
(“MD&A”) is provided as a supplement to and should be read in conjunction
with our unaudited condensed consolidated financial statements and the related
notes thereto included elsewhere herein to help provide an understanding of our
financial condition and results of our operations.  The MD&A is
organized as follows:





·
            Overview– This section
      provides a general description of our business and operating
      segments.





·
            Results of operations
      –This section provides an analysis of our results of
      operations comparing the three months ended March 31, 2009 to
      2008.  This analysis is provided on a consolidated and operating
      segment basis.





·
            Liquidity and capital
      resources– This section provides an analysis of our cash
      flows for the three months ended March 31, 2009 and 2008 as well as a
      discussion of our liquidity and capital
  resources.





Overview





Description
of Business





The
Company is primarily a provider and marketer of healthcare-related products,
including healthcare benefits, dental and vision networks, and administrative
services such as billing, fulfillment, patient advocacy, claims administration
and servicing.  The Company primarily markets healthcare-related
membership programs such as limited and major medical programs, supplemental
medical and discount dental programs to individuals and families.  The
Company distributes these products and services through various distribution
methods such as its agent network, direct response marketing companies, DRTV
(Direct Response TV), inbound call centers, in-house sales representatives,
network marketing and affinity marketing partners.  The Company’s
secondary line of business is to place membership programs through these same
marketing channels.  These membership programs utilize the same back
office and systems creating marketing efficiencies to provide low cost ancillary
products such as pet insurance, home warranty, involuntary unemployment
insurance, and accident insurance.





The
Company operates through five different business divisions which also represent
the Company’s operating segments:





·
            LifeGuard Benefit Services
      Division – This division generates revenue primarily from the sale
      of healthcare benefit membership plans and provides product fulfillment,
      customer support, membership billing, claims administration, provider
      membership network maintenance and information technology.  The
      Company operates this division through LifeGuard Benefit Services, Inc., a
      wholly owned subsidiary of the Company
  (“LifeGuard”).





23








·
            U.S. Health Benefits Group
      Division – This is an outbound telemarketing operation primarily
      marketing major and limited medical benefit plans.  The Company
      operates this division through
USHBG.





·
            Zurvita Marketing
      Division – This is a multi-level marketing division that sells
      healthcare, financial services and consumer products to individuals and
      families.  The Company operates this division through
      Zurvita.





·
            JRM Benefits Consultants
      Division – This division markets various financial services and
      healthcare products through its telemarketing center and agent
      distribution network to individuals, families and employer
      groups.  The Company operates this division through
      JRM.





·
            Corporate and Other
      Division – This division provides management and financial support
      to the Company’s various divisions as well as performs corporate
      governance and compliance.  Additionally, the Company recognizes
      residual revenue from the initial launch of market campaigns prior to the
      acquisition of LifeGuard.





Marketing





We use
various marketing methods to sell our products and services.  Below
are the primary methods by which we sell our products and services.





·
            Inbound telemarketing –
      We utilize our telemarketing capabilities as well as the capabilities of
      third parties to handle calls from prospective customers who are
      responding to direct response advertising (mail, infomercial, statement
      inserts, phone messaging).





·
            Online Marketing – We
      partner with other online marketers to sell affiliated products. We
      utilize search engine optimization techniques to increase our online
      sales.





·
            Direct mail – We
      utilize direct mail to cross sell our products through statement stuffers
      with our affinity marketing partners such as banks, credit unions and
      insurance carriers.




·
            Agent –Our insurance
      products are required to be sold by licensed agents.  We utilize
      in house and third-party licensed agents to sell our insurance
      products.





·
            Wholesale – When
      companies have full or limited benefits administration capabilities and
      are seeking to offer or market a medical benefit product to their
      customers or members, we can offer a wholesale product at lower
      cost.  Wholesale products are customized to consist of just a
      benefit or any particular mix of benefits administration services
      depending on the customer
requirements.





·
            Private label – For
      companies who have great brand recognition and large customer bases but do
      not have product development capability or do not have a competitive
      product in a particular market segment, Amacore can design a private label
      product for the company to
sell.





Business
History





The
Company was founded in 1994 and began selling memberships in the Company’s
discount vision network to retail customers.  During 2007, the Company
enhanced its management team by hiring Mr. Jay Shafer as President, and Mr. Guy
Norberg, Senior Vice President of Sales and Marketing, who each had significant
experience with managing marketing companies, healthcare-related product
development, benefits administration and marketing partnerships.  With
their hiring, the Company began focusing its efforts on the development of a
back office system for benefits administration as well as the development of a
greater array of products and marketing partners.





The
Company has had significant acquisitions which have improved the Company’s
operational capabilities as well as provided additional channels to market
products and services.  On September 1, 2007, the Company completed
the acquisition of JRM through a stock-for-stock merger.  The
acquisition allows the Company to market its products throughJRM’s outbound
telemarketing call center with additional agent distribution channels available
to it.  On October 9, 2007, the Company completed the acquisition of
LifeGuard through a stock-for-stock merger between LifeGuard and the Company’s
wholly owned subsidiary, LBS Acquisition Corporation.  The acquisition
of LifeGuard strategically assists the Company’s vertical integration plan
within the health benefits program market, provides new distribution channels,
provides important back office benefits administration capabilities and allows
the Company to enhance existing product offerings to the Company’s
clients.  On April 1, 2008, the Company acquired USHBG, an inbound
lead generation telemarketing company primarily marketing major and limited
medical benefit plans.








24





RESULTS
OF OPERATIONS





Consolidated
Results of Operations




For
      the Three Months Ended March 31,Increase2009
                    
                    
                    2008
                    
                    
                    (Decrease)Revenues
                    
                    $
                    7,436,525
                    
                    
                    $
                    5,038,850
                    
                    
                    $
                    2,397,675Cost
      of Sales
                    
                    
                    4,671,190
                    
                    
                    
                    4,037,568
                    
                    
                    
                    633,622Gross
      Profit
                    
                    
                    2,765,335
                    
                    
                    
                    1,001,282
                    
                    
                    
                    1,764,053Operating
      Expenses
                    
                    
                    7,464,623
                    
                    
                    
                    5,940,814
                    
                    
                    
                    1,523,809Operating
      Loss
                    
                    
                    (4,699,288
                    )
                    
                    
                    (4,939,532
                    )
                    
                    
                    240,244Other
      Income (Expense)
                    
                    
                    6,555,710
                    
                    
                    
                    (8,411,323
                    )
                    
                    
                    14,967,033Net
      Income (Loss)
                    
                    
                    1,856,422
                    
                    
                    
                    (13,350,855
                    )
                    
                    
                    15,207,277Preferred
      Stock Dividend and Accretion
                    
                    
                    (448,167
                    )
                    
                    
                    (275,106
                    )
                    
                    
                    173,061Net
      Income (Loss) Available to Common Stockholders
                    
                    $
                    1,408,255
                    
                    
                    $
                    (13,625,961
                    )
                    
                    $
                    15,034,216Basic
      and Diluted Earnings (Loss) Per Share
                    
                    $
                    0.00
                    
                    
                    $
                    (0.10
                    )





Revenue:





Total
revenue was approximately $7.4 million for the three months ended March 31,
2009, an increase of approximately $2.4 million from total revenue of
approximately $5 million for the same period in 2008.  Revenue growth is
attributable to the addition of strategic direct response marketing partnerships
through expansion of new product offerings, extension of marketing channels and
the continued growth in the Company's overall membership base.





Cost
of Sales:





For the
three months ended March 31, 2009, cost of sales was approximately $4.7 million,
an increase of approximately $633 thousand from total cost of sales of $4
million for the respective period in 2008.  Cost of sales represented
approximately 63% and 80% of total revenue for the three months ended March 31,
2009 and 2008, respectively.  The decrease in cost of sales as a
percentage of total revenue is a direct result of the strategic acquisition of
USHBG during the second quarter of fiscal 2008.  Commission expense
paid by LifeGuard to USHBG for selling certain products is now eliminated upon
consolidation.





For the
three months ended March 31, 2009, sales commissions accounted for $3.6 million
or 76% of cost of sales compared to $2.7 million or 68% for the respective
period in 2008.  For the same period, medical benefit cost accounted
for approximately $1.1  million, or 24%, compared to approximately
$1.3 million, or 32%, for the respective period in 2008.





Gross
Profit:





The
Company’s gross profit was approximately $2.8 million or 37% of revenue for the
three month period ended March 31, 2009 as compared to $1 million or
approximately 20% of revenue for the three month period ended March 31,
2008.  While much of the improvement in gross profit is a direct result of
the strategic acquisition of USHBG, there were also notable improvements in
gross profit for LifeGuard and Zurvita as well.




Operating
Expenses:





Our
operating expenses for the three month period ended March 31, 2009 were $7.5
million as compared to $5.9 million for the three month period ended March
31, 2008.





25





The table
below sets forth components of our operating expenses for the three months ended
March 31, 2009 compared to the corresponding prior year period:





Three
      Months Ended March 31,Increase2009
                      
                      
                      2008
                      
                      
                      (Decrease)Amortization
                      
                      $
                      341,591
                      
                      
                      $
                      714,031
                      
                      
                      $
                      (372,440
                      )Depreciation
                      
                      
                      109,372
                      
                      
                      
                      46,980
                      
                      
                      
                      62,392Office
      related expenses
                      
                      
                      706,747
                      
                      
                      
                      358,643
                      
                      
                      
                      348,104Payroll
      and benefits
                      
                      
                      2,307,229
                      
                      
                      
                      1,823,253
                      
                      
                      
                      483,976Professional
      fees
                      
                      
                      2,030,819
                      
                      
                      
                      721,153
                      
                      
                      
                      1,309,666Selling
      and marketing
                      
                      
                      1,829,928
                      
                      
                      
                      1,975,125
                      
                      
                      
                      (145,197
                      )Travel
                      
                      
                      138,937
                      
                      
                      
                      301,629
                      
                      
                      
                      (162,692
                      )Total
      operating expenses
                      
                      $
                      7,464,623
                      
                      
                      $
                      5,940,814
                      
                      
                      $
                      1,523,809




Depreciation
and amortization expense, which is computed on a straight-line method over
the assets’ estimated lives, for the three months ended March 31, 2009, was $451
thousand a decrease of $310 thousand over the same prior year
period.  This decrease is attributable to lower carrying balances of
intangible assets as a result of an impairment taken at September 30,
2008.





Office
related costs include rent, insurance, utilities and office
maintenance. For the three month period ended March 31, 2009, said costs
were $170 thousand, $54 thousand, $213 thousand, and $270 thousand,
respectively.  The increase of $348 thousand for the three month
period ended March 31, 2009 as compared to same prior year period is a result of
growth in the Company’s operations as well as the addition of the acquired
operations of USHBG.





Professional
fees consist of consulting, accounting fees, contract labor, legal costs and
litigation accruals. For the three month period ended March 31, 2009, said costs
were $420 thousand, $635 thousand, $158 thousand and $817 thousand,
respectively.   The Company's involvement in various legal
proceedings and undergoing a first year audit with our new independent auditors
has resulted in a significant increase in professional fees between 2009 and
2008 for the three month period ended March 31.





Payroll
and related expenses for the three months ended March 31, 2009 was $2.3 million,
an increase of $484 thousand over the same prior year period. Payroll and
benefits have increased as a result of Company expansion and the USHBG
acquisition.





Business
travel expenses for the three months ended March 31, 2009 were $139 thousand, a
decrease of $163 thousand over the same prior year period.  The decrease in
travel is a result of the Company’s efforts to reduce non-essential
costs.





Selling
and marketing expenses for the three months ended March 31, 2009 were $1.8
million, an approximate decrease of $145 thousand over the same prior year
period.  During the three months ended March 31, 2008, a major marketing
campaign launched in which $1.3 million of commission was incurred that did not
result in a billable sale and, accordingly, it was written off as a selling and
marketing lead expense.  This marketing campaign and contract did not
exist during the three months ended March 31, 2009; and to prevent this
ineffective cost from occurring again, subsequent marketing contracts with
direct response marketers now contain trial periods and commission payment
structures that pay on leads that produce billable sales.  This
decrease was offset by the lead cost of the USHBG division and various sales
incentives utilized at Zurvita to grow its marketing representative
base.





Other
Income (Expense)





Interest
expense:





Interest
expense for the three months ended March 31, 2009 was $80 thousand compared to
$36 thousand for the same period in 2008.  Growth in the notes payable
and unpaid accrued dividend balances of preferred stock between the periods
contributed to the increase in interest expense.





Loss
on conversion of note payable:





There was
no loss on conversion of notes payable for the three months ended March 31,
2009, while a loss of approximately $243 thousand was incurred for the three
months ended March 31, 2008.





Gain
(loss) on change in fair value of warrants:





Certain
of the Company’s warrants are recorded at fair value with changes in their fair
value reflected in the Company’s condensed consolidated Statement of
Operations.  For the three months ended March 31, 2009, the gain on
change in fair value of warrants was $6.6 million while an $8.2 million
loss was incurred during the three months ended March 31, 2008.  The
gain is a non-cash item not impacting operating cash flows or results of
operations.  See Note 6 - Assets and
Liabilities Measured at Fair Value to the financial statements contained
elsewhere in this report for additional information with respect to the
calculation of the change in fair value of warrants.





26





Net
Income (loss):





The
Company’s net income amounted to approximately $1.9 million for the three months
ended March 31, 2009 as compared to approximately $13.4 million net loss for the
same prior year period.  The significant change in the fair value of
the Company’s warrants of approximately $6.6 million accounted for as
liabilities mainly contributed to the Company’s overall net income for the three
months ended March 31, 2009.





Preferred
stock dividends and accretion:





Preferred
stock dividends and accretion amounted to $448 thousand for the three months
ended March 31, 2009 as compared to $275 thousand for the same period in 2008.
 The increase was due to significant amounts of preferred stock issued by
the Company subsequent to the three months ended March 31, 2008.





Earnings
(loss) per common share:





Earnings
(loss) per common share amounted to $0.00 for the three months ended March 31,
2009, compared to ($0.10) for the three months ended March 31,
2008.  The increase in earnings per share between the periods resulted
from a $15 million increase in other income between the periods resulting from
the change in fair value of warrants.





Segment
Analysis




For
      the Three Months Ended March 31, 2009LifeGuard
                      
                      
                      USHBG
                      
                      
                      Zurvita
                      
                      
                      JRM
                      
                      
                      Corporate
      and Other
                      
                      
                      TotalRevenues
                      
                      $
                      5,716,789
                      
                      
                      $
                      1,267,911
                      
                      
                      $
                      1,133,139
                      
                      
                      $
                      54,627
                      
                      
                      $
                      146,811
                      
                      
                      $
                      8,319,277Cost
      of Sales
                      
                      $
                      (4,389,752
                      )
                      
                      $
                      (345,805
                      )
                      
                      $
                      (748,488
                      )
                      
                      $
                      -
                      
                      
                      $
                      (69,897
                      )
                      
                      $
                      (5,553,942
                      )Gross
      Profit
                      
                      $
                      1,327,037
                      
                      
                      $
                      922,106
                      
                      
                      $
                      384,651
                      
                      
                      $
                      54,627
                      
                      
                      $
                      76,914
                      
                      
                      $
                      2,765,335Operating
      Expenses
                      
                      $
                      (1,755,322
                      )
                      
                      $
                      (1,168,509
                      )
                      
                      $
                      (1,637,331
                      )
                      
                      $
                      (198,992
                      )
                      
                      $
                      (2,704,469
                      )
                      
                      $
                      (7,464,623
                      )Other
      Income (Expense)
                      
                      $
                      (6,120
                      )
                      
                      $
                      (127,146
                      )
                      
                      $
                      -
                      
                      
                      $
                      (7,148
                      )
                      
                      $
                      6,696,124
                      
                      
                      $
                      6,555,710Net
      Income (Loss)
                      
                      $
                      (434,405
                      )
                      
                      $
                      (373,549
                      )
                      
                      $
                      (1,252,680
                      )
                      
                      $
                      (151,513
                      )
                      
                      $
                      4,068,569
                      
                      
                      $
                      1,856,422




For
      the Three Months Ended March 31, 2008LifeGuard
                      
                      
                      USHBG
                      
                      
                      Zurvita
                      
                      
                      JRM
                      
                      
                      Corporate
      and Other
                      
                      
                      TotalRevenues
                      
                      $
                      4,360,248
                      
                      
                      $
                      -
                      
                      
                      $
                      313,334
                      
                      
                      $
                      49,921
                      
                      
                      $
                      315,347
                      
                      
                      $
                      5,038,850Cost
      of Sales
                      
                      $
                      (3,563,379
                      )
                      
                      $
                      -
                      
                      
                      $
                      (253,148
                      )
                      
                      $
                      (140
                      )
                      
                      $
                      (220,901
                      )
                      
                      $
                      (4,037,568
                      )Gross
      Profit
                      
                      $
                      796,869
                      
                      
                      $
                      -
                      
                      
                      $
                      60,186
                      
                      
                      $
                      49,781
                      
                      
                      $
                      94,446
                      
                      
                      $
                      1,001,282Operating
      Expenses
                      
                      $
                      (3,531,414
                      )
                      
                      $
                      -
                      
                      
                      $
                      (524,143
                      )
                      
                      $
                      (164,777
                      )
                      
                      $
                      (1,720,480
                      )
                      
                      $
                      (5,940,814
                      )Other
      Expense
                      
                      $
                      (4,118
                      )
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      (8,167
                      )
                      
                      $
                      (8,399,038
                      )
                      
                      $
                      (8,411,323
                      )Net
      Loss
                      
                      $
                      (2,738,663
                      )
                      
                      $
                      -
                      
                      
                      $
                      (463,957
                      )
                      
                      $
                      (123,163
                      )
                      
                      $
                      (10,025,072
                      )
                      
                      $
                      (13,350,855
                      )




LifeGuard
Division




LifeGuard’s
revenue totaled approximately $5.7 million for the three months ended March 31,
2009 as compared to approximately $4.4 million for the same prior year period,
an increase of approximately $1.4 million.  The increase is a result
of marketing products through more strategic marketing
relationships.  Cost of sales increased approximately $826 thousand to
approximately $4.4 million for the three months ended March 31,
2009.  The cost of sales increase is a direct result of increased
revenue.  Gross margin increased to 23% of total revenue for the three
months ended March 31, 2009 as compared to 18% for the same prior year
period.





27





Operating
expenses and net loss decreased approximately $1.8 million and approximately
$2.3 million, respectively, for the three months ended March 31, 2009 as
compared to the same period of 2008.  Significant decreases in
amortization expense and selling and marketing contributed to the overall
decrease.  Amortization expense decreased approximately $535 thousand
as a result of lower carrying amounts of intangible assets subject to
amortization as a result of the impairment charge taken on September 30,
2008.  Selling and marketing decreased approximately $1.1 million as a
result of the Company’s efforts to modify how it contracts with direct response
marketers with respect to compensation, sale quality and volumes.





USHBG
Division





USHBG was
acquired on April 1, 2008 and, accordingly, its results of operations are only
included for the three months ended March 31, 2009. USHBG achieved revenues and
gross profit of approximately $1.3 million and $922 thousand,
respectively.  Operating expenses and net loss were recognized in the
amounts of approximately $1.2 million and $374 thousand,
respectively. Significant operating expenses incurred were office related,
payroll and employee benefits, selling and marketing in the amounts of $164
thousand, $273 thousand, and $510 thousand.





Zurvita
Division





The
Zurvita division was created in late January 2008. For the three months
ended March 31, 2009 and 2008, Zurvita achieved total revenue of approximately
$1.1 million and approximately $313 thousand, respectively, which primarily
consisted of membership product sales to individual consumers and marketing fees
paid by independent Zurvita marketing representatives of approximately $440
thousand and $58 thousand, respectively, and $601 thousand and $255 thousand for
2009 and 2008, respectively.  The increase in total revenue is a
result of Zurvita operations being fully operational during the three months
ended March 31, 2009.





Cost of
sales included sales commissions paid to marketing representatives and the
benefit and product cost associated with the products and services sold for the
three months ended March 31, 2009 were approximately $588 thousand and $160
thousand, respectively, as compared to approximately $165 thousand and $89
thousand, respectively, for the three months ended March 31,
2008.





Zurvita
incurred a net loss of approximately $1.3 million for the three months ended
March 31, 2009. Significant operating costs incurred during the three months
ended March 31, 2009, such as professional fees and payroll and employee
benefits of approximately $548 thousand and $235 thousand, respectively,
contributed to the division’s net loss. Legal expense represented approximately
$528 thousand of the professional fee expense incurred.  Legal expense
was primarily related to the ongoing litigation between Zurvita, Inc. and
AmeriPlan.  See theLegal
Proceedings (Item 3) within the Company’s Annual Report on Form 10-K for
further discussion.  Additionally, various marketing initiatives were
undertaken to recruit independent marketing representatives to sell Zurvita
products.  The costs associated with these initiatives significantly
contributed to the division’s net loss in the amount of approximately $744
thousand.





JRM
Division





During
the fourth quarter of 2008 and continuing in the first quarter of fiscal 2009,
the division shifted its resources to market other insurance related products
such as health, critical illness life, and dental insurance as a result of the
national economic downturn in the mortgage market.  These products are
being sold in the voluntary employee benefits market, through small employer
groups and through agent and broker networks.  Despite the impact of
the decline in demand for the division’s mortgage protection product, which was
the main product that JRM was marketing during 2008, the division has maintained
consistent revenue for the three months ended March 31, 2009 as compared to the
three months ended March 31, 2008.  Operating expenses increased
approximately $34 thousand for the same period as a result of increased payroll
and office related expenses attributable to added call center booths within
JRM’s call center operation.





Corporate and
Other





This
division’s primary function is to provide executive managerial support and to
provide financial resources to the Company’s various divisions and is
responsible for corporate governance and compliance.  Operating
expenses and net income were approximately $2.7 million and $4.1 million,
respectively, for the three months ended March 31, 2009 as compared to operating
expenses and net loss of $1.7 million and $10 million, respectively, for the
same prior year period.  Defending the Company in various legal
proceedings as well as growth in the Company’s operations has contributed to the
increase in operating expenses.  The reduction in net loss is
attributable to the significant change in fair value of certain warrants
accounted for as liabilities.





28





OFF
BALANCE SHEET ARRANGEMENTS





We do not
have any off balance sheet arrangements as of March 31, 2009.





LIQUIDITY
AND CAPITAL RESOURCES





The
following table compares our cash flows for the three month period ended March
31, 2009 to the corresponding prior fiscal year:




March
      31, 2009
                      
                      
                      March
      31, 2008Net
      cash used in operating activities
                      
                      $
                      (4,878,205
                      )
                      
                      $
                      (5,553,360
                      )Net
      cash used in investing activities
                      
                      
                      (182,557
                      )
                      
                      
                      (470,169
                      )Net
      cash provided by financing activities
                      
                      
                      7,878,076
                      
                      
                      
                      6,687,013Net
      increase in cash
                      
                      $
                      2,817,314
                      
                      
                      $
                      663,484




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:





For
      the Year Ended December 31,2009
              
              $
              365,8492010
              
              
              379,8462011
              
              
              290,8802012
              
              
              137,1042013
              
              
              141,204Thereafter
              
              
              194,389$
              1,509,272




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





2009
                        
                        $
                        115,5262010
                        
                        
                        96,7272011
                        
                        
                        90,4612012
                        
                        
                        73,5732013
                        
                        
                        47,595$
                        423,882




(1)           Payments
include interest





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





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





We
believe that 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 2009, the Company has raised from an
outside source $8 million 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  stockholders. 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.





29





Currently,
the Company does not maintain a line of credit or term loan with any commercial
bank or other financial institution.  The Company has $2 million of
outstanding notes payable as of March 31, 2009.





Item
3. Quantitative and Qualitative Disclosures About Market Risk





Not
applicable





Item
4.  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,
2008.





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





The
Amacore Group, Inc. vs. Clark A. Marcus, Jerry Katzman, MD,  and
Giuseppe Crisafi, Case No. 0904006, and Giuseppe Crisafi, Dr. Jerry Katzman, and
Clark Marcus vs. The Amacore Group, Inc., Case No. 094463, each  in
the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough
County, Florida Circuit Civil.   On February 17, 2009, the
Company filed a petition for Declaratory Judgment seeking to determine its
obligations under Consulting Agreements entered into by and between the Company
and Mr. Marcus, Dr. Katzman and Mr. Crisafi and on February 25, 2009, Mr.
Marcus, Dr. Katzman and Mr. Crisafi filed a separate civil action against the
Company alleging various breaches of their respective consulting
agreements.  The individual parties and the Company, wishing to
disolve their dispute and the Company wishing, at least in part, to avoid the
fees and costs associated with litigation, amicably resolved, for an undisclosed
amount, the lawsuits pending betwen them pursuant to the terms of a confidential
Settlement Agreement dated May 5, 2009, without any admission of wrongdoing by
any party.  Pursuant to the Settlement Agreement, the Consulting Agreements
generally were terminated (other than those provisions which by their terms
survive termination or as specifically provided in the Settlement Agreement), an
undisclosed amount was paid to Mr. Marcus, Dr. Katzman and Mr.Crisafi, certain
health, dental and life insurance benefits continue and indemnification will
continue as otherwise provided for in the Settlement Agreement and the
Consulting Agreements.  In addition, the Settlement Agreement contains
a general release by the Company in favor of Mr. Marcus, Dr. Katzman and Mr.
Crisafi and, subject to certain exceptions, a general release in favor of the
Company (and certain related parties) by Mr. Marcus, Dr. Katzman and Mr.
Crisafi.




Item
1a. Risk Factors





Not
applicable.





Item
2. Unregistered Sales of Equity and Use of Proceeds





400
Shares of Series I Preferred Stock were issued on January 13, 2009.  See
the Forms 8-K filed with the SEC on January 13, 2009 and January 14, 2009 for
additional information regarding this issuance.




400
Shares of Series I Preferred Stock were issued on March 31, 2009.  See the
Forms 8-K filed with the SEC on March 20, 2009 and April 2, 2009 for additional
information regarding this issuance.





Item
3. Defaults Upon Senior Securities





The
information set forth in Note10–Loans and NotesPayableto the financial
statements contained in this reportis incorporated herein
by reference.





Approximately
$525 thousand of the notes in default listed in Note10 – Loans and Notes Payable
to the financial statements contained in this report are held by investors who
have been supporters of the Company over the past
years.





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





None





Item
5. Other Information.





None





31





Item
6. Exhibits





(a)
      Exhibits:





1.01
      Preferred Stock Purchase Agreement by and between the Company and Vicis
      Capital Master Fund dated January 13 2009 (incorporated by reference to
      Exhibit 10.1, 10.2 and 10.3 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission on January 13, 2009)
              
              10.1
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated January 13, 2009 (incorporated by reference to Exhibit
      10.1 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on January 13, 2009).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated January 13, 2009 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      January 13, 2009).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated January 13, 2009 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on January 13, 2009).
              
              4.01
      Amendment to Changes in Registrant’s Certifying Accountant, dated October
      31, 2008 amended on March 12, 2009 (incorporated by reference Exhibit 16.1
      to the Company’s Form 8-K filled with the Securities and Exchange
      Commission on October 31, 2008).
              
              5.03
      Certificate of Eliminating Reference to a Series of Stock, filed with the
      Delaware Secretary of State on March 13, 2009 (incorporated by reference
      to Exhibit 3.01 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on March 13, 2009).
              
              5.03
      Amendment Certificate of Eliminating Reference to a Series of Stock, filed
      with the Delaware Secretary of State on March 13, 2009 amended on March
      13, 2009(incorporated by reference to Exhibit 3.01 to the Company’s Form
      8-K filed with the Securities and Exchange Commission on March 13,
      2009).
              
              1.01
      Series I Preferred Stock Purchase Agreement by and between the Company and
      Vicis Capital Master Fund dated March 20,2009 (incorporated by reference
      to Exhibit 10.1, 10.2 and 10.3 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission March 31, 2009)
              
              10.1
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated March 31, 2009 (incorporated by reference to Exhibit
      10.1 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on March 31, 2009).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated March 31, 2009 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      March 31, 2009).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated March 31, 2009 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on March 31, 2009).



































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:May 12,
      2009
                    /s/Jay
      ShaferJay
      ShaferChief
      Executive OfficerDated:May 12,
      2009
                    /s/Scott
      SmithScott
      SmithInterim
      Chief Financial OfficerDated:May 12,
      2009
                    /s/Jason
      PostJason
      PostPrincipal
      Accounting
Officer





33





EXHIBIT
INDEX








1.01
      Preferred Stock Purchase Agreement by and between the Company and Vicis
      Capital Master Fund dated January 13 2009 (incorporated by reference to
      Exhibit 10.1, 10.2 and 10.3 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission on January 13, 2009)
              
              10.1
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated January 13, 2009 (incorporated by reference to Exhibit
      10.1 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on January 13, 2009).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated January 13, 2009 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      January 13, 2009).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated January 13, 2009 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on January 13, 2009).
              
              4.01
      Amendment to Changes in Registrant’s Certifying Accountant, dated October
      31, 2008 amended on March 12, 2009 (incorporated by reference Exhibit 16.1
      to the Company’s Form 8-K filled with the Securities and Exchange
      Commission on October 31, 2008).
              
              5.03
      Certificate of Eliminating Reference to a Series of Stock, filed with the
      Delaware Secretary of State on March 13, 2009 (incorporated by reference
      to Exhibit 3.01 to the Company’s Form 8-K filed with the Securities and
      Exchange Commission on March 13, 2009).
              
              5.03
      Amendment Certificate of Eliminating Reference to a Series of Stock, filed
      with the Delaware Secretary of State on March 13, 2009 amended on March
      13, 2009(incorporated by reference to Exhibit 3.01 to the Company’s Form
      8-K filed with the Securities and Exchange Commission on March 13,
      2009).
              
              1.01
      Series I Preferred Stock Purchase Agreement by and between the Company and
      Vicis Capital Master Fund dated March 20,2009 (incorporated by reference
      to Exhibit 10.1, 10.2 and 10.3 to the Company’s Form 8-K filed with the
      Securities and Exchange Commission March 31, 2009)
              
              10.1
      Securities Purchase Agreement by and between the Company and Vicis Capital
      Master Fund dated March 31, 2009 (incorporated by reference to Exhibit
      10.1 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on March 31, 2009).
              
              10.2
      Warrant Agreement by and between the Company and Vicis Capital Master Fund
      dated March 31, 2009 (incorporated by reference to Exhibit 10.2 to the
      Company’s Form 8-K filed with the Securities and Exchange Commission on
      March 31, 2009).
              
              10.3
      Registration Rights Agreement by and between the Company and Vicis Capital
      Master Fund dated March 31, 2009 (incorporated by reference to Exhibit
      10.3 to the Company’s Form 8-K filed with the Securities and Exchange
      Commission on March 31, 2009).












34