Table of Contents




UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-K





[X] 
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended December 31, 2008





[  
]  TRANSITION REPORT UNDER 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 450, Maitland, Florida
32751


(Address
of principal executive offices) (Zip Code)





Registrant’s
telephone number:(407)
805-8900





Securities
Registered Under Section 12(b) of the Exchange Act: None





Securities
Registered Pursuant to Section 12(g) of the Exchange Act: Class A common stock,
par value $0.001 per share.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.    Yes  o    No  x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.    Yes  o    No  x




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 for 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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K.  o




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


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 Securities Exchange Act of
1934).    Yes  o    No  x




The
aggregate market value of the Registrant’s Common Stock held by non-affiliates
of the Registrant computed by reference to the price at which the common stock
was last sold as of the last business day of the Registrant’s most recently
completed second fiscal quarter was $0.38 * 152,233,211=
$57,848,620.





The
number of shares outstanding of each of the issuer’s classes of common stock as
of March 4, 2009:


1,028,764,296
shares of Class A common stock, par value $0.001 and 200,000 shares of Class B
common stock, par value $0.001




DOCUMENTS
INCORPORATED BY REFERENCE




None.










AMACORE
GROUP, INC.





FORM
10-K


For
the Year Ended December 31, 2008





TABLEOF CONTENTS





PART I
                        
                        PAGE
      NO.ITEM 1.
                        DESCRIPTION OF BUSINESS.
                        1ITEM 1A.
                        RISK FACTORS.
                        9ITEM 1B.
                        UNRESOLVED STAFF COMMENTS.
                        15ITEM 2.
                        PROPERTIES.
                        15ITEM 3.
                        LEGAL PROCEEDINGS.
                        16ITEM 4.
                        SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS.
                        16PART IIITEM 5.
                        MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES.
                        17ITEM 6.
                        SELECTED FINANCIAL DATA.
                        18ITEM 7.
                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
      AND RESULTS OF OPERATIONS.
                        18ITEM 7A.
                        QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK.
                        27ITEM 8.
                        FINANCIAL STATEMENTS AND SUPPLEMENTARY
    DATA.
                        28ITEM 9.
                        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
      AND FINANCIAL DISCLOSURE.
                        28ITEM 9A.
                        CONTROLS AND PROCEDURES.
                        28ITEM 9B.
                        OTHER INFORMATION.
                        29PART IIIITEM 10.
                        DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE.
                        29ITEM 11.
                        EXECUTIVE COMPENSATION.
                        32ITEM 12.
                        SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
                        37ITEM 13.
                        CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE.
                        39ITEM 14.
                        PRINCIPAL ACCOUNTANT FEES AND SERVICES.
                        40ITEM 15.
                        EXHIBITS AND FINANCIAL STATEMENT
    SCHEDULES.
                        41SIGNATURES
                        42








PARTI







Forward-Looking
Statements




This
Annual Report on Form 10-K may contain statements which constitute
“forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended.  Generally,  words such as
“may,” “will,” “should,” “could,” “would,”  “anticipate,” “expect,”
“anticipate,” “believe,” “goal,” “plan,” “intend,” “estimate” “continue” or the negative of or
other variation on theseand similar other expressions and variations
thereof, if used, are intended to specifically identify forward-looking
statements. Those statements appear in a number of places in this Form 10-K and
in other places, and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things, our future performance and operating results, our future
operating plans, our liquidity and capital resources and our legal proceedings.
We do not undertake
to update or revise the forward-looking statements, whether as a result of new
information, future events or otherwise.




Forward-looking
statements are based on current expectations and involve risks and uncertainties
and our future results could differ significantly from those expressed or
implied by our forward-looking statements.   Many factors,
including those listed in “Item 1A. - Risk Factors” below, could cause our
actual consolidated results to differ materially from those expressed in any of
our forward-looking statements.





ITEM1. DESCRIPTION OF BUSINESS





Overview





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 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’s operates through five different business divisions:





·
            LifeGuard Benefit Services
      Division – This division provides product fulfillment, customer
      support, membership billing, claims administration, provider membership
      network maintenance and information technology.  The Company
      operates this division through Lifeguard Benefits, 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 companythat sells
      healthcare,financial
      services, and
      consumerproducts to
      individuals and families.The Company operates this division
      through Zurvita, Inc., a wholly owned subsidiary of the Company
      (“Zurvita”).





·
            JRMBenefits
      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 as well as performs corporate
      governance and compliance. The Company operates this division through The
      Amacore Group Inc. legal entity.  Other legal entities such as
      LBI Inc. and LBS Acquisition Corp. which do not have any activity are
      included within the other division segment.  These entities were
      originally created for strategic transaction
  purposes.





1





Business
History





We
incorporated under the laws of Delaware on May 31, 1994 and merged with Eye Care International,
Inc., a Florida corporation, in March 1995.  In April 2005, we changed
our name to The Amacore Group, Inc. The
Company, when founded, began selling memberships in the Company’s discount
vision network to retail customers.  During 2007, the Company
strengthened 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, direct
response and affinity marketing.  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.  For instance, on September 1, 2007, the
Company completed the acquisition of 100% ownership 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 100%
ownership 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; and on April 1, 2008, the Company acquired
100% of the outstanding common stock of USHBG, an inbound lead generation
telemarketing company primarily marketing major and limited medical benefit
plans.





Business
Strategy





The
overall business strategy is to utilize the Company’s marketing
expertise and methods, proprietary technologies, various marketing
capabilities, and strategic marketing partnerships to expand the products and
services the Company can market and sell. Although we have primarily focused our
attention and efforts on establishing healthcare-related products due to the
significant demand for lower cost alternatives to traditional healthcare
insurance and significant demand for products by the uninsured and/or
uninsurable, our strategy should allow us to respond timely to other
opportunities arising from economic or societal changes.  Below are
some immediate goals we are pursuing as a part of our overall
strategy.




·
            Increase
      our DRTV (Direct Response TV) and affinity marketing
    partners




·
            Grow
      our agent distribution network




·
            Strengthen
      our brand recognition




·
            Grow
      our internet direct to consumer
marketing




·
            Reduce
      dependency on a small number of telemarketing
  companies




·
            Expand
      the Company’s non-healthcare related products and
  services




·
            Enhance
      our analytics and algorithms to identify potential customers and to
      effectively manage chargeback risk




·
            Analyze
      opportunities for cost savings within the Company and its
      subsidiaries







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.


2








·
            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.




























3





Products
and Services





The
Company’s products consist of membership products and services, non-membership
products and services and insurance products.  Our products are
generally sold directly to consumers, but can also be sold wholesale or private
labeled.





Our
principal membership products include the following:





Product
                      Description
                      Key
      FeaturesHealth
      Options
                      LifeGuard
      Health Options is comprehensive program that can be used by itself, or as
      a complement to any health plan. It can be carried by an individual or
      through an employer. This program  provides financial relief
      from medical and lifestyle expenses not covered by health insurance or can
      be used for expenses that fall below the deductible and co-insurance
      limits.
                      Physician
      and hospital savings, prescription discounts, 24-hour nurseline, File MD,
      diagnostic imaging and lab, discount dental and vision, savings on
      chiropractic visits, alternative medicine, vitamin and nutritional
      supplement discounts, diabetic discounts, hearing savings and emergency
      travel assistanceSmartHealth
      Gold
                      SmartHealth
      Gold is a medical and Lifestyle savings progam developed based on key
      benefits known to assist a family with their healthcare
    needs.
                      Prescription
      discounts, 24-hour nurseline, savings on chiropractic visits, alternative
      medicine, vitamin and nutritional supplemental discounts,  and
      counselingHealth
      Advance Silver
                      HealthAdvance
      Silver is a medical and lifestyle discount program.
                      Physician
      and hospital savings, dental and vision discounts, prescription savings,
      patient advocacy and NurseLineAmacore
      Dental
                      The
      Amacore Dental plan allows members and their family significant savings on
      dental procedures when performed by a participating dental network
      dentist, which consists of thousands of credentialed
    dentists.
                      Savings
      from 28% to 50% on routine dental services, such as cleaning, x-rays and
      fillings as well as crowns, root canals, dentures, oral surgery,
      orthodontics, periodontics and cosmetic dentistry.Amacore
      Vision
                      The
      Amacore Vision program is a large vision network with thousands of eye
      care professionals. This is a network that includes ophthalmologists who
      discount all of their services on medical and surgical procedures,
      including cosmetic surgery and LASIK.
                      1
      free eye exam, savings from 20% to 60% on eyeware; 10%-60% savings on
      sunglasses and contact lenses; 15%-25% savings on medical and surgical
      services.Amacore
      Protection
                      Amacore
      Protection is a complete set of services that protects against common most
      legal issues and secuity concerns. Also included is piece of mind when
      traveling with a roadside service.
                      Legal
      Care includes: Free and discounted legal care, identity
      theft solutions, and lost or stolen credit card assistance.
                        Financial
      includes: Tax prep and advise, financial education and credit
      counseling, life events counseling, credit repair, debt relief,
      foreclosure assistance, bankruptcy and financial education counseling and
      roadside emergency services.Zurvita
      Protection
                      Services
      that protects members against common legal issues and security
      concerns.
                      Program
      offers legal assistance, tax preparation & counseling, distressed
      financial assistance, identity theft recovery services,  credit
      restoration services, roadside assistance and life event
      counseling.Zurvita
      Home Guard
                      Provides
      protection against unexpected expensive repairs or replacement of existing
      home appliances and home systems.
                      Program
      covers household systems and appliances regardless of age, make or
      model.  Network of over 60,000 pre-screened service technicians
      are available for a service call fee of $35.00 for each occurrence
      regardless of the actual cost to repair or replace.Zurvita
      Health
                      A
      discount medical program that combines benefits and services to help
      mitigate the cost of everyday healthcare needs.
                      Program
      creates access to convenient and affordable
      healthcare.  Services include access to a national network of
      board certified physicians providing telephone consultations to diagnose,
      recommend treatment and write short term non-narcotic
      pre-scriptions.  Members further experience discounted medical
      services through network providers in vision, hearing, pharmacy,
      diagnostic, imaging and lab
benefits.





4





Our
principal non-membership products and services include the
following:





Product
                        Description
                        Key
      FeaturesBenefit
      Administration
                        Amacore
      Group offers a fully-functional administrative implementation process that
      comprises a list of features. We are steadfast in consistently expanding
      our administrative services and staff in an effort to support whatever
      administrative needs may arise.
                        Turnkey
      solution that includes: fulfillment, billing, data and reporting,
      production, member services, claims and benefitsBilling
                        Amacore
      Group can manage all aspects of billing, chargeback management,
      reconcilliation, accounting, and reporting.
                        Accouting,
      billing, reporting, reconcilliation, and claims
  reportingMember
      Service
                        Member
      Services goal is to exceed our members' experience.  We ensure
      reps are trained and/or licensed to deal with member questions, issues
      and  enrollments. We ensure quality by using state-of-the-art
      phone systems that allow screening, monitoring and recording. The goal is
      to retain and grow member relationships.
                        Answer
      questions, enrollments, cross-sells, member retentionFulfillment
                        Our
      Operation's division houses production equipment for the development and
      distribution of product fulfillment kits.
                        Creative
      design, printing, production and fulfillment of member
    kits.Zurvita
      Choice
                        The
      deregulation of electric and natural gas industries in certain states
      gives consumers the option to choose where they may purchase their
      energy.
                        Program
      offers utility services (electric & natural gas where available) in
      Texas, Geogia, New York, Ohio and Michigan.    Service
      provider is MXenergy who is the largest independent retail provider in
      North American and is available in 39 markets.  Members can lock
      in annual rates and effectively eliminate the volatile prices that makes
      managing energy expenses
difficult.

























5





Our
principal insurance products include the following:





Product
                        Description
                        Key
      FeaturesSmartHealth
      Diamond
                        A
      comprehensive limited medical plan with discount benefits and services.
      There are ten plans with varying elements of discounts, services and
      insurance designed to meet members' needs and pocket-book.
                        Discount
      benefits such as: physician and hospital savings, medical network,
      long-term care discounts, dental and vision discounts, prescription
      savings, diagnostic labs, hearing savings, chiropractic discounts,
      alternative medicine, vitamin discounts and TeleDoc. services such as:
      patient advocacy, travel assistance, nurseline, Contact 911, alternative
      medicine, counseling,  Lifeguard Support and Global Mednet. Also
      includes insurance components such as: accident medical/dental expense
      benefit, accidental death & dismemberment benefit, accident
      disability, doctor visits and daily hospital confinement benefit,
      inpatient/outpatient surgery, ambulance benefit and intensive care unit
      benefitHealth
      Advance
                        HealthAdvance
      is an affordable limited medical and Lifestyle discount program developed
      to help those who cannot afford traditional insurance or do not
      qualify.
                        Along
      with discount benefits such as: physician and hospital savings, dental and
      vision discounts, prescription savings, patient advocacy and nurseLine,
      savings on chiropractic visits, alternative medicine, counseling, global
      med-net, Contact 911 and emergency travel assistance. Also includes
      insurance components such as: accident medical/dental expense benefit,
      accidental death & dismemberment benefit, accident disability, doctor
      visits and daily hospital confinement benefitElite
      Dental
                        Amacore
      Elite DentalTM is an insured dental solution layered with discount and
      lifestyle benefits with access to approximately 80,000
      dentists.
                        Oral
      exam and teeth cleaning covered at 100% twice a year,  Bitewing
      xrays covered at 100%, once a year, discount on full mouth xrays,
      resin-based composit fillings-once a year (2 sets) covered at 100%.
      Discounts on additional fillings, root canals, surgical extractions,
      crowns, upper dentures and orthodontia. Other benefits include: diabetic
      savings, labs, File MD, savings on Hearing, prescription discounts,
      grovery savings and travel assistance.Mortgage
      Protection Life
                        Mortgage
      Protection Life offers the mortgage holder with valuable life and
      disability insurance  to help pay the mortgage in case of an
      untimely disability or death.
                        Mortgage
      protection life program consists of life insurance to pay off the mortgage
      due to death. A disability insurance income benefit to pay some or all of
      the mortgage payment from a disability from an accident or due to
      sickness. The program also offers a guarantee of a full return of your
      money paid into the policy for all unused benefits from an inforce policy.
      These features offer a mortgage holder peace of mind that they and their
      loved ones are fuly protected all in one package.Critical
      Illness Life
                        An
      insurance program that protects you with cash payments due to a dianosis
      of a  specified critical illiness.
                        Critical
      illness program offsets the cost of daily life in the form of a cash
      payment for wage loss, deductibles, and other expenses that have occurred
      due to a diagnosis or a coverd illness. The program covers illness such as
      cancer, heart attack, stroke, heart bypass surgery, severe burns,
      angioplasty and many other illnesses.Final
      Expense Life
                        Program
      that offers valuable whole life insurance to covet the cost of funeral and
      final expenses in the senior market.
                        Program
      offers a  variety of options to cover  final expenses
      such as funeral costs, unpaid medical bills, that a family may face when a
      parent , spouse, or loved one
dies.








Product
Development and Brand Recognition





Our
product development and brand recognition will be integral to the long-term
success of the Company as well as our ability to attract third-party service
providers or product manufactures seeking our marketing services.  The
Company is currently working with a Direct Response TV Company to create brand
awareness for certain of the Company’s.  Our initial campaign is
expected to air April 2009.


6








Technology





The
Company utilizes a key proprietary software technology that integrates all
facets of benefits administration and provides agents with real time commission
information upon demand.  Third-party telemarketing software is used
within the Company to perform and monitor in house telemarketing activities such
as inbound/outbound calls and customer support.  We also use
technology to identify target consumers within our marketing
database.





Employees





As of
December 31, 2008, the Company had (103) full time employees , The divisional
breakout of employees is as follows: LifeGuard, USHBG, Zurvita, JRM, and
Corporate had fifty-seven (57), four (4), ten (10), ten (10), and twenty-two
(22) employees, respectively.





Customers





Our
customers consist of individual consumers who we bill for purchasing our
products through our internal marketing efforts and capabilities as well as the
marketing efforts and capabilities of other third-party direct response
marketing companies.  In addition, companies who purchase from us
wholesale or private label products designed to be marketed to their customer or
membership base and companies who contract with Amacore for certain benefit
administration services are considered customers.




Competition





The
Company competes in the highly competitive, rapidly evolving, highly fragmented
healthcare and direct response marketing industries.   As a
result, we expect our competition to continually change with the advent of new
products and services that compete for our current membership’s consumer
spending dollars. In addition, we compete with other direct marketing companies
that provide other products and services that compete for the same prospective
customer’s consumer dollars. Currently, our major competition includes
traditional healthcare insurance products and other limited or discount benefit
products as well as the companies who market them.  In addition, any
direct response marketer selling competing products or competing for the same
strategic partnership is considered a competitor.  There are many
competitors who are more established than we are and have greater financial and
non-financial resources than we do.  The Company believes its chief
competitors include large insurers such as various BlueCross Blue Shield
companies, direct response companies such as Affinion Group, Inc., as well as
competitors selling products and services similar to those we sell such as
limited medical benefit plans and discount benefit plans.




The
Company believes that the experience of its management team, diversity of its
marketing methods, and its proprietary technology provides it with a competitive
advantage.





Government
Regulation





We are
subject to federal, state and local laws, regulations, guidelines and
determinations, common laws, codes of conduct and other similar parameters that
directly and indirectly impact our business and methods of
operation.





State Discount Health Program
RegulationsMany states have
enacted legislation concerning the operation and marketing of discount health
programs.  With respect to scope, some state health program
regulations apply to discounts on all health care products, while other states’
regulations apply only to certain types of discount programs or
services.  For example, some regulations apply only to prescription
discounts.  In addition, some states require licensing and
registration of entities that provide discount health
programs.  Additional states are expected to enact such regulations in
the future.  States with such regulations currently in place may amend
existing regulations or enact new regulations which may severely restrict or
prohibit the sale of our products.  The Company monitors developments
or changes in the regulations in the states in which we operate or plan to
operate to allow compliance with the laws and regulations within those
states.  We may decide not to sell our products in states with
regulations we believe to be too burdensome or where compliance is too
costly.  In addition, such regulations may limit the products and
programs we may market and sell and the manner in which we market and sell our
products and programs.





Insurance
Regulations.  Although the Company is not an insurance company,
it does market products and services owned by companies that are subject to
various federal and state insurance regulations.  We rely on the
insurance companies for which we market products and services to comply with
applicable insurance laws and regulations and to monitor state and federal
legislative and regulatory activity with regard to insurance
regulations.  These insurance companies may be required to change
services, products, structure or operations in order to comply with such
insurance regulations.  The manner in which we market and distribute
our programs may be limited because of such insurance regulations.





The
discount programs we market are not insurance products and do not subject us to
insurance regulations.  However, some states have regulations that are
specific to discount plans as discussed above.  We may also receive
inquires from insurance regulators in various states in which we operate
requesting that we supply them with information about our
programs.  To date, these agencies have concurred with our view that
our health programs are not a form of insurance.  We can provide no
assurance that insurance commissioners in such states will continue to concur
with our view that our products are not a form of insurance and therefore are
not subject to insurance regulations.  In the future, states may adopt
regulations or enact legislation pursuant to which our programs may be deemed a
form of insurance, in which case we may become subject to insurance regulations
in such states.  Legislation has been introduced from time to time in
the U.S. Congress that could result in the federal government assuming a more
direct role in regulating insurance companies.  Compliance with such
regulations and laws may be costly and difficult.  Such regulations
may also preclude us from marketing some or all of our products and
programs.





7





Additional
governmental regulation or future interpretation of existing regulations may
increase the cost of compliance or materially and adversely affect the insurance
and/or non-insurance products and services offered by us and, as a result, our
results of operations.





Telemarketing Regulations.Our call center seats and relationships are, or may become, subject to
federal and state “do not call” laws and requirements.  Generally,
under these regulations, we are prohibited from calling any consumer whose
telephone number is listed in the national “do not call” registry, subject to
certain exceptions.  Violation of these regulations may result in
fines of up to $11,000 per violation, plus other penalties.




Product Claims and
Advertising Regulations.  The Federal Trade Commission
(FTC) and certain states regulate advertising, product claims, and other
consumer matters.  The FTC and state regulators may institute
enforcement actions against companies for false and misleading advertising of
consumer products.  In addition, the FTC has increased its scrutiny of
the use of testimonials, similar to those used by us and the marketing
companies, brokers and agents marketing our membership programs. While we
have not been the target of any FTC or state regulatory enforcement actions, we
can provide no assurance that:





·
            the
      FTC or state regulators will not question our advertising or other
      operations in the future;





·
            a
      state will not interpret product claims presumptively valid under federal
      law as illegal under that state’s regulations;
  or





·
            future
      FTC or state regulations or decisions will not restrict the permissible
      scope of such claims.





We are
also subject to the risk of claims by brokers and agents and their respective
customers who may file actions on their own behalf, as a class or otherwise, and
may file complaints with the FTC or state or local consumer affairs
offices.  These agencies may take action on their own initiative
against us for alleged advertising or product claim violations, or on a referral
from brokers, agents, customers or others.  Remedies sought in these
actions may include consent decrees and the refund of amounts paid by the
complaining brokers, agents or consumer, refunds to an entire class of brokers,
agents or customers, client refunds, or other damages, as well as changes in our
methods of doing business.  A complaint based on the practice of one
broker or agent, whether or not we authorized the practice, could result in an
order affecting some or all of the brokers and agents that we use in a
particular state.  Also, an order in one state could influence courts
or government agencies in other states considering similar
matters.  Proceedings resulting from these complaints could result in
significant defense costs, settlement payments or judgments and could have a
material adverse effect on us.





Healthcare Regulation and Reform and
Legislative Developments.In addition to the foregoing,
ongoing legislative and regulatory reforms of the healthcare industry at the
state and federal levels may affect the manner in which we conduct our business
in the future.  Many states have enacted, or are considering, various
healthcare reform statutes.  These reforms relate to, among other
things, managed care practices, prompt pay payment practices, health insurer
liability and mandated benefits.  Proposals have included, among other
things, modifications to the existing employer-based insurance system, a
quasi-regulated system of “managed competition” among health insurers, and a
single-payer, public program.  Also, we are subject to patient
confidentiality laws that prohibit the disclosure of confidential
information.  As with all areas of legislation, the federal
regulations establish minimum standards and preempt conflicting state laws that
are less restrictive but will allow state laws that are more
restrictive.  We expect this trend of increased legislation to
continue. We are unable to predict what reforms or new legislation will be
proposed or enacted or how they would affect our business. Proposals, if
adopted, could have a material adverse effect on our business, financial
condition or results of operations.





Insurance




Management
believes the Company carries sufficient insurance coverage to protect against
material losses incurred by any of our operations.  The Company
significantly mitigates risk by contracting with insurance carriers who
ultimately provide the insurance benefits that are embedded within the products
we market.  The Company is not an insurance company, and we do not
retain any insurance risk associated with any of the products we
sell.




8










Corporate
Information




The
Company is a Delaware corporation formed in May of 1994.  Our
Corporate headquarters and principal executive offices are located at Maitland
Promenade One at 485 North Keller Road, Suite 450, Maitland, Florida
32751.




Recent
Developments





As
disclosed in the Company’s Form 8-K filed on September 2, 2008, there was a
change in executive management and Board of Directors whereby several directors
of Vicis Capital LLC are now directors of the
Company.   Management views this as a positive change as the
diversity in the financial backgrounds of the new directors is expected to be
beneficial when assessing prospective acquisitions and assisting in the
structuring of financing transactions as well as the Company’s capital
structure.  These directors also have relationships with other
companies which could potentially become strategic alliances and have a
synergistic effect for the Company.





On
December 31, 2008, Vicis Capital Master Fund (“Vicis”) converted certain
issuances of preferred stock that it had held.  As a result of the
conversion, Vicis owns approximately 87% of our outstanding Class A common stock
as well as has the power to elect a majority of the members of our board of
directors, appoint new management and approve any action requiring stockholder
approval.





ITEM1A. RISK FACTORS





You
should carefully consider the risk factors set forth below as well as the other
information contained in this Annual Report on Form 10-K before investing or
maintaining an investment in the Company.  The risks described below
are not the only risks facing the Company.  Additional risks and
uncertainties not currently known to us or those we currently deem to be
immaterial may also materially and adversely affect our business, financial
condition, cash flow, or results of operations and prospects.  The
following is a description of the most significant factors that might cause the
actual results of operations in future periods to differ significantly from
those currently desired or expected.  Any of the risks could
materially and adversely affect our business, financial condition or results of
operations and prospects.  As a result of the occurrence of any of
these risks, the trading price of our common stock could decline and you may
lose part or all of your investment.





The
Company has a history of significant losses and may not be profitable in the
future and likely needs significant additional outside funding to continue
operating.





The
Company has a history of net losses and has an accumulated deficit of
approximately $119.5 million, from inception through December 31,
2008.  The Company has historically generated significant net
operating losses and negative operating cash flows.  The Company
believes that without significant equity and/or debt investment from outside
sources, the Company will not be able to sustain its planned operations for the
next 12 months.  Such additional capital may not be available to us on
acceptable terms or may not be available at all.  You should not rely
solely on the public market valuation of the Company and the views of securities
analysts and investors for assessing the operational, business and financial
success of the Company. Fluctuations in our quarterly operating results or our
inability to achieve profitability may cause volatility in the price of our
common stock in the public market.




The
Company’s business is difficult to evaluate because it has a limited operating
history.





The
Company has a limited operating history and participates in a relatively new and
rapidly evolving market. The Company’s business has undergone significant
transformation during the past several years as a result of acquisitions,
changes in the services and products offered, changes in market conditions,
changes in our targeted membership, and is expected to continue to change for
similar reasons. We cannot assure you that our current business strategy will be
successful in the long term.  We have experienced significant losses
since inception and, even if demand from members exists, we cannot assure you
that our business will be successful.





The
Company is controlled by Vicis Capital Master Fund who will be able to make
important decisions about our business and capital structure.





Vicis
owns approximately 87% of our outstanding Class A common stock.  As a
result, Vicis controls us and has the power to elect a majority of the members
of our board of directors, appoint new management and approve any action
requiring stockholder approval.  Vicis’ interest in exercising control
over us and our business may conflict with the interests of our other
stockholders.  Vicis’ control may also discourage others from
acquiring us or from making a significant investment in us.





9





General
economic, financial market and political conditions may materially adversely
affect our results of operations and financial conditions.




General
economic, financial market and political conditions may have an adverse effect
on demand for our services and programs and on our results of operations and
financial condition.  Concerns over a prolonged recession, the
availability and cost of credit, the declining global mortgage and real estate
market, the loss of consumer confidence and reduction in consumer spending,
inflation, and other macroeconomic factors could influence demand for our
services and programs.  There could be a number of follow-on effects
from the credit crisis on our business, including insolvency of key partners,
inability of customers to obtain credit to finance purchases of our services and
programs, and/or customer insolvencies each of which could adversely affect our
results of operations and financial condition.




The
Company currently generates significant revenue through its marketing
partners.





The
Company derives a significant amount of revenue through its marketing
partners.  In the event any of our marketing partners stop selling our
programs to prospective members, or if prospective members do not purchase our
programs through these marketing partners, our business, financial condition and
results of operations could be materially and adversely affected.





The
Company may be unable to fund future growth.





The Company’s business
strategy calls for expansion through an increase in sales of memberships by its
internal sales force and its external marketing partners. The Company will
require significant funding for additional personnel, capital expenditures as
well as for working capital purposes. Financing may not be available to the
Company on favorable terms, if at all. If adequate funds are not available on
acceptable terms, then the Company may not be able to meet its business
objectives for expansion and profitability which could consequently harm the
Company’s business, results of operations and financial condition.





In
addition, if the Company raises additional funds through the issuance of equity
or convertible debt securities, or a combination of both, then the stockholders
will suffer dilution, and any new securities may have rights, preferences and
privileges senior to those of our common stock and other series of Preferred
Stock. Furthermore, if the Company raises capital or acquires businesses by
incurring indebtedness, the Company will become subject to the risks associated
with indebtedness, including interest rate fluctuations and any financial or
other covenants that the Company’s lender may require. Moreover, if the
Company’s strategy to increase its sales and marketing resources in order to
grow revenues does not produce the desired result, then the Company may incur
significant, unrecoverable expenses.





The Company’s
growth may be limited if it is unable to attract and retain qualified
personnel.





The
Company’s business is largely dependent on the skills, experience and
performance of key members of the Company’s senior management team. The Company
plans to increase its sales and marketing personnel, as well as enter into
agreements with independent third parties to sell products and services in order
to grow revenue. The Company believes that its success depends largely on its
ability to attract and retain highly-skilled and qualified technical, managerial
and marketing personnel. The market for highly skilled sales, marketing and
support personnel is highly competitive as a result of the limited availability
of technically-qualified personnel with the requisite understanding of the
markets which the Company serves. The inability to hire or retain qualified
personnel may hinder the Company’s ability to implement its business strategy
and may harm its business.





We have acquired several businesses
in the past and may pursue strategic acquisitions of businesses in the future
which may not be completed or, if completed, may not be successfully integrated
into our existing business.





We have
pursued, and may continue to pursue, increased market penetration and growth
through strategic acquisitions. If we are unable to successfully complete
acquisitions or to effectively integrate acquired businesses, our ability to
grow our business or to operate our business effectively could be reduced, and
our business, financial condition and operating results could suffer. We also
cannot assure you that we will be able to integrate the operations of the
businesses we have acquired or any future completed strategic acquisitions
without encountering difficulty regarding different strategies with respect to
marketing, integration of personnel with disparate business backgrounds and
corporate cultures, integration of different distribution systems and other
technology and managing relationships with other business
partners.  The consummation and integration of any completed or future
acquisition involve many risks, including the risks of:




·
            diverting
      management’s attention from our ongoing business
      concerns;


·
            being
      unable to obtain financing on terms favorable to
      us;


·
            entering
      markets in which we have no direct prior
      experience;


·
            improperly
      evaluating new services, products and
  markets;


·
            being
      unable to maintain uniform standards, controls, procedures and
      policies;


·
            being
      unable to integrate new technologies or
    personnel;


·
            incurring
      the expenses of any undisclosed or potential
      liabilities;


·
            departure
      of key management and employees;


·
            loss
      in value of acquired intangibles;
and


·
            being
      unable to realize potential synergies and economies of
    scale.





10








Our continued
growth could strain our personnel and infrastructure resources, and if we are
unable to implement appropriate controls and procedures to manage our growth, we
may not be able to successfully implement our business plan.





We are
experiencing rapid growth in our operations which is placing, and will continue
to place, a significant strain on our management, administrative, operational
and financial infrastructure. Our future success will depend in part upon the
ability of our management to manage growth effectively. This may require us to
hire and train additional personnel to manage our expanding operations. In
addition, we will be required to continue to improve our operational, financial
and management controls and our reporting systems and procedures. If we fail to
successfully manage our growth, we may be unable to execute upon our business
plan and our business and operations may be adversely impacted.





Lengthy sales and
implementation cycles for the Company’s products and service make it
difficult to forecast revenues and, as a result, may have an adverse impact on
the Company’s business.





The
period from the Company’s initial contact with potential agents and customers to
the consummation of a sale is difficult to predict. These sales may be subject
to delays due to factors beyond the Company’s control. As a result, the Company
has limited ability to forecast the timing of revenue from new customers or
members. This, in turn, makes it more difficult to predict the Company’s
financial performance from quarter to quarter.  During the sales cycle
and the implementation period, the Company may expend substantial time, effort
and money preparing contract proposals and negotiating contracts without
receiving any related revenue. In addition, many of the expenses related to
providing the Company’s services are relatively fixed in the short term,
including personnel costs, fixed overhead, and technology and infrastructure
costs. As a result, the Company may be unable to adjust spending quickly enough
to offset any unexpected revenue shortfall or delay, in which case the Company’s
results of operations would suffer. In addition, in an attempt to enhance the
Company’s long-term competitive position, the Company may from time to time make
decisions regarding pricing, marketing, services and technology that could have
a near-term adverse effect on the Company’s operating results.





The Company faces significant
competition for its products and services.





While the
Company’s products and services are relatively new, the greater healthcare
markets in which the Company operates are intensely competitive, continually
evolving and, in some cases, subject to rapid change. The Company expects the
intensity of competition and the pace of change to be increased or at least be
maintained in the future. Many of the Company’s potential competitors have
greater financial, technical, product development, marketing and other resources
than the Company. These organizations may be better known than the Company and
may have more customers or members than the Company. The Company cannot provide
assurance that the Company will be able to compete successfully against these
organizations or any alliances they have formed or may
form.  Therefore, there can be no assurance that our competitors will
not:





·
            increase
      their emphasis on products and services similar to those we
      offer;


·
            provide
      products and services comparable or superior to those we provide at lower
      consumer cost; and


·
            adapt
      more quickly than we do to evolving industry trends or changing market
      requirements;








The success of
our business depends upon the continued growth and acceptance of health discount
membership programs as a suitable alternative or supplement to traditional
health insurance.





Sales
growth will depend on the acceptance of membership programs as a suitable
alternative or supplement to traditional health insurance. Health discount
membership programs could lose their viability as an alternative to health
insurance due to changes in healthcare laws and regulations, an inadequate
number of healthcare providers participating in the programs, customer
dissatisfaction with the method of making payments and receiving discounts, and
new alternative healthcare solutions. If health discount membership programs do
not gain widespread market acceptance, the demand for our membership programs
could be significantly reduced, which could have a material adverse effect on
our business, financial condition and results of operations.





The
Company must replace the customers it loses in the ordinary course of business
and if we fail to do so our revenue may decline and our customer base will
decline.





We lose a
substantial number of our customers each year in the ordinary course of
business.  The loss of customers may occur due to numerous factors,
including:





·
            changing
      customer preferences;


·
            competitive
      price pressures;


·
            customer
      dissatisfaction;


·
            general
      economic conditions;


·
            discontinuance
      of third-party products and
services


11








The
Company depends on third-party vendors to supply certain of our products and
services that we market.  The failure of these vendors to provide
these products or services could result in customer dissatisfaction and harm our
business and financial condition.





The
Company depends on third-party vendors to supply certain products and services
that we market.  Many of our third-party vendors are independent
contractors.  As a result, the quality of service they provide is not
entirely within our control.  If any third-party vendor were to cease
operations, or terminate, breach or not renew its contract with us, or suffer
interruptions, delays or quality problems, we may not be able to substitute a
comparable third-party vendor on a timely basis or on terms favorable to
us.  With respect to our products that contain an insurance benefit,
we are dependent on the insurance carriers that underwrite the insurance to
obtain appropriate regulatory approvals.  If we are required to use an
alternative insurance carrier, it may materially increase the time required to
bring an insurance related product to market.  As we are generally
obligated to continue providing our products and services to our customers even
if we lose a third-party vendor, any disruption in our product offerings could
harm our reputation and result in customer dissatisfaction.  Replacing
existing third-party vendors with more expensive or less quality third-party
vendors could decrease our profitability and harm our reputation.





The Company must develop and maintain
relationships with insurance companies for the insurance benefits marketed in a
number of our products.





We
are not an insurance company.  The insurance benefits that we offer as
part of our programs are developed and offered by third-party insurance
companies.  The loss or termination of our strategic relationships
with insurance companies could adversely affect our revenues and operating
results and may also impair our ability to maintain and attract new insurance
brokers and agents to offer our programs to the public. Development and
maintenance of relationships with insurance companies may in part be based on
professional relationships and the reputation of our management and marketing
personnel.  Consequently, the relationships with insurance companies
may be adversely affected by events beyond our control, including departures of
key personnel and alterations in professional relationships.  Our
success and growth will depend in large part upon our ability to establish and
maintain these strategic relationships, contractual or otherwise, with various
insurance companies to market their products and services. In addition, the
insurance companies with whom we work could determine to stop selling the
insurance products or programs we offer.  This would negatively impact
our business.





The
Company’s profitability depends on customers continuing their relationship with
us.  Increased loss of customers could impair our revenue and
profitability.





During
the initial few months of a customer relationship for certain of the Company’s
products and services, the Company experiences negative cash flow as a result of
customer acquisition costs paid to various marketers of our products and
services which exceed the fee paid by the customer.  If we experience
a higher percentage of cancellations during the initial period as compared to
our pricing models, our revenue and profitability could be negatively
impacted.





The
Company significantly depends on one major credit card processor to obtain
payments.  If the Company’s credit card processing is interrupted in
any way it could result in delays in collecting payments and our ability to
generate sales.





In the
event our credit card processor ceases operations or terminates its agreement
with us, there can be no assurance a replacement credit card processor could be
retained on a timely basis, if at all.  Any service interruptions,
delays or quality problems could result in delays in collecting payments, which
could adversely affect our revenue and profitability.




The
Company is highly dependent on our existing benefits administration
technological system.  Any temporary or permanent loss of our system
could have a negative effect on our business, financial condition and results of
operations.





Our
business depends on our ability to protect our proprietary benefits
administration system against damage or system interruptions from natural
disasters, technical failures and other events beyond our
control.  Our technology may also be vulnerable to computer viruses,
hackers or other disruptions entering our system through external
portals.  Any damage to our technological systems could impede our
ability to market our programs and services and to provide customer service,
which could result in loss of customers and revenue.





The
Company significantly depends on postal and telephone services to market and
service our customers.  An interruption of, or an increase in the cost
of using such service could adversely affect our business.





An
interruption of, or an increase in the cost for postal and telephone services
could increase our expenses and reduce our profitability.  We market
and service our products and services by various means, including through mail
and via telephone.  We utilize a variety of parcel services and
various local and long distance telephone companies.  Any significant
interruption of such services, any limitations in their ability to provide us
with increased capacity, or any significant cost increase could impede our
ability to market our products and services, potentially resulting in a loss of
customers and a reduction of our revenue.


12





The
Company is exposed to the general condition of the healthcare
market.





The Company’s business
is subject to global economic conditions, and in particular, market conditions
in the healthcare industry.  If global economic conditions worsen, or
a prolonged slowdown in demand for our products or services occurs, then the
Company may experience adverse operating results.





Government
regulation of healthcare and insurance creates risks and challenges with respect
to the Company’s compliance efforts and business
strategies.





The
healthcare and insurance industries are highly regulated and subject to changing
political, legislative, regulatory and other influences. Existing and new
federal and state laws and regulations could create unexpected liabilities for
the Company and cause the Company to incur additional costs and restrict the
Company’s operations. Many laws are complex and their application to specific
products and services may not be clear. Management’s failure to accurately
anticipate the application of these laws and regulations, or other failures to
comply, could create liability, result in adverse publicity and negatively
affect our businesses.  Failure to comply with current, as well as
newly enacted or adopted, state regulations could have a material adverse effect
upon our business, financial condition and results of operations in addition to
the following:





·
            non-compliance
      may cause us to become the subject of a variety of enforcement or private
      actions;


·
            compliance
      with changes in applicable regulations could materially increase the
      associated operating costs;


·
            non-compliance
      with any rules and regulations enforced by a federal or state consumer
      protection authority may subject us or our management personnel to fines
      or various forms of civil or criminal prosecution;
  and


·
            non-compliance
      or alleged non-compliance may result in negative publicity potentially
      damaging our reputation and the relationships we have with our members,
      provider networks and consumers in
general.





The
Company must comply with Federal and State telephone consumer protection
laws.





Federal
and State telephone consumer protection laws prohibit deceptive, unfair or
abusive practices in telemarketing sales.  Any new legislation further
regulating telemarketing practices could adversely affect or limit our
operations.





The
Company faces potential liability related to the privacy and security of
personal information it collects from consumers through its website and
telemarketing operations.





Internet user privacy
has become a major issue both in the United States and abroad. The Company has
privacy policies posted on its website that the Company believes comply with
applicable laws requiring notice to users about the Company’s information
collection, use and disclosure practices. However, whether and how existing
privacy and consumer protection laws in various jurisdictions apply to the
Internet is still uncertain and may take years to resolve. Any legislation or
regulation in the area of privacy of personal information could affect the way
the Company operates its website and could harm its business. Further, the
Company cannot assure you that the privacy policies and other statements on its
website or its practices will be found sufficient to protect the Company from
liability or adverse publicity relating to the privacy and security of personal
information.  Any unauthorized release or failure to adequately
protect private information could cast a negative public perception of the
Company which in turn could adversely affect our ability to attract and retain
customers.





We face litigation risks from
currently pending claims as well as claims which may arise in the future which
could adversely affect our profitability and
reputation.





In
addition to claims arising in the ordinary course of business, several claims
have been filed against us and certain of our subsidiaries.  See Part
I, Item 3, “Legal Proceedings” for a more detailed description of these
proceedings. We are, and may in the future be, subject to other litigation or
government investigations.  These proceedings may be time-consuming,
expensive and disruptive to normal business operations, and the outcome of any
such proceeding is difficult to predict. The defense of such lawsuits or
investigations could result in significant expense and the diversion of our
management's time and attention from the operation of our business, which could
impede our ability to achieve our business objectives. Some, or all, of the
amount we may be required to pay to defend or to satisfy a judgment or
settlement of any or all of these proceedings may not be covered by
insurance.





Risks
Related to Our Stock





Acquisitions containing a peg price
as a portion of the consideration payable may require us to issue additional
shares in the future or may result in the unwinding of certain
acquisitions.


13








Shares of
Class A common stock typically comprise a significant portion of the
consideration payable in connection with our strategic
acquisitions.  In such cases, the value of the shares paid as
consideration is generally deemed equal to $5.00 per share (the Peg
Price).  In the event the trading price of the Company’s Class A
common stock does not meet the Peg Price as of a future date defined in the
applicable acquisition agreement (the Determination Date), the Company may be
required to issue a substantial number of additional shares of Class A common
stock to the parties from whom the business was acquired.  If the
trading price of Class A common stock is below a certain threshold, typically
$1.50, as of the Determination Date, the Company may elect to unwind the
acquisition rather than issuing additional shares.  In the event the
Company elects to unwind the acquisition, typically the Company is entitled to
receive back 80% of the shares of Class A common stock initially issued to the
parties from whom the business was acquired.  Although we may have the
right to unwind an acquisition transaction, it may be difficult or impossible
for us to do so, especially if the acquired business has to be integrated into
our operations.  In addition, any unwinding is likely to be costly and
disruptive to our business operations.  In the event the Company is
required to issue additional shares of Class A common stock, such additional
issuance will be dilutive to our stockholders.  The amount of dilution
could be substantial and will depend upon the trading price of the Company’s
Class A common stock on the applicable Determination Date.  In the
alternative, unwinding the transaction may result in the loss of a substantial
portion of our business and may slow our growth and have a material adverse
affect our operations.




We
do not intend to pay dividends on our capital
stock.





We have
never declared or paid any cash dividend on our capital stock. We currently
intend to retain any future earnings and do not expect to pay any dividends in
the foreseeable future, except as required by the terms of the preferred stock
we have issued.




The Company may raise additional
funds in the future through issuances of securities and such additional funding
may be dilutive to stockholders or impose operational
restrictions





We may
raise additional capital in the future to help fund acquisitions and our
operations through sales of shares of our common stock or securities convertible
into shares of our common stock, as well as issuances of debt.  Such
additional financing may be dilutive to our stockholders, and debt financing, if
available, may involve restrictive covenants which may limit our operating
flexibility.  If additional capital is raised through the issuances of
shares of our common stock or securities convertible into shares of our common
stock, the percentage ownership of existing stockholders will be
reduced.  These stockholders may experience additional dilution in net
book value per share and any additional equity securities may have rights,
preferences and privileges senior to those of the holders of our common
stock.




We
identified a material weakness in our internal control over financial reporting
during the initial assessment of our internal controls that we performed in
connection with the preparation of the financial statements included in this
report.





Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
require management to complete an annual assessment of our internal controls
over financial reporting.   During the preparation of our
financial statements, we identified control deficiencies that have been
classified as material weaknesses in our internal controls over financial
reporting.  A material weakness is a control deficiency that results
in a more than remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis
by employees in the normal course of their assigned functions.  Based
on the material weaknesses identified, management concluded that our internal
control over financial reporting was not effective as of December 31, 2008. The
identification of this material weakness may cause investors to lose confidence
in us and our stock may be negatively impacted.




The
standards that must be met for management to assess the internal control over
financial reporting are relatively new and complex, and require significant
documentation, testing and possible remediation to meet the detailed
standards.  We may encounter problems or delays in completing the
activities necessary to make future assessments of our internal control over
financial reporting and completing the implementation of any necessary
improvements.  Future assessments may require us to incur substantial
costs and may require a significant amount of time and attention of management,
which could seriously harm our business, financial condition and results of
operations.  If we are unable to assess our internal control over
financial reporting as effective in the future, investors may lose confidence in
us and our stock may be negatively impacted.




If
our independent registered public accounting firm is unable to provide an
unqualified attestation report on our assessment of our internal control over
financial reporting, investors may lose confidence in us and our stock may be
negatively impacted.





Rules
adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act of 2002
will require our independent registered public accounting firm to complete an
attestation report on our assessment of our internal control over financial
reporting.  The first attestation report of our assessment that our
independent registered public accounting firm must complete will be required in
connection with the preparation of our annual report for our fiscal year ending
December 31, 2009, unless extended by the SEC.  The attestation
process that must be performed by our independent registered public accounting
firm is also new and complex.  We may encounter problems or delays in
receiving an unqualified attestation of our assessment by our independent
registered public accountants.  Compliance with these new rules could
require us to incur substantial costs and may require a significant amount of
time and attention of management, which could seriously harm our business,
financial condition and results of operations.  If our independent
registered public accounting firm is unable to provide an unqualified
attestation report on our assessment, investors may lose confidence in us and
our stock may be negatively impacted.





14





We
are not subject to certain of the corporate governance provisions of the
Sarbanes-Oxley Act of 2002 and, without voluntary compliance with such
provisions, neither you nor the Company will receive the benefits and
protections they were enacted to provide.





Since our common stock
is not listed for trading on a national securities exchange, we are not subject
to certain of the corporate governance rules established by the national
securities exchanges pursuant to the Sarbanes-Oxley Act of
2002.  These rules relate to independent director standards, director
nomination procedures, audit and compensation committees standards, the presence
of an audit committee financial expert and the adoption of a code of
ethics.





While we
intend to file an application to have our securities listed for trading on a
national securities exchange in the future which would require us to fully
comply with those obligations, we cannot assure you that we will file such an
application, that we will be able to satisfy applicable listing standards, or,
if we do satisfy such standards, that we will be successful in receiving
approval of our application by the governing body of the applicable national
securities exchange.




Applicable
SEC rules governing the trading of “penny stocks” may limit the trading and
liquidity of our common stock which may affect the trading price of our common
stock.





Our
common stock is a “penny stock” as defined under Rule 3a51-1 of the Exchange Act
and is accordingly subject to SEC rules and regulations that impose limitations
upon the manner in which our common stock may be publicly
traded.  These regulations require the delivery, prior to any
transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the associated risks.  Under these regulations,
certain brokers who recommend such securities to persons other than established
customers or certain accredited investors must make a special written
suitability determination regarding such a purchaser and receive such
purchaser’s written agreement to a transaction prior to sale.  These
regulations may have the effect of limiting the trading activity of our common
stock and reducing the liquidity of an investment in our common
stock.




Our
common share price may subject us to securities
litigation.





The
market for our common stock is characterized by significant price volatility
when compared to seasoned issuers, and we expect that our share price will
continue to be more volatile than a seasoned issuer for the indefinite future.
In addition, since September 2008, our trading price has dropped approximately
67%.  In the past, plaintiffs have often initiated securities class
action litigation against a company following periods of volatility in the
market price of its securities. We may, in the future, be the target of similar
litigation. Securities litigation could result in substantial costs and
liabilities and could divert management's attention and resources.




Our
stock price may be volatile, which may result in losses to our
stockholders.





The stock
markets have experienced significant price and trading volume fluctuations, and
the market prices of companies listed on the OTC Bulletin Board® (OTCBB) have
been volatile in the past and have experienced sharp share price and trading
volume changes. The trading price of our common stock is likely to be volatile
and could fluctuate widely in response to many of the following factors, some of
which are beyond our control:





·
            variations
      in our operating results;


·
            changes
      in expectations of our future financial performance, including financial
      estimates by securities analysts and
investors;


·
            changes
      in operating and stock price performance of other companies in our
      industry;


·
            additions
      or departures of key personnel; and


·
            future
      sales of our common stock.





Domestic
and international stock markets often experience significant price and volume
fluctuations. These fluctuations, as well as general economic and political
conditions unrelated to our performance, may adversely affect the price of our
common stock.





ITEM1B. UNRESOLVED STAFF COMMENTS





None.





ITEM2. PROPERTIES





During
the year, the Company moved their executive offices from Tampa, Florida to
Maitland, Florida, and the Tampa office was closed.  Amacore’s
executive and sales offices are now located at Maitland Promenade One, 485 North
Keller Road, Suite 450, Maitland, FL 32751.  The office phone number
is (407) 805-8900.  Management entered into a new lease agreement
starting on March 1, 2009 and expiring on February 29,
2016.   The office consists of approximately 5
thousand square feet.





15





JRM’s
sales and administrative office are located 901 Route 168, Turnersville, NJ
08012, Suite 104. This lease expires on March 31, 2010, and the office phone
number is (813) 289-5553.





LifeGuard’s
management offices, customer service center and fulfillment center are located
at 4929 W. Royal Ln., Irving, Texas 76063.  The office telephone number is
(972) 915-4800.  These facilities are leased and consist of approximately
30.0 thousand square feet.  The lease expires on September 30,
2011.





Zurvita’s
management offices are located at 800 Gessner, Houston, TX 77024.  These
facilities are leased and consist of approximately 4 thousand square feet. 
The lease expires on July 31, 2009.





USHBG’s
management offices are located at 555 South Andrews Avenue, Pompano Beach, FL
33069.   These facilities are leased and consist of approximately 4.5
thousand square feet.  The lease expires on March 15, 2009.





ITEM3. LEGAL PROCEEDINGS





In
addition to the legal proceedings described below, as of December 31, 2008, we
were involved in various lawsuits, claims or disputes arising in the normal
course of business.  The outcome of such claims cannot be determined at
this time.  Management does not believe that the ultimate outcome of these
matters will have a material impact on the Company’s operations or cash flows,
but cannot be certain.




Mark Jarvis and Zurvita, Inc. v.
AmeriPlan Corp. v. Alan Masters v. The Amacore Group, Inc., Patty Duke, Rusty
Duke, Gail Weitl and Rick Weitl; In the 192nd Judicial District Court of
Dallas County, Texas; Cause No. DC-08-0ll0l-K. Zurvita initiated this action on
January 30, 2008 in an attempt to clarify its rights to engage in business with
Mark Jarvis and various other individual.  Mr. Jarvis was a former
employee of AmeriPlan who left to work at Zurvita, along with certain others
that were formerly associated with AmeriPlan.  AmeriPlan responded to
the action by asserting counterclaims against Zurvita, Mr. Jarvis and others
that were formerly associated with AmeriPlan for breach of contract, breach of
fiduciary duties and duties of loyalty, tortuous interference with business and
contractual relations, misappropriation of confidential information, conversion,
unfair competition, and conspiracy. In response to the counterclaims, the
Company, on behalf of itself, Zurvita, and its employees, asserted numerous
affirmative defenses to the claims. Discovery in this matter is ongoing. The
Company is vigorously defending itself against these allegations. This matter is
set for trial in January, 2010.





The Amacore Group, Inc. vs. Clark A.
Marcus, Jerry Katzman, MD, and Giuseppe Crisafi in the Circuit Court of
the Thirteenth Judicial Circuit in and for Hillsborough County, Florida Circuit
Civil, Case No. 0904006. 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 Amacore and Mr. Marcus, Dr. Katzman and
Mr. Crisafi.  These legal matters arise from allegations of breach of
contract by the consultants.  In response, on February 25, 2009, the
Company received notice that Mr. Marcus, Mr. Jerry Katzman, MD, and Mr. Giuseppe
Crisafi filed an emergency motion for temporary injunction, Giuseppe Crisafi, Dr. Jerry Katzman,
and Clark Marcus vs. The Amacore Group, Inc., Case No.
094463.  The injunction was denied.  The Declaratory
Judgment action is pending and has not been ruled upon.  While the
Company can not accurately predict this litigation, the Company believes that an
adverse determination would not have a material adverse impact on the Company or
its operations.




ITEM4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIY
HOLDERS





None.





16








PARTII




ITEM5. MARKET FOR
THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES.





Market
Information





Our Class
A common stock is quoted principally on the OTCBB under the symbol
"ACGI."  There is no established public trading market for our Class B
common stock.  The Class B common stock is convertible on a
share-for-share basis into Class A common stock at the option of the
holder.  Set forth below are the high and low bid prices for our Class
A common stock on the OTCBB for each quarter of the years ending December 31,
2008 and 2007. These quotations reflect inter-dealer prices, without retail
mark-up, mark-down or commission, and may not represent actual
transactions.





2008
                          High
                          LowMarch
      31, 2008
                          0.60
                          0.36June
      30, 2008
                          0.47
                          0.30September
      30, 2008
                          0.39
                          0.15December
      31, 2008
                          0.22
                          0.052007March
      31, 2007
                          0.31
                          0.03June
      30, 2007
                          0.38
                          0.21September
      30, 2007
                          0.45
                          0.20December
      31, 2007
                          0.75
                          0.31








Holders





As of
March 4, 2009, 1,028,764,296  shares of our Class A common stock are issued
and outstanding and there were one thousand one hundred sixty-one (1,161) known
stockholders of record. There was one stockholder of record holding 200,000
shares of Class B common stock.





Dividends





The
payment of dividends is within the discretion of our Board of Directors and
depends in part upon our earnings, capital requirements and financial
condition. We have never paid any cash dividends on our common stock and we
do not anticipate paying such dividends in the foreseeable future. We currently
intend to retain earnings, if any, to finance our growth.





Shares
Authorized for Issuance Under Equity Compensation Plans





In May
1997, our Board of Directors adopted, and our stockholders approved, the 1997
Stock Option Plan (the Plan). The Plan may be administered by the Board of
Directors or a committee of the Board. 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 stock of the Company or any 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 common stock at the time of grant.
Generally, options shall be exercisable at 20%, per year, and shall be
outstanding for ten years. As of December 31, 2008 no options have been granted
under the Plan.





At
December 31, 2008, warrants to acquire an aggregate of approximately 231.5
million shares of Class A common stock at exercise prices ranging from $0.01 to
$1.25 were outstanding.  Warrants to acquire an aggregate of
approximately 7.9 million shares of Class B common stock at exercise prices
ranging from $0.16 to $0.50 are also outstanding.  The warrants were
issued outside of the Plan pursuant to either individual compensation
arrangements with members of our board of directors, officers, employees and
consultants, or issued in connection with debt or equity financing
transactions.  All warrants are exercisable immediately upon date of
grant.


17





The
following is a summary of our stock option plans and outstanding warrants issued
pursuant to compensatory equity arrangements as of December 31,
2008:





Equity
Compensation Plan Information





Plan
      Category
                            Number
      of securities to be
                              issued
      upon exercise of
                              outstanding
      options,
                              warrants
      and rights (a)
                            Weighted-average
      exercise
                              price
      of outstanding options,
                              warrants
      and rights (b)
                            Number
      of securities
                              remaining
      available for
                              future
      issuance under equity
                              compensation
      plans
                              (excluding
      securities
                              reflected
      in column (a))Equity
      compensation plans approved by security holders
                            0
                            0
                            750,000Equity
      compensation plans not approved by security holders
                            239,460,217
                            $0.38
                            n/aTotal
                            239,460,217
                            0
                            750,000











ITEM6. SELECTED
FINANCIAL DATA





Not
applicable.





ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





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 audited 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 years
      ended December 31, 2008 to 2007.  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 years ended December 31,
      2008 and 2007 as well as a discussion of our liquidity and capital
      resources.





·
            Critical accounting
      policies–
      This section discusses certain significant accounting policies considered
      to be important to our financial condition and results of operations and
      which require significant judgment and estimates on the part of management
      in their application.  In addition, all of our significant
      accounting policies, including our critical accounting policies, are
      summarized in Note 2 to our audited consolidated financial statements
      included within Item 8 of Part II of this 2008 Annual Report Form
      10K.





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.





18





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





·
            LifeGuard Benefit Services
      Division – This is the Company’s division responsible for product
      fulfillment, customer support, membership billing, claims administration,
      provider membership network maintenance and information technology. The
      Company operates this division through
  LifeGuard.





·
            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 isa multi-level
      marketingdivisionthat
      sells healthcare, financial services, and consumer products to individuals
      and families.  The Company operates this division through
      Zurvita.





·
            JRMBenefits
      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.





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 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.







19





Consolidated
Results of Operations




For
      the Years Ended December 31,Increase2008
                                
                                
                                2007
                                
                                
                                (Decrease)Revenues
                                
                                $
                                29,461,822
                                
                                
                                $
                                4,320,862
                                
                                
                                $
                                25,140,960Cost
      of Sales
                                
                                
                                20,806,246
                                
                                
                                
                                2,225,947
                                
                                
                                
                                18,580,299Gross
      Profit
                                
                                
                                8,655,576
                                
                                
                                
                                2,094,915
                                
                                
                                
                                6,560,661Operating
      Expenses
                                
                                
                                46,511,037
                                
                                
                                
                                23,278,059
                                
                                
                                
                                23,232,978Operating
      Loss
                                
                                
                                (37,855,461
                                )
                                
                                
                                (21,183,144
                                )
                                
                                
                                (16,672,317
                                )Other
      Income (Expense)
                                
                                
                                3,927,100
                                
                                
                                
                                (47,042
                                )
                                
                                
                                3,974,142Net
      Loss
                                
                                
                                (33,928,361
                                )
                                
                                
                                (21,230,186
                                )
                                
                                
                                (12,698,175
                                )Preferred
      Stock Dividend and Accretion
                                
                                
                                (8,054,985
                                )
                                
                                
                                (1,046,134
                                )
                                
                                
                                (7,008,851
                                )Net
      Loss Available to Common Stockholders
                                
                                $
                                (41,983,346
                                )
                                
                                $
                                (22,276,320
                                )
                                
                                $
                                (19,707,026
                                )Basic
      and Diluted Loss Per Share
                                
                                $
                                (0.28
                                )
                                
                                $
                                (0.19
                                )






Revenue:





For the
year ended December 31, 2008, revenue was $29.5 million, as compared to $4.3
million for the year ended December 31, 2007,an increase of $25.1
million.  New product offerings, growth in the Company’s membership
base as well as the acquisitions of LifeGuard, JRM and USHBG, which occurred in
September 2007, October 2007 and April 2008, respectively, contributed to the
significant increase in revenue earned for the year ended December 31,
2008.





Cost
of Sales:





For the
year ended December 31, 2008, cost of sales was $20.8 million as compared to
$2.2 million for the year ended December 31, 2007, an increase of $18.6
million.  Cost of sales was 71% of revenues in fiscal 2008 compared to
52% in fiscal 2007.Sales commissions
accounted for approximately $15.7 million or 75% of cost of sales in fiscal 2008
compared to $2.0 million or 94% for fiscal 2007.  Medical benefit costs
accounted for $5.1 million or 25% of cost of sales as compared to $139.8
thousand or 6% for the year ended December 31, 2007.  The overall
dollar increase in cost of sales is directly attributable to the increase in
revenue.  The increase in cost of sales as a percentage of revenue is
due to an increase in sales of products containing a medical benefit cost which
generally have a higher percentage of cost of sales than other
products.





Gross
Profit Percentage:





For the
year ended December 31, 2008, gross profit was $8.7 million or 29% of revenue as
compared to $2.1 million or 48% for the year ended December 31, 2007, an
increase of $6.6 million.  The decrease in gross profit percentage is
attributable to an increase in commission-based sales incentives and increased
sales volume of products with a medical benefit cost component.


20











Operating
Expenses:





Our
operating expenses for the years ended December 31, 2008 and 2007 were $46.5
million and $23.3 million, respectively.





The table
below sets forth components of our operating expenses for the years ended
December 31, 2008 and 2007:





Increase2008
                                      
                                      
                                      2007
                                      
                                      
                                      (Decrease)Depreciation
                                      
                                      $
                                      335,346
                                      
                                      
                                      $
                                      47,607
                                      
                                      
                                      $
                                      287,739Amortization
                                      
                                      
                                      3,057,904
                                      
                                      
                                      
                                      41,164
                                      
                                      
                                      
                                      3,016,740Office
      related expenses
                                      
                                      
                                      2,198,772
                                      
                                      
                                      
                                      517,559
                                      
                                      
                                      
                                      1,681,213Professional
      fees
                                      
                                      
                                      5,052,320
                                      
                                      
                                      
                                      7,171,391
                                      
                                      
                                      
                                      (2,119,071
                                      )Payroll
      and benefits
                                      
                                      
                                      8,771,271
                                      
                                      
                                      
                                      13,717,641
                                      
                                      
                                      
                                      (4,946,370
                                      )Travel
                                      
                                      
                                      1,324,059
                                      
                                      
                                      
                                      527,179
                                      
                                      
                                      
                                      796,880Selling
      and marketing
                                      
                                      
                                      10,462,421
                                      
                                      
                                      
                                      1,255,518
                                      
                                      
                                      
                                      9,206,903Impairment
      loss on goodwill andother
      intangible assets
                                      
                                      
                                      15,308,944
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      15,308,944Total
      operating expenses
                                      
                                      $
                                      46,511,037
                                      
                                      
                                      $
                                      23,278,059
                                      
                                      
                                      $
                                      23,232,978








Depreciation
and amortization expense  for the years ended December 31, 2008
and 2007, was approximately $3.4 million and approximately $88.8 thousand,
respectively, an increase of approximately $3.3 million over the same prior year
period due to the inclusion of amortization of the fair value of intangible
assets with finite lives purchased in the JRM, LifeGuard and USHBG
acquisitions.  These costs represented 12% of revenue for the year
ended December 31, 2008 as compared to 2% for the same period in
2007.





Office
related expenses include rent, insurance, utilities and office
maintenance. For the year ended December 31, 2008, these expenses were
approximately $544.7 thousand, $89.3 thousand, $606.1 thousand and $958.8
thousand, respectively as compared to approximately $157.5 thousand, $64.1
thousand, $159.2 thousand and $136.7 thousand, respectively for the same period
in 2007.   The overall dollar increase of approximately $1.7
million is a result of rent and significant telephone expenses associated with
subsidiaries that were acquired subsequent to September 30, 2007.  These
subsidiaries include call center operations for selling products and/or handling
customer service.  These expenses represented 7% of revenue for the
year ended December 31, 2008 as compared to 12% for the same period in
2007.  This decrease is due to the Company realizing significant
revenue from third-party telemarketing companies who are on a commission-based
contract.  This had the impact of lowering the Company’s telemarketing
expenses as a percentage of total revenue.





Professional
fees consist of consulting, accounting fees, contract labor and legal costs and
litigation accruals. For the year ended December 31, 2008, these costs were
approximately $3.5 million, $953.3 thousand, $518.6 thousand and $60.3 thousand,
respectively as compared to approximately $3.2 million, $884.9 thousand, $73.9
thousand and $3.0 million, respectively for the same period in
2007.  These costs represented 17% of revenue for the year ended
December 31, 2008.  The overall decrease of approximately $2.1 million
is attributable to the settlement of litigation contingencies for less than
originally estimated related to Lifeguard and Corporate divisions of
approximately $700.0 thousand and $2.7 million, respectively.  As of
June 30, 2008, the Company reversed its LifeGuard division’s legal accrual due
to changes in the Company’s outlook on certain pending litigation, and the
Corporate division’s legal accrual was reversed due to a favorable settlement
that was reached.  Excluding the effects of the litigation contingency
reversals, professional fees increased for the year ended December 31, 2008
approximately $1.3 million over the prior year as a result of legal fees
incurred for defending the Company in various litigation matters, audit fees
incurred for the recent acquisition of USHBG and accounting fees incurred in
connection with the restatement of the Company’s quarterly financial statement
for the quarters ended March 31, 2008 and June 30, 2008.





Payroll
and benefits-related expenses for the year ended December 31, 2008 were
approximately $8.8 million, a decrease of approximately $4.9 million or 36% over
the same period in the prior year. These costs represented 30% of revenue
for the year ended December 31, 2008 as compared to 317% for the same period in
2007.   The decline in total payroll and benefits related
expenses is due to lower share-based payments made to executives and employees
during the year ended December 31, 2008 as compared to prior year.





Travel
expenses for the year ended December 31, 2008 were approximately $1.3 million,
an increase of approximately $796.9 thousand over the same period in the
prior year.  The overall dollar increase is mainly due to the growth of the
Company through the recent acquisitions resulting in additional travel required
in negotiating contracts for the Company’s new programs, promoting additional
sales.  These costs represented 4% of revenue for the year ended
December 31, 2008 as compared to 12% for the same period in
2007.  This percentage decrease is a direct result of the Company’s
significant growth in revenue.


21





Selling
and marketing expenses for the year ended December 31, 2008 were approximately
$10.5 million, an increase of approximately $9.2 million over the same prior
year period.  These costs represented 36% of revenue for the year ended
December 31, 2008 as compared to 29% for the same period in 2007.  The
acquired operations of JRM, LifeGuard and USHBG have contributed to the increase
in selling and marketing expense as well as the inclusion of the Zurvita
division which was formed in fiscal 2008.  In addition, significant
lead costs as well as other sales incentives of $6.1 million were incurred
with direct marketers of the Company’s products and did not result in
billable sales.  Commissions paid to direct response marketers that
result in billable sales are capitalized and then amortized to cost of sales
over the expected membership life while commissions paid on leads that do not
result in billable sales are expensed in the period in which paid as there is no
probable future economic benefit associated with these costs.





Based on
the Company’s impairment tests and consideration of the current and expected
future market conditions, we determined that goodwill and certain intangible
assets related to the JRM, LifeGuard and USHBG reporting units were impaired in
accordance with Statement of Financial Accounting Standards (SFAS) 142, Goodwill
and Other Intangible Assets and the Company recorded non-cash, pre-tax total
impairment charges of approximately $305.4 thousand, $9.1 million and $5.9
million, respectively. These expenses represented 52% of revenue for the year
ended December 31, 2008.  The analysis was conducted by independent
expert valuation specialists. The decline in estimated fair values resulted from
an analysis of the current economic conditions, the Company’s performance to
budget and the lower estimated future cash flows.  This loss is a non
cash transaction.





Other
Income (Expense)





Interest
expense:





Interest
expense for the year ended December 31, 2008 was approximately $746.0 thousand
or 3% of revenue for the year ended December 31, 2008 as compared to $154.2
thousand or 4% of revenue for the same period in 2007, an increase of
approximately $591.8 thousand.  During 2008, the Company issued
certain promissory notes with detachable warrants.  After apportioning
the proceeds to each financial instrument based on their relative fair values, a
note payable discount of approximately $504.0 thousand resulted.  The
notes were not outstanding as of December 31, 2008.  The discount was
amortized to interest expense through the date of payment, and the remaining
unamortized discount balance was written off to interest expense.





Loss
on conversion of note payable:





Negotiated
terms of a formerly delinquent note payable resulted in a loss on conversion
of approximately $242.7 thousand recognized for the year ended December 31,
2008.  There was no such conversion gain or loss for the year ended
December 31, 2007.





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 consolidated statements of operations
either  as a result of being non-compensatory or containing
non-standard anti-dilutive provisions that cause variable share
settlement.  For the year ended December 31, 2008, the gain on change
in fair value of warrants was approximately $4.0 million, while no such gain or
loss was incurred during the year ended December 31, 2007.  The gain
is a non cash item not affecting operating cash flows.





Net
loss:





The
Company’s net loss amounted to approximately $33.9 million for the year ended
December 31, 2008 as compared to approximately $21.2 million for the same prior
year period.  Significant increases in depreciation and amortization,
impairment charges, and selling and marketing expenses contributed to the
increased net loss recognized for the year ended December 31, 2008.





Preferred
stock dividends and accretions:





Preferred
stock dividends and accretion amounted to approximately $8.1 million for the
year ended December 31, 2008 compared to approximately $1.0 million for the same
period in 2007 an increase of $7.1 million.  Certain issuances of the
Company’s Series D and Series E preferred stock contained beneficial conversion
features in the amount of approximately $7.4 million and, accordingly, were
accounted for separately and accreted as a dividend to preferred stock holders
through the date of mandatory conversion.  On December 31, 2008, the
Company and Vicis’ entered into a transaction that effectively converted Vicis’
Series D and Series E into class A common stock.  Accordingly, the
remaining value associated with the beneficial conversion feature was written
off as a dividend to preferred stockholders.


22


Loss
per common share:





Loss per
common share amounted to $0.28 and $0.19 for the years ended December 31, 2008
and 2007, respectively.





Segment
Analysis





For
      the Year Ended December 31, 2008LifeGuard
                                                                      
                                                                      
                                                                      USHBG
                                                                      
                                                                      
                                                                      Zurvita
                                                                      
                                                                      
                                                                      JRM
                                                                      
                                                                      
                                                                      Corporate
      and Other
                                                                      
                                                                      TotalRevenues
                                                                      
                                                                      $
                                                                      24,537,797
                                                                      
                                                                      
                                                                      $
                                                                      4,240,932
                                                                      
                                                                      
                                                                      $
                                                                      2,371,142
                                                                      
                                                                      
                                                                      $
                                                                      291,697
                                                                      
                                                                      
                                                                      $
                                                                      1,054,542
                                                                      
                                                                      
                                                                      $
                                                                      32,496,110Cost
      of Sales
                                                                      
                                                                      
                                                                      (18,967,251
                                                                      )
                                                                      
                                                                      
                                                                      (1,338,818
                                                                      )
                                                                      
                                                                      
                                                                      (2,947,171
                                                                      )
                                                                      
                                                                      
                                                                      (140
                                                                      )
                                                                      
                                                                      
                                                                      (587,154
                                                                      )
                                                                      
                                                                      
                                                                      (23,840,534
                                                                      )Gross
      Profit
                                                                      
                                                                      
                                                                      5,570,546
                                                                      
                                                                      
                                                                      
                                                                      2,902,114
                                                                      
                                                                      
                                                                      
                                                                      (576,029
                                                                      )
                                                                      
                                                                      
                                                                      291,557
                                                                      
                                                                      
                                                                      
                                                                      467,388
                                                                      
                                                                      
                                                                      
                                                                      8,655,576Operating
      Expenses
                                                                      
                                                                      
                                                                      (22,705,698
                                                                      )
                                                                      
                                                                      
                                                                      (9,218,102
                                                                      )
                                                                      
                                                                      
                                                                      (5,401,197
                                                                      )
                                                                      
                                                                      
                                                                      (1,024,774
                                                                      )
                                                                      
                                                                      
                                                                      (8,161,266
                                                                      )
                                                                      
                                                                      
                                                                      (46,511,037
                                                                      )Other
      Income
                                                                      
                                                                      
                                                                      (8,906
                                                                      )
                                                                      
                                                                      
                                                                      (374,834
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (28,711
                                                                      )
                                                                      
                                                                      
                                                                      4,339,551
                                                                      
                                                                      
                                                                      
                                                                      3,927,100Net
      Loss
                                                                      
                                                                      $
                                                                      (17,144,058
                                                                      )
                                                                      
                                                                      $
                                                                      (6,690,822
                                                                      )
                                                                      
                                                                      $
                                                                      (5,977,226
                                                                      )
                                                                      
                                                                      $
                                                                      (761,928
                                                                      )
                                                                      
                                                                      $
                                                                      (3,354,327
                                                                      )
                                                                      
                                                                      $
                                                                      (33,928,361
                                                                      )For
      the Year Ended December 31, 2007LifeGuard
                                                                      
                                                                      
                                                                      USHBG
                                                                      
                                                                      
                                                                      Zurvita
                                                                      
                                                                      
                                                                      JRM
                                                                      
                                                                      
                                                                      Corporate
      and Other
                                                                      
                                                                      TotalRevenues
                                                                      
                                                                      $
                                                                      3,191,256
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      73,628
                                                                      
                                                                      
                                                                      $
                                                                      1,055,978
                                                                      
                                                                      
                                                                      $
                                                                      4,320,862Cost
      of Sales
                                                                      
                                                                      
                                                                      (1,470,327
                                                                      )
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      (4,030
                                                                      )
                                                                      
                                                                      
                                                                      (751,590
                                                                      )
                                                                      
                                                                      
                                                                      (2,225,947
                                                                      )Gross
      Profit
                                                                      
                                                                      
                                                                      1,720,929
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      69,598
                                                                      
                                                                      
                                                                      
                                                                      304,388
                                                                      
                                                                      
                                                                      
                                                                      2,094,915Operating
      Expenses
                                                                      
                                                                      
                                                                      (2,083,275
                                                                      )
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (186,373
                                                                      )
                                                                      
                                                                      
                                                                      (21,008,411
                                                                      )
                                                                      
                                                                      
                                                                      (23,278,059
                                                                      )Other
      Income
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      -
                                                                      
                                                                      
                                                                      
                                                                      (12,133
                                                                      )
                                                                      
                                                                      
                                                                      (34,909
                                                                      )
                                                                      
                                                                      
                                                                      (47,042
                                                                      )Net
      Loss
                                                                      
                                                                      $
                                                                      (362,346
                                                                      )
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      -
                                                                      
                                                                      
                                                                      $
                                                                      (128,908
                                                                      )
                                                                      
                                                                      $
                                                                      (20,738,932
                                                                      )
                                                                      
                                                                      $
                                                                      (21,230,186
                                                                      )




Lifeguard
Division





LifeGuard
was acquired on October 9, 2007 and, accordingly, its results of operations have
been included from the date of acquisition.  Significant increases in
revenues, cost of sales, gross profit, operating expenses and net loss in the
amounts of approximately $21.3 million, $17.5 million, $3.8 million, $20.6
million and $16.8 million, respectively, were in part a result of comparing
twelve months of operating results versus four months, the commencement of a
major direct response marketing campaign that launched in January 2008, and an
impairment charge taken on the division’s goodwill and intangible
assets.  With respect to the marketing campaign that launched in
January 2008, approximately $4.9 million of lead cost was incurred that did not
generate a billable sale and, accordingly, was written off as a selling and
marking expense.  As of December 31, 2008, the Company had cancelled
the contract with the direct response marketer.  Subsequent marketing
contracts have been executed which include trial periods and commission payment
structure only on leads that produce a billable sale to improve the division’s
profitability.  The impairment charge of approximately $9.1 million
was due to the Company’s performance to budget and general economic
conditions.





Significant
noncash operating expenses include amortization expense of
approximately $2.3 million, depreciation of approximately $222.1 thousand,
and an impairment charge of approximately $9.1 million which in the
aggregate represent approximately 51% of total operating
expenses.  Excluding these expenses, the division’s net loss was
approximately $5.5 million.





USHBG
Division





USHBG was
acquired on April 1, 2008 and, accordingly, its results of operations have been
included from the date of acquisition.  For the year ended December
31, 2008, USHBG achieved revenues and gross profit of approximately $4.2 million
and $2.9 million, respectively, which represented approximately 13% and 34%,
respectively, of total consolidated results.  Significant operating
expenses and net loss were recognized in the amounts of approximately $9.2
million and $6.7 million, respectively.  Excluding the effects of the
division’s approximate $5.9 million impairment charge recognized on its goodwill
and other intangible assets, operating expenses and net loss were approximately
$3.3 million and $772.1 thousand, respectively.  The impairment loss
was due to lower expected future cash flows as a result of current economic
conditions and the division’s historical performance to budget.


23





Zurvita
Division





Zurvita
was created in January 2008.  For the year ended December 31, 2008,
Zurvita achieved total revenue of approximately $2.4 million which primarily
consisted of membership product sales to individual consumers and marketing fees
paid by independent Zurvita marketing representatives of approximately $1.1
million and $1.3 million, respectively.  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 year ended December 31,
2008 were approximately $2.5 million and $482.0 thousand,
respectively.  In the aggregate these costs represented approximately
124% of the segment’s revenues.  In an effort to retain marketing
representatives with Zurvita while this division was being structured and grown,
various sales incentives were employed which resulted in higher commissions paid
in proportion to revenue recognized than would be expected had Zurvita’s product
and marketing representative base been well-established at the beginning of the
year.




Zurvita’s
net loss of approximately $6.0 million represented approximately 18% of the
Company’s consolidated net loss.  Significant operating costs incurred
during the year such as professional fees and payroll of approximately $2.3
million and $778.7 thousand, respectively, contributed to the division’s net
loss. Legal expense represented approximately $2.0 million 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 this 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 $1.2
million.





JRM
Division





JRM was
acquired on September 1, 2007 and, accordingly, its results of operations have
been included from the date of acquisition.  Significant increases in
revenues, gross profit, operating expenses, other expense and net loss in the
amounts of approximately $218.1 thousand, $222.0 thousand, $838.4 thousand,
$16.6 thousand, and $633.0 thousand, respectively, were partially a result of
comparing twelve months of operating results versus four
months.  Another factor that led to the increase in operating expenses
and net loss was that during the third quarter of 2008, the division recognized
an impairment loss on its goodwill and other intangible assets in the amount of
approximately $305.4 thousand.  The impairment loss was due to the
decline in demand for the division’s mortgage protection product which was the
division’s main product during 2008.  The decline in demand was
directly attributable to the national economic downturn in the mortgage and real
estate markets.  In the fourth quarter, the division shifted resources
to market other insurance related products such as health, critical illness
life, and dental insurance.  These products will be sold in the
voluntary employee benefits market, through small employer groups and through
agent and broker networks.





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 loss were approximately $8.2 million and $3.4 million,
respectively, for the year ended December 31, 2008 and represent 18% and 10%,
respectively, of total consolidated results.  Significant operating
expenses include professional fees, payroll and business travel in the amounts
of approximately $2.1 million, $3.8 million, and $816.4 million,
respectively.  Defending the Company in various legal proceedings,
auditing of the Company and its USHBG division’s 2006 and 2007 annual financial
statements, routine reviews of the Company’s quarterly financial statements and
the restatement of the Company’s quarterly financial statements for the periods
ended March 31, 2008 and June 30, 2008 contributed to the significant
professional fees incurred.   In comparison to prior year,
operating expenses and net loss decreased by approximately $12.8 million and
$17.4 million, respectively, as a result of less share-based payments made for
consulting and employment purposes and the settlement of a $2.7 million
litigation accrual.  Net gain of approximately $4.0 million on the
change in the fair value of warrants also contributed to the decrease in net
loss from the prior year.





Off
Balance Sheet Arrangements





As of
December 31, 2008 and 2007, the Company did not have any off balance sheet
arrangements.


24





Liquidity
and Capital Resources





The
following table compares our cash flows for the fiscal years ended December 31,
2008 and 2007.





2008
                      
                      
                      2007Net
      cash used in operating activities
                      
                      $
                      (22,169,665
                      )
                      
                      $
                      (5,542,322
                      )Net
      cash used in investing activities
                      
                      
                      (1,451,732
                      )
                      
                      
                      (494,187
                      )Net
      cash provided by financing activities
                      
                      
                      21,698,792
                      
                      
                      
                      8,062,505Net
      increase (decrease) in cash
                      
                      $
                      (1,922,605
                      )
                      
                      $
                      2,025,996








Since its
inception, the Company has met its capital needs principally through sales of
its equity and debt securities, including sales of common stock in connection
with the exercise of outstanding warrants and preferred stock. 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 given in our recent acquisitions consisted of
the Company’s Class A common stock, cash consideration was also
paid.





The
Company believes that cash resources, together with increasing revenue and
assuming the continued support of its majority stockholder, will be sufficient
to sustain current planned operations for the next 12 months. The Company raised
$8 million from its majority stockholder in two tranches completed in January
2009 and March 2009.  Although management believes that the Company’s
current cash position and anticipated revenue in 2009 will be sufficient to meet
its current levels of operations, additional cash resources may be required
should the Company not meet its sales targets, exceed its projected operating
costs, wish to accelerate sales or complete one or more acquisitions or if
unanticipated expenses arise or are incurred.





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





Critical
Accounting Policies





Revenue
Recognition





Membership
Fees





The
Company recognizes revenues from membership fees for the sales of health-related
discount benefit plans as earned. These arrangements are generally renewable
monthly and revenue is recognized over the renewal period. As these products
often include elements sold through contracts with third-party providers the
Company considers each contractual arrangement in accordance with EITF 99-19,
Reporting Revenue Gross as a Principal versus Net as
an Agent(EITF 99-19). The Company’s current contracts meet the
requirements of EITF 99-19 for reporting revenue on a gross basis. The Company
records a reduction in revenue for estimated refunds, chargebacks from credit
card companies, and allowances based upon actual history and management’s
evaluation of current facts and circumstances. In January 2008, the Company
entered into an arrangement with a third party to expand distribution of the
Company’s products. The terms of this arrangement led to a significant increase
in refunds and chargebacks. Refunds and chargebacks totaled approximately $8.1
million and $830.6 thousand for the year ended December 31, 2008 and 2007,
respectively.  An estimate for refunds and chargebacks of
approximately $390.5 thousand and $19.4 thousand for the year ended December 31,
2008 and 2007, respectively, and was recorded as a reduction of revenue in the
accompanying statements of operations and is included in accrued expenses and
other liabilities in the accompanying balance sheet.





Commissions




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


25


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. Revenue from
marketing fees is recognized over an annual period.  The Company also
earns ancillary revenue from the sale of marketing materials. Sales of marketing
materials are recognized when marketing materials are provided to the
representatives.





Use of
Estimates




The
preparation of the Company’s consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
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 judgment include 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 of the uncertainty inherent in
such estimates, actual results may differ from those estimates.





Impairment
ofGoodwill
and Intangibles




Management
assesses goodwill related to reporting units for impairment annually as of
October 1 or more frequently if an event occurs or circumstances indicate that
the asset might be impaired and determines if a reduction of the carrying amount
of goodwill is required.  An impairment charge is recorded if the implied
fair value of goodwill of a reporting unit is less than the book value of
goodwill for that unit (see Note 9).





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 market value of each respective reporting
unit to the carrying value of that reporting unit’s net assets. If the estimated
market values exceed 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.





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.




Convertible
Instruments





The
Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, 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 (See Derivative Financial Instruments below). 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 instrument. The resulting discount to the face value of debt instrument
is amortized through periodic charges to interest expense using the Effective
Interest Method. The resulting discount to the redemption value of convertible
preferred securities is accreted through periodic charges to dividends over the
term of the instrument using the Effective Interest Rate Method. No
convertible debt instruments were issued during the years ended December 31,
2008 and 2007.





Stock-Based
Compensation





The
Company accounts for share-based compensation 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.  This
Statement establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a
fair-value-based measurement method in accounting for share-based payment
transactions.  The Company uses the Black-Scholes Option Pricing Model
in computing fair value of warrant instrument issuances and uses market value of
Common A and Common B stock issuances.




26





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





Fair Value
Measurements





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





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





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





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








ITEM7A.QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not
applicable.





27





ITEM8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.




page F-1




ITEM9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.





We had no
disagreements with accountants on accounting and accounting disclosure in 2008
or 2007.





ITEM9A. 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 annual report on Form 10-K. 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. As of the time of evaluation, our
disclosure controls and procedures were not designed adequately to provide
reasonable assurance that such information is accumulated and communicated to
our management. Our disclosure controls and procedures include components of our
internal control over financial reporting. Management's assessment of the
effectiveness of our internal control over financial reporting is expressed at
the level of reasonable assurance that the control system, no matter how well
designed and operated, can provide only reasonable, but not absolute, assurance
that the control system's objectives will be met. This conclusion was based on
the material weaknesses identified below with regard to internal controls over
financial reporting.





Report
of Management on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is a process designed by, or under the supervision of, our principal
executive and principal financial officer and effected by our Board of
Directors, management and other personnel, to provide reasonable assurance
regarding the reliability of our financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles in the United States of America.  Internal
control over financial reporting includes policies and procedures that (i)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the Company’s transactions and dispositions of its assets;
(ii) provide reasonable assurance that transactions are recorded as necessary
for preparation of our financial statements in accordance with generally
accepted accounting principles in the United States of America and that receipts
and expenditures of the Company’s assets are made in accordance with
authorizations of our management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on our
financial statements.  Because of its inherent limitations, internal
control over financial reporting is not intended to provide absolute assurance
that a misstatement of the Company’s financial statements would be prevented or
detected.





Our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2008 using the criteria set forth in
the Internal Control over Financial Reporting – Guidance for Smaller Public
Companies issued by the Committee of Sponsoring Organizations of the Treadway
Commission.   Based upon the evaluation, our management concluded that
our internal controls over financial reporting were not effective as of December
31, 2008 because of a material weakness in our internal control over financial
reporting.  A material weakness is a control deficiency that results
in a more than remote likelihood that a material misstatement of the annual or
interim financial statements will not be prevented or detected on a timely basis
by employees in the normal course of their assigned functions.  Our
management concluded that we have several material weaknesses in our internal
control over financial reporting because of inadequate segregation of duties
over authorization, review and recording of transactions as well as the
financial reporting of such transactions.  In addition, the lack of
standardization in the financial reporting process of the Company’s subsidiaries
increases the risk that financial information is not captured completely and
accurately. The Company has developed a plan and is in process of executing the
plan to mitigate these material weaknesses, which includes the addition of
personnel to the accounting function and the implementation of a new accounting
software package that will have system access restrictions based on management
defined user roles based on job function.  Upon the implementation of
this accounting system, the risk of incomplete and inaccurate reporting of
financial information will be mitigated.  In addition, consultants
have been retained to provide specialized technical skills such as valuation of
warrant instruments requiring fair value accounting and impairment
testing.  Use of specialists will reduce the likeliness of a material
error occurring in more technical accounting areas.





This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the
SEC  that  permit the Company to provide only management's
report in this annual report.




28





Changes
in Internal Controls





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





ITEM9B - OTHER INFORMATION





Not
Applicable.










PARTIII








ITEM10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE





The
following is a list of our directors and executive officers:




Name
                  Age
                  PositionJay
      Shafer
                  49
                  Chief
      Executive Officer and DirectorGuy
      Norberg
                  48
                  President
      and DirectorG.
      Scott Smith
                  57
                  Chief
      Financial OfficerJason
      Post
                  34
                  Vice
      President of Coporate FinanceShad
      Stastney
                  39
                  DirectorChristopher
      D. Phillips
                  37
                  Director








Jay
Shafer was appointed as President in January 2007 and was elected to the Board
of Directors in March 2007 and was appointed Chief Executive Officer in
August 2008. Prior to joining the Company, Mr. Shafer was employed by Protective
Marketing Enterprises, Inc. (PME) from 1997 to 2006. He served as PME’s Vice
President Business Development from 1997 to 2002 and as its Chief Executive
Officer from 2002 to 2006. He was Vice President- Financial Services Division of
John Harland Company from 1988 to 1997.  Mr. Shafer resigned as
President in December 2008.





Guy
Norberg was appointed as President in December 2008 and was elected to the Board
of Directors August 2008.  Mr. Norberg has been the Company’s Senior
Vice President, Sales and Marketing since June, 2008.  Prior to
joining the Company, Mr. Norberg was Vice President, Sales and Marketing of
Protective Marketing Enterprises, Inc. and prior to that he was a founder and
the President of US Health Options / Innovative Health Benefits.





G. Scott
Smith was appointed as the Company’s interim Chief Financial Officer in August
2008.  Mr. Smith had been the Company’s Chief Operating Officer since
June 2008.  Since December 2007, Mr. Smith served as Chief Operating
Officer of LifeGuard.  Mr. Smith served as Chief Marketing Officer of
ECOM PPO Advisors Inc., a technology company that assists companies in
maximizing their preferred provider discounts and savings, from 2006 through
2007.  From 2004 to 2006, Mr. Smith served in several senior executive
positions at Insurance Capital Management, Inc., a holding company focusing on
insurance marketing and discount benefit programs, including President and Chief
Executive Officer.  Prior to 2004, Mr. Smith served as President and
Chief Executive Officer of National Health Insurance Company, a life health and
annuity insurance company which specialized in health insurance for self
employed individuals and qualified annuities in the 403(b) teachers
market.





Jason
Post is the Company’s Vice President of Corporate Finance and Secretary to the
Board of Directors.  Mr. Post joined the Company in March of 2008 as
Manager of Finance and was promoted to Vice President of Corporate Finance in
January of 2009.  Prior to joining the Company, Mr. Post was an external
auditor for Deloitte & Touche, LLP.  While at Deloitte, he gained
specialized knowledge and experience in the area Sarbanes Oxley compliance and
developmental stage enterprises.  Mr. Post received a B.S. in Accountancy
from the University of South Florida and holds an active Florida CPA license and
the American Institute of Certified Fraud Examiner’s CFE
designation.


29








Shad
Stastney was elected to the Board of Directors August 2008.  Mr.
Stastney is the Chief Operating Officer and Head of Research for Vicis Capital,
LLC, a company he jointly founded in 2004. Mr. Stastney also jointly founded
Victus Capital Management LLC in 2001. From 1998 through 2001, Mr. Stastney
worked with the corporate equity derivatives origination group of Credit Suisse
First Boston, eventually becoming a Director and Head of the Hedging and
Monetization Group, a joint venture between derivatives and equity capital
markets. In 1997, he joined Credit Suisse First Boston’s then-combined
convertible/equity derivative origination desk. From 1994 to 1997, he was an
associate at the law firm of Cravath, Swaine and Moore in New York, in their tax
and corporate groups, focusing on derivatives. He graduated from the University
of  North Dakota in 1990 with a B.A. in Political Theory and History,
and from the Yale Law School in 1994 with a J.D. degree focusing on corporate
and tax law. Mr. Stastney currently is a director of Ambient Coporation,
MDwerks, Inc and Master Silicon Carbide Industries, Inc.




Christopher
D. Phillips was elected to the Board of Directors August
2008.  Mr. Phillips has been a managing director for Vicis Capital,
LLC since February 2008.  From 2004 through January 2008, Mr. Phillips
served as President and CEO of Apogee Financial Investments, Inc., a merchant
bank that owns 100% of Midtown Partners & Co., LLC, a FINRA licensed
broker-dealer. From 2000 through January 2008, he also served as managing member
of TotalCFO, LLC, which provides consulting and CFO services to a number of
public and private companies and high net worth individuals.  From November
2007 through January 2008 Mr. Phillips served as the CEO and Chief Accounting
Officer of OmniReliant Holdings, Inc. (OTCBB: ORHI). Presently, he is a member
of the Board of Directors OmniReliant Holdings, Inc., Precision Aerospace
Components, Inc. (OTCBB: PAOS) and a few private companies. Mr. Phillips
received a B.S. in Accounting and Finance and a Masters of Accountancy, with a
concentration in Tax, both from the University of Florida. Mr. Phillips is a
Florida CPA. Mr. Phillips currently is a director of Brookside Technology
Holdings Corp., OmniReliant Holdings, Inc., Precision Aerospace Components,
Inc., MDwerks, Inc. and a few private companies.




Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires our officers, directors and persons who own
more than ten percent of our class A common stock to file certain reports of
ownership and changes in ownership with the SEC within specified time periods.
Officers, directors and ten-percent stockholders are required by regulation to
furnish us with copies of all Section 16(a) forms they file.


Based
solely on a review of the copies of the reports furnished to us, or written
representations that no reports were required to be filed, we believe that
during the fiscal year ended December 31, 2008 all Section 16(a) filing
requirements applicable to our current directors, officers, and greater than 10%
beneficial owners were completed.
  The
Company did not receive any Section 16(a) reports from any former officer or
director of the Company with respect to transactions in the Company’s common
stock which may have taken place in fiscal year ended December 31,
2008.  Based solely upon a review of the Section 16(a) reports
received by the Company and a review of information publicly available from the
SEC, the Company has determined that the following individuals have not filed a
Form 3, Form 4 or, with respect to the year ended December 31, 2008, a Form
5:  Clark Marcus (former officer and Director); Giuseppe Crisafi
(former officer); Sharon Kay (former Director); William Koch (former Director);
Arnold Finestone (former Director); Arthur Yeap (former Director); and Jerry
Katzman, M.D. (former Director).
  To the
Company’s knowledge, delinquent filings previously identified in the Company’s
Annual Report on Form 10-KSB for the year ended December 31, 2007 have not been
remedied, other than with respect to Jay Shafer.
 Code
of Ethics





We have
adopted a Code of Business Conduct and Ethics (Code of Ethics) that applies to
our principal executive officer, principal financial officer, principal
accounting officer or controller, and persons performing similar functions. A
copy of our Code of Ethics was filed with our Form 10-KSB for the period ending
December 31, 2004. We will provide a copy of our Code of Ethics to any
stockholder without charge upon a written request.





Corporate
Governance





Meetings
and committees of the Board of Directors





Our Board
of Directors (the Board) conducts its business through meetings of the Board and
through activities of its committees.





Procedure
for Nominating Directors





We have
not made any material changes to the procedures by which security holders may
recommend nominees to our board of directors.





The Board
does not have a written policy or charter regarding how director candidates are
evaluated or nominated for the board. Additionally, the Board has not adopted
particular qualifications or minimum standards that candidates for the board
must meet. Instead, the Board considers how a candidate could contribute to the
company's business and meet the needs of the company and the board.





The Board
will consider candidates for director recommended by our stockholders.
Candidates recommended by stockholders are evaluated with the same methodology
as candidates recommended by management or members of the board. To refer a
candidate for director, please send a resume or detailed description of the
candidate's background and experience with a letter describing the candidate's
interest in the company to Maitland Promenade One, 485 North Keller Road, Suite
450, Maitland, FL 32751, Attention: Chairman. All candidate referrals are
reviewed by at least one current board member.





30





Audit
Committee and Audit Committee Financial Expert





As of
December 31, 2008, the Company did not have an audit committee and has made no
determination as to whether any member of the Board is an audit committee
financial expert.  Since our common stock is not quoted for trading on
a national securities exchange, but rather quoted on the OTCBB, we are not
subject to rules relating to the independence of our directors or audit
committee members.





Other
Committees





The Board
does not have a compensation committee or a nominating committee, the functions
of which are performed by the Board.





All of
our directors hold office until the next annual meeting of stockholders or until
their successors are duly elected and qualified, and all executive officers hold
office at the discretion of the Board of Directors.








31


ITEM11. EXECUTIVE COMPENSATION




Summary
Compensation Table




The
following table sets forth information concerning the compensation of our (1)
principal executive officer and (2) two most highly compensated executive
officers, other than our principal executive officer (collectively, the “named
executive officers”) and up to two additional highly compensated individuals as
if they had been Officers as of our last two fiscal years ended December 31,
2008 and December 31, 2007.





Name
      and Principal Position
                                                                      Year
                                                                      Base
      Salary
                                                                        ($)
                                                                      Stock
      Awards
                                                                        ($)(1)
                                                                      Option
      Awards
                                                                        ($)(1)
                                                                      Bonus
                                                                        ($)
                                                                      All
      Other
                                                                        Compensation
                                                                        ($)(4)
                                                                      Dollar
      Value of Total
                                                                        Compensation
      for the
                                                                        Convered
      Fiscal Year
                                                                        ($)Jay
      Shafer
                                                                      2008
                                                                      378,720
                                                                      -
                                                                      -
                                                                      2,537
                                                                      -
                                                                      381,257Current
      Chief Executive Officer
                                                                      2007
                                                                      336,446
                                                                      60,000
                                                                      2,015,000
                                                                      5,074
                                                                      -
                                                                      2,416,520Clark
      Marcus
                                                                      2008
                                                                      560,845
                                                                      -
                                                                      -
                                                                      -
                                                                      17,858
                                                                      578,703Former
      Chief Executive Officer  (2)
                                                                      2007
                                                                      707,972
                                                                      -
                                                                      2,000,000
                                                                      -
                                                                      24,361
                                                                      2,732,333Scott
      Smith
                                                                      2008
                                                                      250,000
                                                                      -
                                                                      
                                                                      -
                                                                      -
                                                                      250,000Chief
      Operating Officer &
                                                                      2007
                                                                      -
                                                                      -
                                                                      -
                                                                      -
                                                                      -
                                                                      -Interim
      Chief Financial OfficerGuy
      Norberg
                                                                      2008
                                                                      378,720
                                                                      -
                                                                      -
                                                                      2,537
                                                                      -
                                                                      381,257President
                                                                      2007
                                                                      336,446
                                                                      60,000
                                                                      2,015,000
                                                                      5,074
                                                                      -
                                                                      2,416,520Giuseppe
      Crisafi (5)
                                                                      2008
                                                                      266,241
                                                                      -
                                                                      -
                                                                      -
                                                                      -
                                                                      266,241Former
      Chief Financial Officer
                                                                      2007
                                                                      92,308
                                                                      14,700
                                                                      2,507,850
                                                                      3,044
                                                                      -
                                                                      2,617,902Jerry
      Katzman MD (6)
                                                                      2008
                                                                      252,692
                                                                      -
                                                                      -
                                                                      -
                                                                      -
                                                                      252,692Former
      Chief Medical Officer
                                                                      2007
                                                                      -
                                                                      -
                                                                      -
                                                                      -
                                                                      -
                                                                      -
 (1)
                  Represents
      the dollar amount recognized for financial statement reporting purposes in
      accordance with SFAS 123R.  For a discussion of valuation
      assumptions, see Note 15 to the financial statements contained in this
      Annual Report of Form 10K.
  (2)
                  Mr.
      Marcus resigned on August 25, 2008 as Chief Executive Officer of the
      Company.  Compensation of $296,615 has been excluded from this
      table as it was paid to Mr. Marcus under the terms of his consulting
      agreement entered into August 25,
2008.
 
 (3)
                  Mr.
      Marcus received $594,382 of salary in 2007.  The balance of
      $113, 590 was accrued as deferred compensation.  In addition,
      $320,938 of prior year's deferred salary was paid in
  2007.
 
 (4)
                  All
      other compensation for Mr. Marcus consists of car allowance and life
      insurance premiums.  Life insurance premiums were $17,858 and
      $18,361 for 2008 and 2007,
respectively.
 
 (5)
                  Not
      included herein is compensation of $90,173 paid to Mr. Crisafi under the
      terms of his consulting agreement entered into on August 25,
      2008.  In addition, stock award compensation of $145,000 paid to
      Mr. Crisafi has been excluded from the stock awards section of the above
      table as the compensation was in respect to his separation agreement
      entered into on August 25, 2008.
 
 (6)
                  Not
      included herein is compensation of $61,538 paid to Mr. Katzman under the
      terms of his consulting agreement entered into on August 25,
      2008.
 32
  Narrative
Disclosure to Summary Compensation Table
  Current
Executive Officers
  Jay
Shafer, Chief Executive Officer
  Mr.
Shafer serves as the Company’s Chief Executive Officer.  Effective
December 17, 2008, Mr. Shafer resigned as President of the
Company.  Pursuant to an employment agreement which expires January
15, 2010, Mr. Shafer receives a salary of $360,000 per annum, increased by an
amount no less than an amount equal to the percentage increase in the consumer
price index for the Orlando, Florida metropolitan area. A special bonus in the
amount equal to 1% percent of the Company’s pre-tax profits from the preceding
year (as determined by the application of generally accepted accounting
principles), up to the first $1,000,000 dollars of such profits; plus an
additional sum equal to 2% of the Company’s pre-tax profits for all sums over
$1,000,000 dollars.  Mr. Shafer received $378,720 in base compensation
and $2,537 in a discretionary cash bonus for the year ended December 31,
2008.
  In
connection with his employment, Mr. Shafer also received a sign-on bonus of
1,500,000 shares of the Company’s Class A common stock.  Mr. Shafer is
also entitled to receive other benefits generally received by other senior
executives of the Company and reimbursement of expenses.  Mr. Shafer
also entered into a standard Employee Confidentiality Agreement.
  The
Company may, in its sole discretion, terminate Mr. Shafer’s employment in the
event of his “disability” as defined in his employment agreement.  If
the Company elects to so terminate his employment, Mr. Shafer will be entitled
to receive his accrued but unpaid salary, expenses and bonuses, the proceeds of
any disability insurance policy plus an amount from the Company monthly which,
when added to the amount received by Mr. Shafer from any disability policy then
in effect, will equal the Executive's salary for a twelve-month period following
the date of termination.  Such termination shall have no effect on the
Company's obligation to pay the special bonus.
  In the
event that 50% or more of the equity securities of the Company are acquired by
any single person or identifiable group and Mr. Shafer’s employment is
terminated without “cause” twelve months after such acquisition, the Company
shall pay to Mr. Shafer a lump sum amount equal to the aggregate of (i) accrued
unpaid salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued
but unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total
compensation which would have been paid to Mr. Shafer through three full years
of compensation from the date of termination.  In addition, all
unvested securities and benefits attributable to Mr. Shafer will immediately
vest.  In addition, Mr. Shafer will be entitled to registration rights
with respect to certain of his securities.
  In the
event of gross misconduct in office by Mr. Shafer in the performance of his
duties hereunder, the Company may terminate Mr. Shafer’s employment agreement
and, on the termination date, the Company shall pay to Mr. Shafer the aggregate
of accrued but unpaid expenses, if any, and the net salary compensation which
would have been paid to Mr. Shafer through the date of
termination.  Furthermore, any warrants to be issued pursuant to his
employment agreement, and any options granted pursuant to plans then applicable
to Mr. Smith which have not then vested shall be forfeited as of the termination
date.
  Guy
Norberg, President
  Mr.
Norberg currently serves as the Company’s President Pursuant to an employment
agreement which expires January 15, 2010, Mr. Norberg receives a salary of
$50,000 per month, increased by an amount no less than an amount equal to the
percentage increase in the consumer price index for the Orlando, Florida
metropolitan area.  A special bonus in the amount equal to 1% percent
of the Company’s pre-tax profits from the preceding year (as determined by the
application of generally accepted accounting principles), up to the first
$1,000,000 dollars of such profits; plus an additional sum equal to 2% of the
Company’s pre-tax profits for all sums over $1,000,000 dollars.  Mr.
Norberg received $378,720 in base compensation and $2,537 in a discretionary
cash bonus.
  In
connection with his employment, Mr. Norberg also received a sign-on bonus of
1,500,000 shares of the Company’s Class A common stock.Mr. Norberg is also
entitled to receive other benefits generally received by other senior executives
of the Company and reimbursement of expenses.  Mr. Smith also entered
into a standard Employee Confidentiality Agreement.
  The
Company may, in its sole discretion, terminate Mr. Norberg’s employment in the
event of his “disability” as defined in his employment agreement.  If
the Company elects to so terminate his employment, Mr. Norberg will be entitled
to receive his accrued but unpaid salary, expenses and bonuses, the proceeds of
any disability insurance policy plus an amount from the Company monthly which,
when added to the amount received by Mr. Norberg from any disability policy then
in effect, will equal the Executive's salary for a twelve-month period following
the date of termination.  Such termination shall have no effect on the
Company's obligation to pay the special bonus.


33





In the
event that 50% or more of the equity securities of the Company are acquired by
any single person or identifiable group in which the average acquisition price
per share is $5.00 per share or more and Mr. Norberg’s employment is terminated
without “cause” twelve months after such acquisition, the Company shall pay to
Mr. Norberg a lump sum amount equal to the aggregate of (i) accrued unpaid
salary, if any; (ii) accrued but unpaid expenses, if any; (iii) accrued but
unpaid bonuses, if any; (iv) unissued warrants, if any; and (v) the total
compensation which would have been paid to Mr. Norberg through one full year of
compensation from the date of termination.
  In the
event of gross misconduct in office by Mr. Norberg in the performance of his
duties hereunder, the Company may terminate Mr. Norberg’s employment agreement
and, on the termination date, the Company shall pay to Mr. Norberg the aggregate
of accrued but unpaid expenses, if any, and the net salary compensation which
would have been paid to Mr. Norberg through the date of
termination.  Furthermore, any warrants to be issued pursuant to his
employment agreement, and any options granted pursuant to plans then applicable
to Mr. Smith which have not then vested shall be forfeited as of the termination
date.
  Scott
Smith, Chief Operating Officer and interim Chief Financial Officer
  Mr. Smith
serves as the Company’s Chief Operating Officer and interim Chief Financial
Officer pursuant to an employment agreement which expires on June 16,
2011.  The agreement provides for a salary of $250,000 per annum,
increased by an amount no less than an amount equal to the percentage increase
in the consumer price index for the Dallas, Texas metropolitan area. A special
bonus in the amount equal to 0.5% percent of the Company’s pre-tax profits from
the preceding year (as determined by the application of generally accepted
accounting principles), up to the first $1,000,000 dollars of such profits; plus
an additional sum equal to 0.75% of the Company’s pre-tax profits for all sums
over $1,000,000 dollars up to the first $2,000,000;  plus an
additional sum equal to 1% of the Company’s pre-tax profits for all sums over
$2,000,000 dollars up to the first $4,000,000; plus an additional sum equal to
1.25% of the Company’s pre-tax profits for all sums over $4,000,000 In
connection with his employment, Mr. Smith also received a warrant to purchase
1,000,000 shares of the Company’s Class A common stock at $0.38 per share to
vest in four equal annual installments starting on July 1, 2009.  Mr.
Smith is also entitled to receive other benefits generally received by other
senior executives of the Company and reimbursement of expenses.  Mr.
Smith also entered into a standard Employee Confidentiality
Agreement.
  The
Company may, in its sole discretion, terminate Mr. Smith’s employment in the
event of his “disability” as defined in his employment agreement.  If
the Company elects to so terminate his employment, Mr. Smith will be entitled to
receive his accrued but unpaid salary, expenses and bonuses, the proceeds of any
disability insurance policy plus an amount from the Company monthly which, when
added to the amount received by Mr. Smith from any disability policy then in
effect, will equal the Executive's salary for a twelve-month period following
the date of termination.  Such termination shall have no effect on the
Company's obligation to pay the special bonus.
  In the
event Mr. Smith’s employment is terminated without “cause” 12 months from a
change in control, the Company shall pay to Mr. Smith a lump sum amount equal to
the aggregate of (i) accrued unpaid salary, if any; (ii) accrued but unpaid
expenses, if any; (iii) accrued but unpaid bonuses, if any; (iv) unissued
warrants, if any; and (v) the total compensation which would have been paid to
Mr. Smith through the longer of the remaining term, if any, of the employment
period, or three years compensation.  In addition, all unvested
securities and benefits attributable to Mr. Smith will immediately
vest.
  In the
event of gross misconduct in office by Mr. Smith in the performance of his
duties hereunder, the Company may terminate Mr. Smith’s employment agreement
and, on the termination date, the Company shall pay to Mr. Smith the aggregate
of (i) accrued but unpaid expenses, if any (ii) accrued but unpaid bonuses, if
any; and (iii) the net salary compensation which would have been paid to Mr.
Shafer through the date of termination.  Furthermore, any warrants to
be issued pursuant to his employment agreement, and any options granted pursuant
to plans then applicable to Mr. Smith which have not then vested shall be
forfeited as of the termination date.


34








Former
Executive Officers
  Clark
Marcus, Former Chief Executive Officer
  Mr.
Marcus resigned as the Company’s Chief Executive Officer, effective August 25,
2008.  For the year ended December 31, 2008, Mr. Marcus received
$560,845 as compensation for his service as Chief Executive Officer pursuant to
his employment agreement.  The Company also paid insurance premiums
totaling $17,857 on his behalf.
  In
connection with his resignation as Chief Executive Officer, and in lieu of any
severance or termination payments, Mr. Marcus entered into both a Separation
Agreement and a Consulting Agreement with the Company.  Pursuant to
Mr. Marcus’s Separation Agreement, the Company will continue to provide Mr.
Marcus with certain benefits for up to 18 months from the date of his
resignation.  Pursuant to the Consulting Agreement, Mr. Marcus
provides the Company with certain consultation services.  In exchange,
Mr. Marcus is to be paid a onetime fee of $112,000 and is entitled to a fee
payable at an annual rate of $600,000 and reimbursement of
expenses.  For the year ended December 31, 2008, Mr. Marcus received
payments totaling  $296,615 in accordance with the terms of his
Consulting Agreement.
  Mr.
Marcus’s Consulting Agreement contains customary non-compete and confidentiality
obligations and contains customary mutual indemnification
provisions.   The Consulting Agreement has a term of one year and
is renewable at the mutual consent of the parties for additional one-year
terms.  The Consulting Agreement may be terminated by prior written
notice to the other party upon a breach by such other party or conviction of the
other party of a felony violation.   The Company may terminate
the Consulting Agreement if Mr. Marcus is arrested or charged with a crime not
instigated by the Company and such arrest or charge negatively affects the
business or reputation of the Company.  In addition, the Company may
terminate the agreement, effective immediately, if Mr. Marcus knowingly makes
any materially false or untrue statements or representations to the Company or
in the performance of his obligations or engages in gross negligence, willful
misconduct or fraud in the performance of the services.
  Benefits
and payments received pursuant to his Separation Agreement and Consulting
Agreement are not reflected for Mr. Marcus in the “Summary Compensation Table”
above.
  Giuseppe
Crisafi, Former Chief Financial Officer
  Mr.
Crisafi resigned as the Company’s Chief Financial Officer, effective August 25,
2008.  For the year ended December 31, 2008, Mr. Crisafi received
$266,241 as base compensation for his service as Chief Executive Officer
pursuant to his employment agreement.
  In
connection with his resignation as Chief Financial Officer, and in lieu of any
severance or termination payments, Mr. Crisafi entered into both a Separation
Agreement and a Consulting Agreement with the Company.  Pursuant to
the Consulting Agreement, Mr. Crisafi provided the Company with certain
consultation services.  For the year ended December 31, 2008, Mr.
Crisafi received payments totaling $90,172.74 in accordance with the terms his
Consulting Agreement.  In addition, Mr. Crisafi received 500,000
shares of the Company’s Class A common stock pursuant to his Consulting
Agreement.


35


Mr.
Crisafi’s Consulting Agreement terminated as of March 2009.
  Benefits
and payments received pursuant to his Separation Agreement and Consulting
Agreement are not reflected for Mr. Crisafi in the “Summary Compensation Table”
above.
  Jerry
Katzman, Former Chief Medical Officer
  Dr.
Katzman resigned as the Company’s Chief Medical Officer, effective August 25,
2008.  For the year ended December 31, 2008, Dr. Katzman received
$261,614 as compensation for his service as Chief Medical Officer pursuant to
his employment agreement.
  In
connection with his resignation as Chief Medical Officer, and in lieu of any
severance or termination payments, Dr. Katzman entered into both a Separation
Agreement and a Consulting Agreement with the Company.  Pursuant to
Dr. Katzman’s Separation Agreement, the Company will continue to provide Dr.
Katzman with certain benefits for up to 18 months from the date of his
resignation.  Pursuant to the Consulting Agreement, Dr. Katzman
provides the Company with certain consultation services.  In exchange,
Dr. Katzman is to be paid approximately $46,000 in the form of forgiveness of a
debt in favor of the Company and is entitled to a fee payable at an annual rate
of $200,000 and reimbursement of expenses.  For the year ended
December 31, 2008, Dr. Katzman received payments totaling $61,538.48 and $46,000
in the form of forgiveness of a debt in favor of the Company in accordance with
the terms of his Consulting Agreement.
  Dr.
Katzman’s Consulting Agreement contains customary non-compete and
confidentiality obligations and contains customary mutual indemnification
provisions.   The Consulting Agreement has a term of one year and
is renewable at the mutual consent of the parties for additional one-year
terms.  The Consulting Agreement may be terminated by prior written
notice to the other party upon a breach by such other party or conviction of the
other party of a felony violation.   The Company may terminate
the Consulting Agreement if Dr. Katzman is arrested or charged with a crime not
instigated by the Company and such arrest or charge negatively affects the
business or reputation of the Company.  In addition, the Company may
terminate the agreement, effective immediately, if Dr. Katzman knowingly makes
any materially false or untrue statements or representations to the Company or
in the performance of his obligations or engages in gross negligence, willful
misconduct or fraud in the performance of the services.
  Benefits
and payments received pursuant to his Separation Agreement and Consulting
Agreement are not reflected for Dr. Katzman in the “Summary Compensation Table”
above.
  Outstanding
Equity Awards at Fiscal Year-End Table
 
 The
following table sets forth, for each named executive officer, information
regarding unexercised warrants as of the end of our fiscal year ended December
31, 2008.  None of the named executive officers own stock that has not
vested nor has any outstanding equity incentive plan awards.
  Name
                                                        
                                                        Number of Securities or
      Underlying Unexercised Options (#) Exercisable(1)
                                                        
                                                        Number of Securities or
      Underlying Unexercised Options (#) unexercisable(2)
                                                        
                                                        Option
      Exercise Price ($)
                                                        
                                                        Option
      Expiration DateJay
      Shafer
                                                        
                                                        1,000,000
                                                        
                                                        -
                                                        
                                                        0.30
                                                        
                                                        3/26/2012Chief
      Executive Officer
                                                        
                                                        3,500,000
                                                        
                                                        -
                                                        
                                                        0.50
                                                        
                                                        12/6/2012Guy
      Norberg
                                                        
                                                        1,000,000
                                                        
                                                        -
                                                        
                                                        0.30
                                                        
                                                        3/26/2012President
                                                        
                                                        3,500,000
                                                        
                                                        -
                                                        
                                                        0.50
                                                        
                                                        12/6/2012Scott
      Smith
                                                        
                                                        250,000
                                                        
                                                        850,000
                                                        
                                                        0.38
                                                        
                                                        6/13/2013Chief
      Operating Officer &Interim
      Chief Financial OfficerClark
      Marcus
                                                        
                                                        1,000,000
                                                        
                                                        -
                                                        
                                                        0.16
                                                        
                                                        5/27/2010Former
      Chief Executive OfficerGiuseppe
      Crisafi
                                                        
                                                        250,000
                                                        
                                                        -
                                                        
                                                        0.3
                                                        
                                                        3/26/2012Former
      Chief Financial Officer
                                                        
                                                        4,965,000
                                                        
                                                        -
                                                        
                                                        0.5
                                                        
                                                        12/6/2012Jerry
      Katzman MD
                                                        
                                                        -
                                                        
                                                        -
                                                        
                                                        -
                                                        
                                                        -Former
      Chief Medical Officer(1)  The
      securities listed in this column consist of unexercised warrants awarded
      to each named executive officer.  Warrants presented herein are
      fully vested and immediately exercisable upon grant.(2)  The
      securities listed in this column consist of warrants awarded to each named
      executive officer that are not vested and
  exercisable.
 
 Payments
upon Change in Control
 
 In the
event that any of the named executive officers’ employment is terminated within
twelve (12) months following a change in control, the Company shall pay to such
terminated named executive officer a lump sum amount equal to the aggregate of
(i) accrued unpaid salary, if any; (ii) accrued but unpaid expenses, if any;
(iii) accrued but unpaid bonuses, if any; (iv) unissued warrants, if any; and
(v) the total compensation which would have been paid to such named executive
officer through five (5) full years of compensation from the date of
termination.


36





Compensation
of Directors
 
 There was
no compensation for Directors other than executives that are also
Directors.  Their associated compensation including compensation for
their directorship, is included in Summary Compensation table under “Item 11.
Executive Compensation.”
 
 ITEM12.SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 
 The
following table sets forth certain information as of March 4, 2009 regarding the
beneficial ownership of our common stock held by each of our named executive
officers and directors, individually and as a group, and by each person who
beneficially owns in excess of five percent of our common stock. In general,
beneficial ownership includes those shares that a person has the power to vote,
sell, or otherwise dispose. Beneficial ownership also includes that number of
shares which an individual has the right to acquire within 60 days (such as
warrants and stock options) of the date this table was prepared. Two or more
persons may be considered the beneficial owner of the same shares. The inclusion
in this section of any shares deemed beneficially owned does not constitute an
admission by that person of beneficial ownership of those shares.  The
persons named in the table have sole voting and investment power with respect to
all shares shown as beneficially owned by them, except as noted
below.





























37







Amount
      and Nature Of Beneficial Ownership (2)
                                                                    
                                                                    Amount
      and Nature Of Beneficial Ownership (2)
                                                                    
                                                                    Percentage
      of Common Stock Beneficially Owned (3)
                                                                    
                                                                    Percentage
      of Common Stock Beneficially Owned (3)Name
      (1)
                                                                    
                                                                    Class
      A Common Stock
                                                                    
                                                                    Class
      B Common Stock
                                                                    
                                                                    As
      a % of All Class A
                                                                    
                                                                    As
      a % of All Class BExecutive
      Officers and Directors:Jay
      Shafer (4)
                                                                    
                                                                    
                                                                    6,250,000
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    0.59
                                                                    %
                                                                    
                                                                    
                                                                    0.00
                                                                    %Guy
      Norberg (4)
                                                                    
                                                                    
                                                                    6,250,000
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    0.59
                                                                    %
                                                                    
                                                                    
                                                                    0.00
                                                                    %Scott
      Smith (5)
                                                                    
                                                                    
                                                                    280,000
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    0.03
                                                                    %
                                                                    
                                                                    
                                                                    0.00
                                                                    %Christopher
      D. Phillips (6) (7) (9)
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    0.00
                                                                    %
                                                                    
                                                                    
                                                                    0.00
                                                                    %Shad
      Stastney (6) (7) (9)
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    0.00
                                                                    %
                                                                    
                                                                    
                                                                    0.00
                                                                    %Clark
      Marcus
                                                                    
                                                                    
                                                                    1,006,250
                                                                    
                                                                    
                                                                    
                                                                    1,000,000
                                                                    
                                                                    
                                                                    
                                                                    0.09
                                                                    %
                                                                    
                                                                    
                                                                    3.24
                                                                    %Giuseppe
      Crisafi (7)
                                                                    
                                                                    
                                                                    5,715,000
                                                                    
                                                                    
                                                                    
                                                                    4,965,000
                                                                    
                                                                    
                                                                    
                                                                    0.54
                                                                    %
                                                                    
                                                                    
                                                                    16.11
                                                                    %Jerry
      Katzman, M.D. (7)
                                                                    
                                                                    
                                                                    991,900
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    0.09
                                                                    %
                                                                    
                                                                    
                                                                    0.00
                                                                    %All
      officers and directors as a group (8 persons) (7)
                                                                    
                                                                    
                                                                    20,493,150
                                                                    
                                                                    
                                                                    
                                                                    5,965,000
                                                                    
                                                                    
                                                                    
                                                                    1.91
                                                                    %
                                                                    
                                                                    
                                                                    19.35
                                                                    %Other
      Beneficial Owners:Vicis
      Capital Master Fund (7) (8) (9)
                                                                    
                                                                    
                                                                    1,144,547,950
                                                                    
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    87.20
                                                                    %(1)
      Unless otherwise indicated, the address for each individual listed in this
      column is c/o The Amacore Group, Inc., Maitland Promenade One, 485 North
      Keller Road, Suite 450, Maitland, Florida 32751.(2)
      Unless otherwise indicated, each person has sole investment and voting
      power with respect to the shares indicated, subject to community property
      laws, where applicable. For purposes of this table, a person or group
      of persons is deemed to beneficially own any shares that such person has
      the right to acquire within sixty (60) days after March 4,
      2009.(3)
      Calculated as a percentage of the total number of shares of Class A and
      Class B common stock issued and outstanding without respect to voting
      power. The total number of shares of Class A common stock outstanding for
      purposes of calculating percentage ownership of a person includes the
      number of shares of Class A common stock beneficially owned by such
      person. As of March 4, 2009, we had 1,028,764,296 and 200,000 shares
      of Class A and Class B common stock outstanding.(4)
      Mr. Shafer's and Mr. Norberg's beneficial ownership includes 4,500,000
      shares of Class A common stock underlying warrants which are presently
      exercisable.(5)
      Mr. Smith's beneficial ownership includes 250,000 shares of Class A common
      stock underlying warrants which are presently exercisable.(6)
      Mr. Phillips and Mr. Stastney are Directors of the Company and hold no
      benefical interest in the Company(7)
      Based upon the Company's books and records and information obtained from
      documents filed with the SEC, to the best of the Company's knowledge, the
      ownership amounts reflect accurately the named officers' and beneficial
      owners' current holdings as of the date of this analysis.(8)
      Vicis' beneficial ownership includes 253,525,000 shares of Class A common
      stock underlying warrants which are presently exercisable.(9) 
      Beneficial owner's address:  445 Park Avenue, New York, NY 
      10022




38





ITEM13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE.





Transactions
with Related Persons





Other
than the transactions described below, none of the following parties has,
since the beginning of the last fiscal year, had any material interest,
direct or indirect, in any transaction with us or in any presently proposed
transaction with us that has or will materially affect us:





●
            Any
      of our directors or executive officers;●
            Any
      person proposed as a nominee for election as a
director;●
            Any
      person who beneficially owns, directly or indirectly, shares carrying more
      than 5% of any class of voting securities;●
            Any
      of our promoters;●
            Any
      relative or spouse of any of the foregoing persons who has the same house
      as such person.








Pursuant
to the acquisition agreement between the Company and JRM, the Company assumed
approximately $287.0 thousand of liabilities of which approximately $160.0
thousand and $69.0 thousand represent personal credit card balances used for
business purposes and business credit lines, respectively.  The
Company will continue to pay the monthly required payments for eighteen (18)
months and will continue to do so if the eighteen (18) month minimum sales
target is met. The liabilities are personally guaranteed by both James Reed and
James Mignogna (who are both Senior Vice Presidents of the JRM Division) and are
recorded within the Company’s notes and loans payable category of the balance
sheet.  As of December 31, 2008, the outstanding balance of said
liabilities was approximately $202 thousand.





During
the years ended December 31, 2008 and 2007, LifeGuard marketed a membership
product which it licensed from DirectMed, a company 33% owned by an employee and
former majority stockholder of LifeGuard. LifeGuard paid DirectMed a branding
fee based on the number of memberships sold. For the years ended December 31,
2008 and 2007, the branding fee paid to DirectMed was approximately $492.3
thousand and approximately $60.4 thousand, respectively.  In addition,
LifeGuard owes DirectMed approximately $524.3 and approximately $536 thousand at
December 31, 2008 and 2007, respectively, for unpaid branding fees.





The
Company and Jay Shafer (President at the time) entered into a promissory note in
the amount of $500.0 thousand payable to Jay Shafer on August 15, 2008
evidencing a loan in that amount made by Mr. Shafer to the Company. The
promissory note bears interest at 6% and is payable upon demand. On September 9,
2008, the Company paid the promissory note with accrued interest of
approximately $2.1 thousand.





On
September 25, 2008 and October 25, 2008, the Company and Jay Shafer (Chief
Executive Officer at this time) entered into promissory notes in the amount of
$500.0 thousand and $300.0 thousand payable to Jay Shafer evidencing loans made
by Mr. Shafer to the Company in those amounts.  The promissory notes bear
interest at 6% and are payable upon demand. As of December 31, 2008, the
principal balance remains outstanding and the Company has recorded accrued
interest expense of approximately $11.5 thousand.





On
December 31, 2008, Vicis converted the accrued dividends and interest with
respect to its Series D and E preferred stock holdings in the amount of $975.6
thousand into 89.1 million shares of Class A common stock








Director
Independence





We are
currently quoted on the OTCBB. The OTCBB does not require that a majority
of the Board be independent. Nonetheless,
Messrs. Shafer and Norberg, as executive officers, cannot be independent under
the NASDAQ Stock Market Rules definition of
independence.  Furthermore, as the Board of Directors has not made a
determination as to the independence of Mr. Shastney or Mr. Phillips or any
former director of the Company, none of them should be considered independent at
this time.







39





ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





The
following table presents fees for professional audit services performed by our
principal accountants, McGladrey & Pullen, LLP and Brimmer, Burek &
Keelan LLP for the audit of our annual financial statements and review of
financial statements included in our quarterly reports for our fiscal years
ended December 31, 2008 and 2007, respectively, and fees billed for other
services rendered by McGladrey & Pullen, LLP and Brimmer, Burek & Keelan
LLP during such years.





2008
                        
                        
                        2007Audit
      fees
                        
                        $
                        687,453
                        
                        
                        $
                        171,578Audit
      related fees
                        
                        
                        97,360
                        
                        
                        
                        -Tax
      fees
                        
                        
                        15,000
                        
                        
                        
                        -Total
                        
                        $
                        799,813
                        
                        
                        $
                        171,578





Pre-Approval
Policy And Procedures





We may
not engage our independent auditors to render any audit or non-audit service
unless our Board approves the service in advance.











40





Item15. Exhibits





Exhibit
                  Number
                
                
                Description
                
                Document
      Location2.1
                
                
                Stock
      Purchase Agreement by and among the Registrant, JRM and the owners of the
      equity interests in JRM.
                
                Exhibit
      2.1 to the Current Report on Form 8-K filed on  September 12,
      20072.2
                (a)
                
                Agreement
      and Plan of Merger between the Company, LifeGuard Benefit Services, Inc.
      and LBS Acquisition Corp., dated October 5, 2007
                
                Exhibit
      2.1 to the Current Report on Form 8-K filed on October 15,
      2007(b)
                
                Addendum
      to Agreement and Plan of Merger between the Company, LifeGuard Benefit
      Services, Inc. and LBS Acquisition Corp., dated October 9,
      2007
                
                Exhibit
      2.2 to the Current Report on Form 8-K filed on October 15,
      20072.3
                (a)
                
                Stock
      Purchase Agreement between the Company, US Health Benefits Group, Inc., US
      Healthcare Plans, Inc., On the Phone, Inc. and stockholders, dated March
      31, 2008
                
                Exhibit
      2.1 to the Current Report on Form 8-K filed on April 4,
    2008(b)
                
                Addendum
      to Stock Purchase Agreement between the Company, US Health Benefits Group,
      Inc., US Healthcare Plans, Inc., On the Phone, Inc. and stockholders,
      dated April 3, 2008
                
                Exhibit
      2.2 to the Current Report on Form 8-K filed on April 4,
    20083.1
                (a)
                
                Certificate
      of Incorporation, as amended
                
                Exhibit
      3.1 to the Current Report on Form 8-K filed on January 18,
      2008(b)
                
                Certificate
      of Designation of Series A Convertible Preferred Stock
                
                Exhibit
      3.3 to Form 10SB12G/A filed on September 18, 2000(c)
                
                Certificate
      of Designation of Series H Convertible Preferred Stock
                
                Exhibit
      3.1 to Current Report on Form 8-K filed on June 6,
2008.(d)
                
                Certificate
      of Designation of Series I Convertible Preferred Stock
                
                Exhibit
      3.1 to Current Report on Form 8-K filed on October 6,
  2008.3.2
                
                
                Bylaws
                
                Exhibit
      3.2 to Form 10SB12G filed on November 1, 199910.1
                
                
                1997
      Stock Option Plan
                
                Exhibit
      10.1 to Form 10SB12G filed on November 1, 199910.2
                
                
                Employment
      Agreement with Clark A. Marcus
                
                Exhibit
      10.2 to the Annual Report on Form 10KSB filed on April 15,
      2008.10.3
                
                
                Employment
      Agreement with Giuseppe Crisafi
                
                Exhibit
      10.3 to the Annual Report on Form 10KSB filed on April 15,
      200810.4
                
                
                Employment
      Agreement with Jay Shafer
                
                Exhibit
      10.4 to the Annual Report on Form 10KSB filed on April 15,
      2008.10.5
                
                
                Employment
      Agreement of  Guy Norberg
                
                Filed
      herewith10.6
                
                
                Employment
      Agreement of G.Scott Smith
                
                Filed
      herewith10.7
                
                
                Employment
      of Jerry Katzman MD
                
                Filed
      herewith10.8
                
                
                Separation
      Agreement with Clark A. Marcus
                
                Exhibit
      10.1 to Current Report on Form 8-K filed on September 2,
    2008.10.9
                
                
                Consulting
      Agreement with Clark A. Marcus
                
                Exhibit
      10.2 to Current Report on Form 8-K filed on September 2,
    2008.10.10
                
                
                Separation
      Agreement with Giuseppe Crisafi
                
                Exhibit
      10.3 to Current Report on Form 8-K filed on September 2,
    2008.10.11
                
                
                Separation
      Agreement with Jerry Katzman, M.D.
                
                Exhibit
      10.4 to Current Report on Form 8-K filed on September 2,
    2008.10.12
                
                
                Employment
      Agreement of Jerry Katzman, M.D.
                
                Filed
      herewith10.13
                
                
                Consulting
      Agreement with Giuseppe Crisafi
                
                Filed
      herewith10.14
                
                
                Consulting
      Agreement with Jerry Katzman, M.D.
                
                Filed
      herewith14.1
                
                
                Code
      of Business Conduct And Ethics
                
                Exhibit
      14.1 to the Annual Report on Form 10-KSB filed on April 28,
      200521.1
                
                
                Subsidiaries
      of the Company
                
                Filed
      herewith31.1
                
                
                Certification
      of Jay Shafer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.
                
                Filed
      herewith31.2
                
                
                Certification
      of  G. Scott Smith pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002.
                
                Filed
      herewith32.1
                
                
                Certifications
      of Jay Shafer and G. Scott Smith pursuant to Section 906 Sarbanes-Oxley
      Act of 2002.
                
                Filed
      herewith





41





SIGNATURES





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








Dated:March 30,
      2009
            /s/ Jay ShaferJay
      ShaferChief
      Executive Officer





In
accordance with the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the Registrant on the 30th day of March, 2009 in
the capacities indicated.








/s/Jay
Shafer
 Jay
Shafer
 Chief
Executive Officer and
 Director
 
 /s/ Guy
Norberg
 Guy
Norberg
 President
and Director
 
 /s/  Scott
Smith
 Scott
Smith
 Chief
Operating Officer,
 Interim
Chief Financial Officer
 
 /s/  Jason
Post
 Jason
Post
 Principal
Accounting Officer
 /s/  Christopher
D. Phillips
 Christopher
D. Phillips
 Director





42









ExhibitIndex






Exhibit
                                                            Number
                                                          
                                                          
                                                          Description10.5
                                                          
                                                          
                                                          Employment
      Agreement of  Guy Norberg10.6
                                                          
                                                          
                                                          Employment
      Agreement of G. Scott Smith10.12
                                                          
                                                          
                                                          Employment Agreement of
       Jerry Katzman, M.D.10.13
                                                          
                                                          
                                                          Consulting
      Agreement with Giuseppe Crisafi10.14
                                                          
                                                          
                                                          Consulting
      Agreement with Jerry Katzman, M.D21.1
                                                          
                                                          
                                                          Subsidiaries
      of the Company31.1
                                                          
                                                          
                                                          Certification
      of Jay Shafer pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
                                                          
                                                          
                                                          Certification
      of G. Scott Smith pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.32.1
                                                          
                                                          
                                                          Certifications
      of Jay Shafer and G. Scott Smith pursuant to Section 906 Sarbanes-Oxley
      Act of
2002.








43






Indexto Financial Statements
 
 
 Consolidated
      Financial Statements of The Amacore Group, Inc.Report of Independent Registered Public Accounting Firm
      Brimmer, Burek & Keelan, LLP
                    F-2Report of Independent Registered Public Accounting Firm
      McGladrey & Pullen, LLP
                    F-3Consolidated Balance Sheets as of December 31, 2008 and
      December 31, 2007
                    F-4Consolidated Statements of Operations for the years
      ended December 31, 2008 and December 31, 2007
                    F-5Consolidated Statements of Stockholders’ (Deficit) Equity
      for the years ended December 31, 2008 and December 31,
      2007
                    F-6 - F-7Consolidated Statements of Cash Flows for the years
      ended December 31, 2008 and December 31, 2007
                    F-8Notes to the Consolidated Financial
      Statements
                    F-9
       F-1
 REPORTOF
INDEPENDENT REGISTERED
 PUBLIC
ACCOUNTING FIRM
  Audit
Committee
 The
Amacore Group, Inc.
 Tampa,
Florida
 
 We have
audited, before the effects of the adjustments to retrospectively apply the
change in accounting described in Note 3, the accompanying consolidated balance
sheet of The Amacore Group, Inc. as of December 31, 2007 and the related
consolidated statement of operations, stockholders’ deficit and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of The Amacore Group's management. Our responsibility is to
express an opinion on these financial statements based on our
audit.
  We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above, before the
effects of the adjustments to retrospectively apply the change in accounting
described in Note 3, present fairly, in all material respects, the financial
position of The Amacore Group, Inc. as of December 31, 2007 and the results
of operations, changes in shareholders’ deficit and cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States.
 
 The
Company is not required to have, nor were engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly, we express no such opinion.
 
  /s/ Brimmer,
Burek & Keelan LLP
 Brimmer,
Burek & Keelan LLP
 Certified
Public Accountants
 Tampa,
Florida
 April 14,
2008
  
 F-2
 
 
 Reportof Independent Registered Public Accounting
Firm
  
  To the
Board of Directors and Stockholders
 The
Amacore Group, Inc.
   We have
audited the accompanying consolidated balance sheet of The Amacore Group, Inc.
as of December 31, 2008, and the related consolidated statements of operations,
stockholders' (deficit) equity, and cash flows for the year ended December
31, 2008. These financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
financial statements based on our audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of The Amacore Group, Inc. as of
December 31, 2008 and the results of its operations and its cash flows for the
year ended December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.
 
 We also
have audited the adjustments to the 2007 consolidated financial statements to
retrospectively apply the change in accounting for convertible securities with
beneficial conversion features, as described in Note 3.  In our
opinion, such adjustments are appropriate and have been properly
applied.  We were not engaged to audit, review, or apply any
procedures to the 2007 consolidated financial statements of the Company other
than with respect to the adjustments and, accordingly, we do not express an
opinion or any other form of assurance on the 2007 consolidated financial
statements taken as a whole.
 
 We were
not engaged to examine management’s assessment of the effectiveness of
The Amacore Group’s internal control over financial reporting as of December 31,
2008 included in the accompanying Management’s Annual Report on Internal Control
over Financial Reporting and, accordingly, we do not express an opinion
thereon.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has negative working capital.  This raises substantial doubt about
the Company's ability to continue as a going concern.  Management's
plans in regard to these matters are also described in Note 1.  The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 
  /s/
McGladrey & Pullen, LLP
 Ft.
Lauderdale, Florida
 March 30,
2009
 
   F-3
  THE AMACORE GROUP,
    INC.CONSOLIDATEDBALANCE SHEETSAs
      of December 31, 2008 and 20072008
                                        
                                        
                                        2007ASSETSCurrent
      assetsCash
                                        
                                        $
                                        238,437
                                        
                                        
                                        $
                                        2,161,042Restricted
      cash
                                        
                                        
                                        -
                                        
                                        
                                        
                                        316,935Accounts
      receivable
                                        
                                        
                                        612,945
                                        
                                        
                                        
                                        470,049Non-trade
      receivables - related party
                                        
                                        
                                        26,699
                                        
                                        
                                        
                                        64,385Inventory
                                        
                                        
                                        23,891
                                        
                                        
                                        
                                        37,814Deferred
      expenses
                                        
                                        
                                        2,816,952
                                        
                                        
                                        
                                        1,023,798Deposits
      and advances
                                        
                                        
                                        287,130
                                        
                                        
                                        
                                        61,236Total
      current assets
                                        
                                        
                                        4,006,054
                                        
                                        
                                        
                                        4,135,259Property,
      plant and equipment (net of accumulated depreciation of $447,709 and
      $132,387for
      2008 and 2007, respectively)
                                        
                                        
                                        863,537
                                        
                                        
                                        
                                        418,356Other
      assetsDeferred
      customer acquisition costs
                                        
                                        
                                        407,297
                                        
                                        
                                        
                                        -Goodwill
      and other intangible assets
                                        
                                        
                                        9,744,891
                                        
                                        
                                        
                                        14,725,250Deposits
      and other assets
                                        
                                        
                                        2,172,321
                                        
                                        
                                        
                                        -Total
      other assets
                                        
                                        
                                        12,324,509
                                        
                                        
                                        
                                        14,725,250Total
      assets
                                        
                                        $
                                        17,194,100
                                        
                                        
                                        $
                                        19,278,865LIABILITIES
      AND STOCKHOLDERS' (DEFICIT) EQUITYCurrent
      liabilitiesAccounts
      payable
                                        
                                        $
                                        3,064,721
                                        
                                        
                                        $
                                        2,639,200Accounts
      payable and deferred compensation - related party
                                        
                                        
                                        607,587
                                        
                                        
                                        
                                        408,850Loans
      and notes payable
                                        
                                        
                                        1,059,373
                                        
                                        
                                        
                                        1,414,530Notes payable to
      related parties
                                        
                                        
                                        833,092
                                        
                                        
                                        
                                        -Accrued
      expenses and other liabilities
                                        
                                        
                                        2,429,315
                                        
                                        
                                        
                                        5,738,553Deferred
      revenue
                                        
                                        
                                        2,752,365
                                        
                                        
                                        
                                        1,409,984Deferred
      acquisition payments
                                        
                                        
                                        472,670
                                        
                                        
                                        
                                        -Total
      current liabilities
                                        
                                        
                                        11,219,123
                                        
                                        
                                        
                                        11,611,117Long-term
      liabilitiesCapital
      lease obligation
                                        
                                        
                                        52,900
                                        
                                        
                                        
                                        -Deferred
      acquisition payments
                                        
                                        
                                        648,399
                                        
                                        
                                        
                                        -Deferred
      compensation - related party
                                        
                                        
                                        315,364
                                        
                                        
                                        
                                        193,494Accrued
      dividends
                                        
                                        
                                        879,575
                                        
                                        
                                        
                                        479,896Fair
      value of warrants
                                        
                                        
                                        13,315,364
                                        
                                        
                                        
                                        -Total
      long-term liabilities
                                        
                                        
                                        15,211,602
                                        
                                        
                                        
                                        673,390Total
      liabilities
                                        
                                        
                                        26,430,725
                                        
                                        
                                        
                                        12,284,507Stockholders'
      (Deficit) EquityPreferred
      Stock, $.001 par value, 20,000,000 shares authorized;Series
      D mandatory convertible preferred stock; 694.6 shares
      authorized;0
      and 694.6 shares issued and outstanding for 2008 and 2007,
      respectively.
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Series
      E mandatory convertible preferred stock; 139 shares
      authorized;0
      and 139 issued and outstanding for 2008 and 2007,
      respectively.
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Series
      G mandatory convertible preferred stock; 1200 shares
      authorized;1,200
      and 300 shares issued and outstanding for 2008 and 2007,
      respectively.
                                        
                                        
                                        1
                                        
                                        
                                        
                                        -Series
      H mandatory convertible preferred stock; 400 shares
      authorized;400
      and 0 shares issued and outstanding for 2008 and 2007,
      respectively.
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Series
      I mandatory convertible preferred stock; 10,000 shares
      authorized;850
      and 0 shares issued and outstanding for 2008 and 2007,
      respectively.
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Series
      A mandatory convertible preferred stock; 1,500 shares
      authorized;155
      shares issued and outstanding for 2008 and 2007,
    respectively.
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Common
      Stock A, $.001 par value, 1,360,000,000 shares authorized;
      1,008,806,919and
      110,149,156 shares issued and outstanding for 2008 and 2007,
      respectively.
                                        
                                        
                                        1,008,807
                                        
                                        
                                        
                                        110,149Common
      Stock B, $.001 par value, 120,000,000 shares authorized;
      200,000and
      27,563,802 shares issued and outstanding for 2008 and 2007,
      respectively.
                                        
                                        
                                        200
                                        
                                        
                                        
                                        27,563Additional
      paid-in capital
                                        
                                        
                                        109,295,378
                                        
                                        
                                        
                                        84,414,311Accumulated
      deficit
                                        
                                        
                                        (119,541,011
                                        )
                                        
                                        
                                        (77,557,665
                                        )Total
      stockholders' (deficit) equity
                                        
                                        
                                        (9,236,625
                                        )
                                        
                                        
                                        6,994,358Total
      liabilities and stockholders' (deficit) equity
                                        
                                        $
                                        17,194,100
                                        
                                        
                                        $
                                        19,278,865The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 F-4
 
 THE AMACORE GROUP, INC.CONSOLIDATEDSTATEMENTS OF OPERATIONSFor
      the Years Ended December 31, 2008 and 20072008
                                  
                                  
                                  2007REVENUESMembership
      fees
                                  
                                  $
                                  26,641,534
                                  
                                  
                                  $
                                  4,188,084Commissions
                                  
                                  
                                  1,289,384
                                  
                                  
                                  
                                  108,787Marketing
      fees and materials
                                  
                                  
                                  1,530,904
                                  
                                  
                                  
                                  23,991Total
      revenues
                                  
                                  
                                  29,461,822
                                  
                                  
                                  
                                  4,320,862COST
      OF SALESSales
      commissions
                                  
                                  
                                  15,698,881
                                  
                                  
                                  
                                  2,086,180Benefit
      and service cost
                                  
                                  
                                  5,107,365
                                  
                                  
                                  
                                  139,767Total
      cost of sales
                                  
                                  
                                  20,806,246
                                  
                                  
                                  
                                  2,225,947GROSS
      PROFIT
                                  
                                  
                                  8,655,576
                                  
                                  
                                  
                                  2,094,915OPERATING
      EXPENSESDepreciation
                                  
                                  
                                  335,346
                                  
                                  
                                  
                                  47,607Amortization
                                  
                                  
                                  3,057,904
                                  
                                  
                                  
                                  41,164Office
      related expenses
                                  
                                  
                                  2,198,772
                                  
                                  
                                  
                                  517,559Professional
      fees
                                  
                                  
                                  5,052,320
                                  
                                  
                                  
                                  7,171,391Payroll
      and employee benefits
                                  
                                  
                                  8,771,271
                                  
                                  
                                  
                                  13,717,641Travel
                                  
                                  
                                  1,324,059
                                  
                                  
                                  
                                  527,179Selling
      and marketing
                                  
                                  
                                  10,462,421
                                  
                                  
                                  
                                  1,255,518Impairment
      loss on goodwill and other intangible assets
                                  
                                  
                                  15,308,944
                                  
                                  
                                  
                                  -Total
      operating expenses
                                  
                                  
                                  46,511,037
                                  
                                  
                                  
                                  23,278,059Loss
      from operations before other income and expense
                                  
                                  
                                  (37,855,461
                                  )
                                  
                                  
                                  (21,183,144
                                  )OTHER
      INCOME (EXPENSE)Interest
      income
                                  
                                  
                                  23,963
                                  
                                  
                                  
                                  102,652Interest
      expense
                                  
                                  
                                  (746,046
                                  )
                                  
                                  
                                  (154,200
                                  )Loss
      on conversion of note payable
                                  
                                  
                                  (242,652
                                  )
                                  
                                  
                                  -Gain
      on change in fair value of warrants (net)
                                  
                                  
                                  4,025,694
                                  
                                  
                                  
                                  -Gain
      on extinguishment of liabilities
                                  
                                  
                                  862,395
                                  
                                  
                                  
                                  -Other
                                  
                                  
                                  3,746
                                  
                                  
                                  
                                  4,506Total
      other income (expense)
                                  
                                  
                                  3,927,100
                                  
                                  
                                  
                                  (47,042
                                  )Net
      loss before income taxes
                                  
                                  
                                  (33,928,361
                                  )
                                  
                                  
                                  (21,230,186
                                  )Income
      taxes
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Net
      loss
                                  
                                  
                                  (33,928,361
                                  )
                                  
                                  
                                  (21,230,186
                                  )Preferred
      stock dividends and accretion
                                  
                                  
                                  (8,054,985
                                  )
                                  
                                  
                                  (1,046,134
                                  )Net
      loss available to common stockholders
                                  
                                  $
                                  (41,983,346
                                  )
                                  
                                  $
                                  (22,276,320
                                  )Basic
      and diluted loss per share
                                  
                                  $
                                  (0.28
                                  )
                                  
                                  $
                                  (0.19
                                  )Basic
      and diluted weighted average number of  common shares
      outstanding
                                  
                                  
                                  149,676,100
                                  
                                  
                                  
                                  119,654,979The
      accompanying notes are an integral part of these consolidated financial
      statements.
 F-5
 
 THE
      AMACORE GROUP, INC.CONSOLIDATEDSTATEMENTS OF STOCKHOLDERS' (DEFICIT)
      EQUITYFor
      the Year Ended December 31, 2008Preferred
      Stock
                                                                    
                                                                    
                                                                    Common
                                                                    
                                                                    
                                                                    Paid-In
                                                                    
                                                                    
                                                                    RetainedSeries
      A
                                                                    
                                                                    Series
      D
                                                                    
                                                                    
                                                                    Series
      E
                                                                    
                                                                    
                                                                    Series
      G
                                                                    
                                                                    
                                                                    Series
      H
                                                                    
                                                                    
                                                                    Series
      I
                                                                    
                                                                    
                                                                    Series
      J
                                                                    
                                                                    
                                                                    Series
      K
                                                                    
                                                                    
                                                                    Class
      A
                                                                    
                                                                    
                                                                    Class
      B
                                                                    
                                                                    
                                                                    Capital
                                                                    
                                                                    
                                                                    Deficit
                                                                    
                                                                    
                                                                    TotalDecember
      31,
                                                                      2007
                                                                    
                                                                    $
                                                                    0.16
                                                                    
                                                                    
                                                                    $
                                                                    0.69
                                                                    
                                                                    
                                                                    $
                                                                    0.14
                                                                    
                                                                    
                                                                    $
                                                                    0.30
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    110,149
                                                                    
                                                                    
                                                                    $
                                                                    27,563
                                                                    
                                                                    
                                                                    $
                                                                    84,414,311
                                                                    
                                                                    
                                                                    $
                                                                    (77,557,665
                                                                    )
                                                                    
                                                                    $
                                                                    6,994,358Purchase
      price
                                                                      adjustment
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    2,010,643
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    2,010,643Reclassification
                                                                      ofnoncompensatory
                                                                      warrants
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (626,638
                                                                    )
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (626,638
                                                                    )Private
      placement
                                                                      stock
      issuances
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    0.90
                                                                    
                                                                    
                                                                    
                                                                    0.40
                                                                    
                                                                    
                                                                    
                                                                    0.85
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    150
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    5,290,349
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    5,290,501Conversion
      of
                                                                      notes
      payableinto
      common
                                                                      stock
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    5,673
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    642,507
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    648,180Conversion
      of
                                                                      accrued
      dividendsinto
      preferred
                                                                      stock
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    0.08
                                                                    
                                                                    
                                                                    
                                                                    0.02
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    975,584
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    975,584Conversion
      into
                                                                      preferred
      stock
                                                                    
                                                                    
                                                                    (0.69
                                                                    )
                                                                    
                                                                    
                                                                    (0.14
                                                                    )
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    0.69
                                                                    
                                                                    
                                                                    
                                                                    0.14
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    -Conversion
      of
                                                                      preferred
      stockinto
      class A
                                                                      common
      stock
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (0.77
                                                                    )
                                                                    
                                                                    
                                                                    (0.16
                                                                    )
                                                                    
                                                                    
                                                                    853,248
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (853,247
                                                                    )
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    -Exercise
      of warrants
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    2,702
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    169,318
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    172,020Issuance
      of
                                                                      stock
      foracquisitions
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    1,800
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    8,998,200
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    9,000,000Stock
      and warrants
                                                                      issued
      forservices
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    7,722
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    2,056,285
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    2,064,007Conversion
      of
                                                                      common
      stockB
      for common
                                                                      stock
      A
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    27,363
                                                                    
                                                                    
                                                                    
                                                                    (27,363
                                                                    )
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    -Equity
      issuance costs
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (510,000
                                                                    )
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (510,000
                                                                    )Net
      loss
                                                                      available
      to
                                                                      common
                                                                      stockholders
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (41,983,346
                                                                    )
                                                                    
                                                                    
                                                                    (41,983,346
                                                                    )Preferred
      stock
                                                                      accretion
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    6,728,066
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    6,728,066December
      31,
                                                                      2008
                                                                    
                                                                    $
                                                                    0.16
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    1.20
                                                                    
                                                                    
                                                                    $
                                                                    0.40
                                                                    
                                                                    
                                                                    $
                                                                    0.85
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    -
                                                                    
                                                                    
                                                                    $
                                                                    1,008,807
                                                                    
                                                                    
                                                                    $
                                                                    200
                                                                    
                                                                    
                                                                    $
                                                                    109,295,378
                                                                    
                                                                    
                                                                    $
                                                                    (119,541,011
                                                                    )
                                                                    
                                                                    $
                                                                    (9,236,625
                                                                    )The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 F-6
 
 THE
      AMACORE GROUP, INC.CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITYFor
      the Year Ended December 31, 2007Preferred
      Stock
                                                  
                                                  
                                                  Common
                                                  
                                                  
                                                  Paid-In
                                                  
                                                  
                                                  RetainedSeries
      A
                                                  
                                                  Series
      D
                                                  
                                                  
                                                  Series
      E
                                                  
                                                  
                                                  Series
      G
                                                  
                                                  
                                                  Series
      H
                                                  
                                                  
                                                  Series
      I
                                                  
                                                  
                                                  Series
      J
                                                  
                                                  
                                                  Series
      K
                                                  
                                                  
                                                  Class
      A
                                                  
                                                  
                                                  Class
      B
                                                  
                                                  
                                                  Capital
                                                  
                                                  
                                                  Deficit
                                                  
                                                  
                                                  TotalDecember
      31,
                                                    2006
                                                  
                                                  $
                                                  0.16
                                                  
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  $
                                                  0.08
                                                  
                                                  
                                                  $
                                                  0.30
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  91,303
                                                  
                                                  
                                                  $
                                                  3,303
                                                  
                                                  
                                                  $
                                                  51,349,687
                                                  
                                                  
                                                  $
                                                  (55,281,345
                                                  )
                                                  
                                                  $
                                                  (3,837,052
                                                  )Sale
      of preferred
                                                    stock
                                                  
                                                  
                                                  
                                                  0.22
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  5,250,000
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  5,250,000Conversion
      of
                                                    notes
      payable
                                                    andaccounts
      payable
                                                    into
      stock
                                                  
                                                  
                                                  
                                                  0.33
                                                  
                                                  
                                                  
                                                  0.06
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  7,595
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  4,088,275
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  4,095,870Common
      stockcancelled
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (1,000
                                                  )
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (1,000
                                                  )Exercise
      of
                                                    warrants
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  1,806
                                                  
                                                  
                                                  
                                                  4,200
                                                  
                                                  
                                                  
                                                  48,272
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  54,278Issuance
      of
                                                    stock
      foracquisitions
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2,670
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  10,515,544
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  10,518,214Stock
      and warrants
                                                    issued
      forservices
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  5,335
                                                  
                                                  
                                                  
                                                  22,500
                                                  
                                                  
                                                  
                                                  13,084,515
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  13,112,350Conversion
                                                    of
      commonB
      for Common
                                                    A
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  2,440
                                                  
                                                  
                                                  
                                                  (2,440
                                                  )
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -Equity
      issuance
                                                    costs
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (552,000
                                                  )
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (552,000
                                                  )Net
      loss
                                                    available
                                                    to
      common stockholders
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  (22,276,320
                                                  )
                                                  
                                                  
                                                  (22,276,320
                                                  )Preferred
      stock
                                                    accretion
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  630,018
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  630,018December
      31,
                                                    2007
                                                  
                                                  $
                                                  0.16
                                                  
                                                  
                                                  $
                                                  0.69
                                                  
                                                  
                                                  $
                                                  0.14
                                                  
                                                  
                                                  $
                                                  0.30
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  -
                                                  
                                                  
                                                  $
                                                  110,149
                                                  
                                                  
                                                  $
                                                  27,563
                                                  
                                                  
                                                  $
                                                  84,414,311
                                                  
                                                  
                                                  $
                                                  (77,557,665
                                                  )
                                                  
                                                  $
                                                  6,994,358The
      accompanying notes are an integral part of these consolidated financial
      statements.
 F-7
 
 THE AMACORE GROUP, INC.CONSOLIDATEDSTATEMENTS OF CASH FLOWSFor
      the Years Ended December 31, 2008 and 20072008
                              
                              
                              2007Cash
      flows from operating activitiesNet
      loss
                              
                              $
                              (33,928,361
                              )
                              
                              $
                              (21,230,186
                              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of intangible assets
                              
                              
                              3,057,904
                              
                              
                              
                              41,164Amortization
      of discount on notes payable
                              
                              
                              504,419
                              
                              
                              
                              -Depreciation
                              
                              
                              335,346
                              
                              
                              
                              47,607Gain
      on change in fair value of warrants
                              
                              
                              (18,775,694
                              )
                              
                              
                              -Loss
      on the issuance of warrants
                              
                              
                              14,750,000
                              
                              
                              
                              -Gain
      on extinguishment of liabilities
                              
                              
                              (862,395
                              )
                              
                              
                              -Loss
      on impairment of goodwill and other intangible assets
                              
                              
                              15,308,944
                              
                              
                              
                              -Loss
      on conversion of note payable
                              
                              
                              242,652
                              
                              
                              
                              -Share-based
      payments to employees and consultants
                              
                              
                              2,064,007
                              
                              
                              
                              13,112,350Changes
      in operating assets and liabilities(Increase)
      decrease in accounts receivable
                              
                              
                              (22,292
                              )
                              
                              
                              72,090Decrease
      (increase) in non-trade receivables - related party
                              
                              
                              37,686
                              
                              
                              
                              (346,515
                              )Decrease
      (increase) in inventory and prepaid expenses
                              
                              
                              13,923
                              
                              
                              
                              (394,600
                              )Increase
      in deferred expenses
                              
                              
                              (1,793,154
                              )
                              
                              
                              -Increase
      in deposits and advances
                              
                              
                              (225,894
                              )
                              
                              
                              (27,500
                              )Increase
      in deferred customer acquisition costs
                              
                              
                              (407,297
                              )
                              
                              
                              -Increase
      in deposits and other assets
                              
                              
                              (1,838,091
                              )
                              
                              
                              -(Decrease)
      increase in accounts payable and accrued expenses
                              
                              
                              (2,095,619
                              )
                              
                              
                              3,383,086Decrease
      in deferred compensation
                              
                              
                              121,870
                              
                              
                              
                              (368,410
                              )Increase
      in deferred revenue
                              
                              
                              1,342,381
                              
                              
                              
                              168,592Net
      cash used in operating activities
                              
                              
                              (22,169,665
                              )
                              
                              
                              (5,542,322
                              )Cash
      flows from investing activities:Acquisition
      payment
                              
                              
                              (1,215,568
                              )
                              
                              
                              (25,000
                              )Purchase
      of property and equipment
                              
                              
                              (368,869
                              )
                              
                              
                              (152,253
                              )Purchase
      of certificate of deposit
                              
                              
                              (184,230
                              )
                              
                              
                              -Decrease
      (increase) in restricted cash
                              
                              
                              316,935
                              
                              
                              
                              (316,934
                              )Net
      cash used in investing activities
                              
                              
                              (1,451,732
                              )
                              
                              
                              (494,187
                              )Cash
      flows from financing activities:Deferred
      acquisition payments
                              
                              
                              (268,182
                              )
                              
                              
                              -Equity
      issuance costs
                              
                              
                              (510,000
                              )
                              
                              
                              (552,000
                              )Funds
      obtained through acquisitions
                              
                              
                              -
                              
                              
                              
                              305,775Net
      proceeds from credit card borrowing
                              
                              
                              66,892
                              
                              
                              
                              -Payments
      made on notes payable
                              
                              
                              (576,938
                              )
                              
                              
                              (330,319
                              )Payments
      on and redemption of convertible notes
                              
                              
                              (575,000
                              )
                              
                              
                              -Proceeds
      from exercise of common stock warrants
                              
                              
                              172,020
                              
                              
                              
                              54,278Proceeds
      from private placement equity issuance
                              
                              
                              500
                              
                              
                              
                              -Proceeds
      from notes payable
                              
                              
                              1,889,500
                              
                              
                              
                              3,334,771Proceeds
      from sale of preferred stock and warrants
                              
                              
                              21,500,000
                              
                              
                              
                              5,250,000Net
      cash provided by financing activities
                              
                              
                              21,698,792
                              
                              
                              
                              8,062,505(Decrease)
      increase in cash
                              
                              $
                              (1,922,605
                              )
                              
                              $
                              2,025,996Beginning
      cash
                              
                              
                              2,161,042
                              
                              
                              
                              135,046Ending
      cash
                              
                              $
                              238,437
                              
                              
                              $
                              2,161,042SUPPLEMENTAL
      INFORMATION:Cash
      paid for interest
                              
                              $
                              43,521
                              
                              
                              $
                              -Cash
      paid for taxes
                              
                              $
                              -
                              
                              
                              $
                              -The
      accompanying notes are an integral part of these consolidated financial
      statements.
 
 F-8
  
 THE
AMACORE GROUP, INC.
 NOTESTO CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007
   
 NOTE
1 – NATURE OF OPERATIONS
  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 sold 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.
 
 Management’s Assessment of
Liquidity
 
 At
December 31, 2008, the Company had negative working capital of approximately
$7.2 million and an accumulated deficit of approximately $119.5 million. 
For the year ended December 31, 2008, the Company had a net loss of
approximately $33.9 million. During 2008, the Company raised from its
majority stockholder $21.5 million of equity funding.
 
 The
Company believes that cash resources, together with increasing revenue and
assuming the continued support of its majority stockholder, will be sufficient
to sustain current planned operations for the next 12 months. The Company raised
$8 million from its majority stockholder in two tranches completed in January
2009 and March 2009.  Although management believes that the Company’s
current cash position and anticipated revenue in 2009 will be sufficient to meet
its current levels of operations, additional cash resources may be required
should the Company not meet its sales targets, exceed its projected operating
costs, wish to accelerate sales or complete one or more acquisitions or if
unanticipated expenses arise or are incurred.
 
 The
Company does not currently maintain a line of credit or term loan with any
commercial bank or other financial institution and has not made any other
arrangements to obtain additional financing.  We can provide no
assurance that we will not require additional financing.  Likewise, we
can provide no assurance that if we need additional financing that it will be
available in an amount or on terms acceptable to us, if at all.  If we
are unable to obtain additional funds when they are needed or if such funds
cannot be obtained on terms favorable to us, we may be unable to execute upon
our business plan or pay our costs and expenses as they are incurred, which
could have a material, adverse effect on our business, financial condition and
results of operations.
 
 
 NOTE
2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
  Principles
of Consolidation
 
 The
consolidated financial statements include our accounts and the accounts of our
subsidiaries.  All significant intercompany accounts and transactions
have been eliminated.
 
 Revenue
Recognition
 
 Membership
Fees
 
 The
Company recognizes revenues from membership fees for the sales of health-related
discount benefit plans as earned. These arrangements are generally renewable
monthly and revenue is recognized over the renewal period.  As these
products often include elements sold through contracts with third-party
providers, the Company considers each contractual arrangement in accordance with
EITF 99-19, Reporting
Revenue Gross as a
Principal versus Net as an Agent(EITF 99-19). The Company’s current
contracts meet the requirements of EITF 99-19 for reporting revenue on a gross
basis. The Company records a reduction in revenue for estimated refunds,
chargebacks from credit card companies, and allowances based upon actual history
and management’s evaluation of current facts and circumstances. In January 2008,
the Company entered into an arrangement with a third party to expand
distribution of the Company’s products. The terms of this arrangement led to a
significant increase in refunds and chargebacks. Refunds and chargebacks totaled
approximately $8.1 million and $830.6 thousand for the years ended December 31,
2008 and 2007, respectively.  An estimate for refunds and chargebacks
of approximately $390.5 thousand and approximately $19.4 thousand at December
31, 2008 and 2007, respectively, is included in accrued expenses and other
liabilities in the accompanying balance sheets.
 
 
 F-9
 
 
 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 recognized when marketing materials are provided to the
representatives.
 
 Concentration of Credit
Risk
 
 For the
year ended December 31, 2008, revenues generated by LifeGuard Benefit
Services, Inc. (Lifeguard) represent approximately 83% of total
consolidated revenue.  Lifeguard’s products are dependent upon
strategic relationships with insurance companies; accordingly, a change in these
strategic relationships, contractual or otherwise, could negatively impact the
Company’s business.
 
 For the
year ended December 31, 2008, one third-party-telemarketing-company that sells
certain LifeGuard products represents approximately 51% of LifeGuard’s revenue
and approximately 43% of consolidated revenue.
 
 At
certain times, the Company’s bank deposits exceed the amounts insured by the
FDIC. Should the financial institution cease operations when the Company’s
deposit balances exceed FDIC insured limits, it would be a significant
disruption to the Company’s cash flow.  Management continually monitors the
Company’s banking relationships to lessen this risk.  In addition, a
majority of the Company’s credit card processing is with one merchant
processor.
 
 Use of
Estimates
  The
preparation of the Company’s consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
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 judgment include the allowance of a 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 those
estimates.
 
 Accounts
Receivable
  Accounts
receivable are stated at estimated net realizable value.  Accounts
receivable are primarily comprised of balances due from memberships, net of
estimated allowances for uncollectible accounts.  In determining
collectability, historical trends are evaluated and specific customer issues are
reviewed to arrive at appropriate allowances. At December 31, 2008 and 2007, no
allowance was recorded.
 
 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.
 
 
 F-10
 
 
 
 DeferredCustomer 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
December 31, 2008 and December 31, 2007, unamortized customer acquisition costs
of approximately $1.6 million and $0, respectively, are included in deferred
expenses and approximately $407 thousand and $0, respectively, are included in
deferred customer acquisition costs in the accompanying balance
sheets.  Amounts paid for leads that do not result in a sale are
expensed immediately as a selling and marketing expense.
 
 In
January 2008, the Company entered into an arrangement with a third party to
expand distribution of the Company’s products resulting in an increase in
customer acquisition costs for the years ended December 31, 2008 and
2007.  Customer acquisition costs of approximately $4.9 million and $0
for the years ended December 31, 2008 and 2007, 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 (see Note 9).
 
 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 market value of each respective reporting
unit to the carrying value of that reporting unit’s net assets. If the estimated
market values exceed 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.
 
 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 years ended December 31, 2008
and 2007, advertising costs were approximately $70.4 thousand and $43 thousand,
respectively.
 
 Stock-Based
Compensation
 
 The
Company accounts for share-based compensation 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.  This
Statement establishes fair value as the measurement objective in accounting for
share-based payment arrangements and requires all entities to apply a
fair-value-based measurement method in accounting for share-based payment
transactions.  The Company uses the Black-Scholes Option Pricing Model
in computing fair value of warrant instrument issuances and uses closing market
price for Common A and Common B stock issuances.
  The
Company determines the measurement date of its share-based payments made to
non-employees in accordance EITF 96-18 Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services(EITF 96-18).  EITF 96-18 requires
the issuer to measure the fair value of the equity instrument using the stock
price or other measurement assumptions as of the earlier of either of the
following:  the date at which a commitment for performance by the
counterparty to earn the equity instruments is reached or the date at which the
counterparty’s performance is complete.
 
 
 F-11
 
 
 Convertible
Instruments
 
 The
Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, 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 debt instrument 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 term of the instrument using the effective interest rate
method.
 
 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 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
or (b) physical or net share settlement is not within the control of the
Company. 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 using the effective interest rate
method.
 
 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, it is more likely than not
that some or all of the deferred tax assets will not be realized.
 
 On
January 1, 2007, we adopted the Financial Accounting Standards Board’s
Interpretation No. 48, Accounting for Uncertainty in Income
Taxes — An Interpretation of FASB Statement No. 109 (FIN 48). FIN 48
clarified the accounting for uncertainty in an enterprise's financial statements
by prescribing a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 requires us to evaluate our open
tax positions that exist on the date of initial adoption in each
jurisdiction.
 
 When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are 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.
 
 
 
 F-12
 
 
 Fair Value
Measurements
 
 On
January 1, 2008, we adopted Statement of Financial Accounting Standard No. 157
Fair Value Measurements
(SFAS 157), except for nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a
nonrecurring basis for which delayed application is permitted until the year
beginning Janary 1, 2009.  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.
 
 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.  Earnings (loss)
per share are computed using the basic and diluted calculations on the face of
the statement of operations. 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. 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 loss per share when the issuance of the shares is no longer
contingent.  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.
 
 Reclassifications
 
 Certain
amounts within the operating expense category of the statement operations for
the prior year have been reclassified to conform to the current period
presentation.
 
 Recent Accounting
Pronouncements
  In
December 2007, the Financial Accounting Standards Board issued SFAS
160, Noncontrolling
Interests in Consolidated Financial Statements - An Amendment of ARB No.
51(SFAS 160).  SFAS 160 establishes accounting and reporting
standards for the noncontrolling interest in a subsidiary and for the
deconsolidation of a subsidiary.  SFAS 160is effective for fiscal
years, and interim periods within those fiscal years, beginning on or after
December 15, 2008.  Earlier adoption is prohibited.  The
Company believes that SFAS 160 will not have a material impact, if any, on its
financial statements.
 
 Also in
December 2007, the Financial Accounting Standards Board issued SFAS
No. 141(R), Business
Combinations, a replacement of SFAS No. 141, Business Combinations.
The objective of this Statement is to improve the relevance, representational
faithfulness and comparability of the information that a reporting entity
provides in its financial reports about a business combination and its effects.
This Statement establishes principles and requirements for how the acquirer
recognizes and measures the identifiable assets acquired and liabilities
assumed, measures the goodwill acquired or gain from a bargain purchase, and
determines what information to disclose. The Company cannot determine what
impact the adoption of this requirement, which became effective January 1,
2009, will have on its consolidated financial statements with respect to future
acquisitions.
 
 
 F-13
 
 
 In
February 2008, the Financial Accounting Standards Board issued Financial Staff
Position SFAS 157-2, Effective Date of FASB Statement
No. 157(FSP 157-2), which delays the effective date of SFAS No. 157, Fair Value
Measurements (SFAS 157), for all nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually).
 FSP 157-2 partially defers the effective date of SFAS 157 to fiscal
years beginning after November 15, 2008, and interim periods within those
fiscal years for items within the scope of this FSP.  FSP 157-2 is
effective for the Company beginning January 1, 2009.  The
Company is evaluating the impact of the pronouncement in its financial
statements.
  In
June 2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an
Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF
07-5). EITF 07-5 provides that an entity should use a two step approach to
evaluate whether an equity-linked financial instrument (or embedded feature) is
indexed to its own stock, including evaluating the instrument's contingent
exercise and settlement provisions. It also clarifies on the impact of foreign
currency denominated strike prices and market-based employee stock option
valuation instruments on the evaluation. EITF 07-5 is effective for fiscal years
beginning after December 15, 2008. The Company is currently assessing the impact
of EITF 07-5 on its consolidated financial position and results of
operations.
 
 NOTE
3 – ACCOUNTING
CHANGES AND ERROR CORRECTIONS
  As
discussed in Note 13, the Company recorded beneficial conversion features in
connection with certain of its Preferred Stock issuances.  The Company
originally accounted for the beneficial conversion features in accordance with
EITF Issue No. 00-27 and EITF Issue No. 98-5. The resulting discounts had been
accreted as a dividend to the preferred stockholders from the date of issuance
to the preferred stock’s mandatory conversion date, using the effective interest
rate method.
 
 In June
2008, the Emerging Issues Task Force issued EITF Issue No. 08-04Transition Guidance for Conforming
Changes to EITF Issue No. 98-5, Accounting for Convertible Securities with
Beneficial Conversion Features or Contingently Adjustable Conversion Ratios(EITF 08-4) which requires beneficial conversion options be amortized
from the date of issuance to the earliest conversion date.
 
 The
Company adopted EITF 08-04 as of December 31, 2008.  Transition
guidance prescribed by EITF 08-04 requires conforming changes be presented
retrospectively with the cumulative-effect of the change being reported in
retained earnings in the balance sheet as of the beginning of the year as well
as be disclosed as a change in accounting principle in compliance with
disclosure requirements of Statement of Financial Accounting Standards No. 154
Accounting Changes and Error
Corrections (SFAS 154).
 
 As a
result of the adoption of EITF 08-04, the Company recorded a retrospective
adjustment of approximately $458 thousand, of which approximately $3
thousand is reflected in beginning 2007 accumulated deficit.  This
adjustment had the effect of increasing the Company’s beginning accumulated
deficit and additional paid-in capital as reported in the accompanying balance
sheet and the preferred stock dividend accretion and net loss available to
common stockholders as reported in the accompanying statement of
operations.  This adjustment did not change prior year’s basic or
diluted loss per share as originally reported.
  
 F-14
 
 
 The
following tables present the effects of the accounting principle change on
interim-period results:
 
 Three
      Months EndedMarch
      31, 2008
                                                
                                                
                                                June
      30, 2008Reported
                                                
                                                
                                                Effects
      of Accounting Change
                                                
                                                
                                                After
      Adoption
                                                
                                                
                                                Reported
                                                
                                                
                                                Effects
      of Accounting Change
                                                
                                                
                                                After
      AdoptionNet
      loss
                                                
                                                $
                                                (13,350,855
                                                )
                                                
                                                
                                                
                                                
                                                $
                                                (13,350,855
                                                )
                                                
                                                $
                                                (5,322,596
                                                )
                                                
                                                
                                                
                                                
                                                $
                                                (5,322,596
                                                )Preferred
      stock dividends and accretion
                                                
                                                
                                                (275,106
                                                )
                                                
                                                
                                                (449,587
                                                )
                                                
                                                
                                                (724,693
                                                )
                                                
                                                
                                                (388,969
                                                )
                                                
                                                
                                                (827,047
                                                )
                                                
                                                
                                                (1,216,016
                                                )Net
      loss available to common stockholders
                                                
                                                $
                                                (13,625,961
                                                )
                                                
                                                
                                                
                                                
                                                
                                                $
                                                (14,075,548
                                                )
                                                
                                                $
                                                (5,711,565
                                                )
                                                
                                                
                                                
                                                
                                                
                                                $
                                                (6,538,612
                                                )Basic
      and diluted loss per share
                                                
                                                $
                                                (0.10
                                                )
                                                
                                                
                                                
                                                
                                                
                                                $
                                                (0.10
                                                )
                                                
                                                $
                                                (0.04
                                                )
                                                
                                                
                                                
                                                
                                                
                                                $
                                                (0.04
                                                )Basic
      and diluted weighted average number of  common shares
      outstanding
                                                
                                                
                                                140,981,596
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                
                                                147,549,553
 
  Three
      Months EndedSeptember
      30, 2008
                                                      
                                                      
                                                      December
      31, 2008Reported
                                                      
                                                      
                                                      Effects
      of Accounting Change
                                                      
                                                      
                                                      After
      Adoption
                                                      
                                                      
                                                      Prior
      to Adoption
                                                      
                                                      
                                                      Effects
      of Accounting Change
                                                      
                                                      
                                                      After
      AdoptionNet
      loss
                                                      
                                                      $
                                                      (11,175,656
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (11,175,656
                                                      )
                                                      
                                                      $
                                                      (4,079,254
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (4,079,254
                                                      )Preferred
      stock dividends and accretion
                                                      
                                                      
                                                      (489,524
                                                      )
                                                      
                                                      
                                                      (847,779
                                                      )
                                                      
                                                      
                                                      (1,337,303
                                                      )
                                                      
                                                      
                                                      (7,359,643
                                                      )
                                                      
                                                      
                                                      2,582,670
                                                      
                                                      
                                                      
                                                      (4,776,973
                                                      )Net
      loss available to common stockholders
                                                      
                                                      $
                                                      (11,665,180
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (12,512,959
                                                      )
                                                      
                                                      $
                                                      (11,438,897
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (8,856,227
                                                      )Basic
      and diluted loss per share
                                                      
                                                      $
                                                      (0.08
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (0.08
                                                      )
                                                      
                                                      $
                                                      (0.07
                                                      )
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      $
                                                      (0.06
                                                      )Basic
      and diluted weighted average number of  common shares
      outstanding
                                                      
                                                      
                                                      149,297,612
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      
                                                      159,534,761
     For
      the Year EndedDecember
      31, 2008
                                            
                                            
                                            December
      31, 2007Prior
      to Adoption
                                            
                                            
                                            Effects
      of Accounting Change
                                            
                                            
                                            After
      Adoption
                                            
                                            
                                            Reported
                                            
                                            
                                            Effects
      of Accounting Change
                                            
                                            
                                            After
      AdoptionNet
      loss
                                            
                                            $
                                            (33,928,361
                                            )
                                            
                                            
                                            
                                            
                                            $
                                            (33,928,361
                                            )
                                            
                                            $
                                            (21,230,186
                                            )
                                            
                                            
                                            
                                            
                                            $
                                            (21,230,186
                                            )Preferred
      stock dividends and accretion
                                            
                                            
                                            (8,513,242
                                            )
                                            
                                            
                                            458,257
                                            
                                            
                                            
                                            (8,054,985
                                            )
                                            
                                            
                                            (590,781
                                            )
                                            
                                            
                                            455,353
                                            
                                            
                                            
                                            (1,046,134
                                            )Net
      loss available to common stockholders
                                            
                                            $
                                            (42,441,603
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (41,983,346
                                            )
                                            
                                            
                                            (21,820,967
                                            )
                                            
                                            
                                            
                                            
                                            
                                            
                                            (22,276,320
                                            )Basic
      and diluted loss per share
                                            
                                            $
                                            (0.28
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (0.28
                                            )
                                            
                                            $
                                            (0.18
                                            )
                                            
                                            
                                            
                                            
                                            
                                            $
                                            (0.19
                                            )Basic
      and diluted weighted average number of  common shares
      outstanding
                                            
                                            
                                            149,676,100
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            119,654,979
 
 F-15
 
 
 
 NOTE
4 – ACQUISITIONS
 
 U.S. Health Benefits
Group
 
 Effective
April 1, 2008, the Company acquired 100% of the outstanding common stock of U.S.
Health Benefits Group (USHBG), a call center-based marketing company that was a
key agent for the Company’s LifeGuard products.  The consideration for
the acquisition was a combination of cash and stock.  The agreed value
of the acquisition was $14.3 million and was payable as follows:
 
 ●
              Cash
      at closing was approximately $1.2 million, net of cash
      acquired
 ●
              1.8
      million unregistered shares of Class A common stock with a deemed value of
      $5.00 per share ($9.0 million
equivalent)
 ●
              Deferred
      cash payments of approximately $1.6 million payable in equal installments
      quarterly over a three-year period
 ●
              Contingent
      consideration of approximately $2.6 million, consisting of $850 thousand
      based on performance targets in each of the next
      three years.  This amount may be increased if USHBG exceeds
      its performance targets.
 
 The
purchase agreement provides for a share adjustment, if necessary, 18 months from
the acquisition’s effective date.  Within the immediately preceding
30-day period prior to the 18-month anniversary of closing (the “Share
Adjustment Date”) if the Company’s common stock has an average trading price
below $5.00 per share, but not less than $1.50 per share (subject to certain
adjustments), additional shares of the Company’s common stock will be issued
such that the aggregate number of shares issued under the terms of the merger
agreement have a value equal to the agreed-upon value of $9.0
million.  In the event the Company’s common stock has an average
trading price for the said period of $5.00 or more, no adjustment shall be made
to the amount of common stock previously issued and the previous stock issuance
shall be deemed final and not subject to further adjustment.  However,
in the event the average common stock price is below $1.50 for the said
adjustment period, the Company has the right to effectively unwind the merger
and transfer 100% of USHBG’s acquired stock to the former USHBG
stockholders.  In addition, in such event the Company has the right to
receive from USHBG stockholders 80% of the Company’s common stock issued as
consideration. At December 31, 2008, the Company’s common stock had a trading
price of $0.12 per share.  If the Company’s common stock is trading at
this price at the Share Adjustment Date, the Company will be required to either
issue 73.2 million shares or unwind the transaction.
 
 The USHBG
purchase price was allocated to tangible and intangible assets acquired and
liabilities assumed based on their estimated fair values at the date of
acquisition of April 1, 2008.  The excess of the purchase price over
the fair value of net assets acquired was allocated to goodwill.
  The
following table summarizes the estimated fair values of net assets
acquired:
 
 Tangible
      assets:Cash
      and cash equivalents
                        
                        $
                        59,432Accounts
      receivable
                        
                        
                        120,603Property,
      plant and equipment
                        
                        
                        271,453Total
      tangible assets
                        
                        
                        451,488Liabilities:Accounts
      payable
                        
                        
                        67,005Accrued
      expenses
                        
                        
                        97,245Loans
      and notes payable
                        
                        
                        83,036Total
      liabilities
                        
                        
                        247,286Net
      tangible assets acquired
                        
                        
                        204,202Identifiable
      intangible assets
                        
                        
                        6,019,000Goodwill
                        
                        
                        5,402,243Total
      net assets acquired
                        
                        $
                        11,625,445
  The
difference between the agreed value of the acquisition of $14.3 million and the
total net assets acquired of approximately $11.6 million is a result of
discounting the deferred cash payments as well as excluding contingent
consideration as required by Statement of Financial Accounting Standard No. 141,
Business
Combinations.  The earn-out provision of the acquisition
agreement is based on future earnings of USHBG and, thus, represents contingent
consideration.  Once the contingency period expires and the earn-out
is determinable, this additional acquisition consideration, if any, will be
recorded as additional purchase price and, consequently, will increase the
goodwill associated with this acquisition.  As disclosed in Note 9, an
impairment charge was recorded during the year ended December 31, 2008
associated with the goodwill and intangible assets acquired in respect to the
USHBG acquisition.
 
 
 F-16
 
 
 The
identified intangible assets include the USHBG trade name, computer software,
and customer relationships.  The Company engaged a third-party
valuation specialist to assist in estimating the fair value of the acquired
intangible assets.
 
 JRM Benefits Consultants,
LLC
 
 On
September 1, 2007, the Company completed the acquisition of JRM Benefits
Consultants, LLC (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.
 
 In
consideration for the shares of JRM common stock, the Company issued 200
thousand unregistered shares of its Class A common stock with a deemed value of
$5.00 per share for all outstanding shares of JRM and assumed approximately $300
thousand of liabilities.  The agreed-upon acquisition consideration
was $1.0 million. The merger agreement provides for a share adjustment, if
necessary, 18 months from the acquisition’s effective date.  Within
the immediate preceding 30 day period prior to the share adjustment date, if the
Company’s common stock has an average trading price below $5.00 per share, but
not less than $2.00 per share, additional shares of the Company’s common stock
will be issued such that the aggregate number of shares issued under the terms
of the merger agreement has a value equal to the agreed-upon value of $1.0
million.  In the event the Company’s common stock has an average
trading price of $5.00 or in excess of $5.00 for the applicable period, no
adjustment shall be made to the amount of common stock previously issued and the
previous stock issuance shall be deemed final and not subject to further
adjustment.  However, in the event the average common stock price is
below $2.00 for the applicable adjustment period, the Company has the option to
terminate this transaction in which event the Company shall return 100% of the
equity received from the prior JRM equity holders in the same proportion as held
immediately prior to the acquisition. In the event of termination, the Company
has the right to receive from the prior JRM equity holders 80% of the
Company’s common stock issued as consideration for the purchase
price.  At December 31, 2008, the Company’s common stock had a trading
price of $0.12 per share.  If the Company’s common stock is trading at
this price at the Share Adjustment Date, the Company has the option to unwind
the transaction.
 
 The
accounting for the below-market guarantee in the above transaction was in
accordance with EITF Issue No. 97-15, Accounting for Contingency
Arrangements Based on Security Prices in a Purchase Business Combination.
The Company recorded approximately $180 thousand as the value of the maximum
amount of shares that potentially may be issued as it is lower than the targeted
value of $1.0 million.  Total recorded acquisition cost was
approximately $490 thousand, which consists of $180 thousand share consideration
and $290 thousand of liabilities assumed and $20 thousand of bank
overdraft.  As a result of this acquisition, the Company recorded
approximately $490 thousand of goodwill.
 
 Lifeguard Benefit Services,
Inc.
 
 On
October 9, 2007, the Company completed the acquisition of LifeGuard Benefit
Services, Inc. (LifeGuard) through a stock-for-stock merger between LifeGuard
and the Company’s wholly owned subsidiary, LBS Acquisition
Corp.
 
 In
consideration for the merger, the Company issued approximately 2.5 million
unregistered shares of Class A common stock with a deemed value of $5.00 per
share ($12.3 million) for each share of outstanding LifeGuard common stock as
well as assumed certain liabilities in the amount of approximately $5.6
million, for an aggregate purchase price of $18.0 million.  The merger
agreement provides for a share adjustment, if necessary, 18 months from the
acquisition’s effective date.  Within the immediate preceding 30 day
period prior to the share adjustment date, if the Company’s common stock has an
average trading price below $5.00 per share but not less than $1.50 per share,
additional shares of the Company’s common stock will be issued such that the
aggregate number of shares issued under the terms of the merger agreement has a
value equal to the agreed-upon value of approximately $12.3
million.  In the event the Company’s common stock has an average
trading price for the applicable period of $5.00 or more, no adjustment shall be
made to the amount of common stock previously issued and the previous stock
issuance shall be deemed final and not subject to further
adjustment.  However, in the event the average common stock price is
below $1.50 for the applicable adjustment period, the Company has the right to
effectively unwind the merger and transfer 100% of the acquired LifeGuard’s
stock back to the previous LifeGuard stockholders in the same proportion as held
immediately prior to the merger.  In addition, the Company has the
right to receive from LifeGuard stockholders 80% of the Company’s common stock
issued as merger consideration.  At December 31, 2008, the Company’s
common stock had a trading price of $0.12 per share.  If the Company’s
common stock is trading at this price at the Share Adjustment Date, the Company
will be required to either issue 100.4 million shares or unwind the
transaction.
 
 The
Company has completed the identification and valuation analysis of the
intangible assets acquired in respect to the LifeGuard and JRM
acquisitions.  Prior to the completion of the Company’s valuation
analysis these intangible assets were identified as unallocated assets in the
consolidated balance sheet.  Based upon the finalized allocation, the
Company has adjusted amortization expense.
 
 
 F-17
 
 
 
 The
following table summarizes the estimated fair values of net assets acquired in
respect to the LifeGuard and JRM acquisitions:
  LifeGuard
                        
                        
                        JRMAs
      of
                        
                        
                        As
      ofOctober
      9,
                          2007
                        
                        
                        September
      1,
                          2007Tangible
      assets:Cash
                        
                        $
                        305,776
                        
                        
                        $
                        -Accounts
      receivable
                        
                        
                        409,598
                        
                        
                        
                        -Inventory
                        
                        
                        37,814
                        
                        
                        
                        -Other
      assets
                        
                        
                        663,045
                        
                        
                        
                        -Property,
      plant and equipment
                        
                        
                        421,806
                        
                        
                        
                        -Total
      tangible assets
                        
                        
                        1,838,039
                        
                        
                        
                        -Liabilities:Accounts
      payable
                        
                        
                        1,639,839
                        
                        
                        
                        -Accounts
      payable - related party
                        
                        
                        873,073
                        
                        
                        
                        -Accrued
      expenses
                        
                        
                        1,712,986
                        
                        
                        
                        -Loans
      and notes payable
                        
                        
                        271,343
                        
                        
                        
                        232,733Deferred
      revenue
                        
                        
                        1,147,486
                        
                        
                        
                        54,411Total
      liabilities
                        
                        
                        5,644,727
                        
                        
                        
                        287,144Net
      tangible assets acquired
                        
                        
                        (3,806,688
                        )
                        
                        
                        (287,144
                        )Identifiable
      intangible assets
                        
                        
                        11,863,000
                        
                        
                        
                        169,900Goodwill
                        
                        
                        4,281,662
                        
                        
                        
                        322,244Total
      net assets acquired
                        
                        $
                        12,337,974
                        
                        
                        $
                        205,000
 
 Unaudited
pro forma results of operations for the years ended December 31, 2008 and
2007 presented as though USHBG, JRM and LifeGuard had been acquired at January
1, 2007 follows.  The unaudited pro forma results of operations does
not purport to represent what the Company’s actual results of operations would
have been had we acquired USHBG, JRM and LifeGuard on January 1, 2007 and should
not serve as a forecast of the Company’s operating results for any future
periods.  The pro forma adjustments are based solely upon certain
assumptions that management believes are reasonable under the circumstances at
this time.  The unaudited pro forma results of operations is
presented as follows:
 
 F-18
 
 For
      the Year Ended December 31, 2008As
      Reported
                                  
                                  
                                  JRM(1)
                                  
                                  
                                  LG(1)
                                  
                                  
                                  USHBG (2)
                                  
                                  
                                  Elimination
      (3)
                                  
                                  
                                  TotalTotal
      revenues
                                  
                                  
                                  29,461,822
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,289,014
                                  
                                  
                                  
                                  (963,920
                                  )
                                  
                                  
                                  29,786,916Net
      loss
                                  
                                  
                                  (41,983,346
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  38,108
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (41,945,238
                                  )Basic
      and diluted loss per share
                                  
                                  
                                  (0.28
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (0.28
                                  )For
      the Year Ended December 31, 2007As
      Reported
                                  
                                  
                                  JRM(4)
                                  
                                  
                                  LifeGuard(5)
                                  
                                  
                                  USHBG(6)
                                  
                                  
                                  Elimination(3)
                                  
                                  
                                  TotalTotal
      revenues
                                  
                                  
                                  4,320,862
                                  
                                  
                                  
                                  201,494
                                  
                                  
                                  
                                  5,003,973
                                  
                                  
                                  
                                  5,480,882
                                  
                                  
                                  
                                  (3,207,555
                                  )
                                  
                                  
                                  11,799,656Net
      loss
                                  
                                  
                                  (22,276,320
                                  )
                                  
                                  
                                  88,715
                                  
                                  
                                  
                                  (788,241
                                  )
                                  
                                  
                                  293,705
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (22,682,141
                                  )Basic
      and diluted loss per share
                                  
                                  
                                  (0.19
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (0.18
                                  )
  Footnotes:(1)
      No proforma results are included since the acquisition occurred in
      2007. All of the results of operations are included  in
      the As Reported column.(2)
      Represents the results of operations from January 1, 2008 to the date of
      acquisition, April 1, 2008. The remainder of the  year
      is included in the As Reported column.(3) Represents
      the intercompany revenue and expense between USHBG and LifeGuard that
      would be eliminated upon  consolidation.(4)
      Represents the results of operations from January 1, 2007 to the date of
      acquisition, September 1, 2007. The remainder  of
      the year is included in the As Reported column.(5)
      Represents the results of operations from January 1, 2007 to the date of
      acquisition, October 9, 2007. The remainder  of
      the year is included in the As Reported column.(6) Represents
      the results of operations for the entire year ended December 31,
      2007. USHBG was not acquired  until
      April 1, 2008.
  
 F-19
 
 
 
 NOTE
5 – NONCASH 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 years ended
December 31, 2008 and December 31, 2007.
 
 2008
                    
                    
                    2007Beneficial
      conversion feature accretion
                    
                    $
                    6,728,066
                    
                    
                    $
                    174,666Common
      stock issued as acquisition consideration
                    
                    
                    9,000,000
                    
                    
                    
                    10,518,213Conversion
      of common B stock to common A stock
                    
                    
                    27,363
                    
                    
                    
                    -Conversion
      value of accrued dividends and accrued interest onaccrued
      dividends into preferred stock
                    
                    
                    975,584
                    
                    
                    
                    -Conversion
      value of notes payable and interest to common stock
                    
                    
                    648,180
                    
                    
                    
                    174,463Conversion
      value of notes payable and interest to preferred stock
                    
                    
                    -
                    
                    
                    
                    3,916,000Conversion
      value of preferred stock into common stock
                    
                    
                    853,248
                    
                    
                    
                    -Liability
      issued as acquisition consideration
                    
                    
                    1,484,535
                    
                    
                    
                    -Payment
      of accounts payable with common stock
                    
                    
                    -
                    
                    
                    
                    14,552Preferred
      stock dividends
                    
                    
                    1,326,919
                    
                    
                    
                    416,115Property
      and equipment acquired under capital lease obligations
                    
                    
                    243,837
                    
                    
                    
                    -Reclassification
      of noncompensatory warrants from equity to liability
                    
                    
                    626,638
                    
                    
                    
                    -
 
 
 NOTE 6
- DEFERRED EXPENSES
 
 Deferred
expenses consist of the following at December 31, 2008 and 2007:
 
 2008
                          
                          
                          2007Agent
      advances
                          
                          $
                          874,533
                          
                          
                          $
                          923,310Customer
      acquisition costs
                          
                          
                          1,649,775
                          
                          
                          
                          -Prepaid
      expenses
                          
                          
                          292,644
                          
                          
                          
                          100,488Total
                          
                          $
                          2,816,952
                          
                          
                          $
                          1,023,798
 
 
 NOTE 7
– DEPOSITS AND OTHER ASSETS
  Deposits
and other noncurrent assets consist of the following at December 31, 2008 and
2007:
 
 2008
                            
                            
                            2007Agent
      advances
                            
                            $
                            507,299
                            
                            
                            $
                            -Merchant
      reserve deposit
                            
                            
                            1,100,000
                            
                            
                            
                            -Certificate
      of deposit
                            
                            
                            185,832
                            
                            
                            
                            -Prepaid
      and other expenses
                            
                            
                            379,190
                            
                            
                            
                            -Total
                            
                            $
                            2,172,321
                            
                            
                            $
                            -
 
 
 
 F-20
 
 
 NOTE 8
– PROPERTY, PLANT AND EQUIPMENT, NET
 
 Property,
Plant and Equipment, net of accumulated depreciation, consist of the following
at December 31, 2008 and 2007:
 
 2008
                        
                        
                        2007Computer
      hardware
                        
                        $
                        412,953
                        
                        
                        $
                        418,804Furniture
      and fixtures
                        
                        
                        355,133
                        
                        
                        
                        70,635Equipment
      and machinery
                        
                        
                        318,927
                        
                        
                        
                        21,372Leasehold
      improvements
                        
                        
                        224,233
                        
                        
                        
                        39,9321,311,246
                        
                        
                        
                        550,743Less
      accumulated depreciation
                        
                        
                        (447,709
                        )
                        
                        
                        (132,387
                        )Total
                        
                        $
                        863,537
                        
                        
                        $
                        418,356
 
 Depreciation
expense including depreciation of assets held under capital leases for the years
ended December 31, 2008 and 2007 was approximately $335 thousand and
approximately $48 thousand, respectively.  The amount of assets under
capital lease was approximately $116.9 thousand as of December 31, 2008 and
2007, respectively.
 
 
 NOTE
9 – GOODWILL AND OTHER INTANGIBLE ASSETS
 
 The
following table reflects the components of goodwill and other intangible assets
at December 31, 2008 and 2007:
 
 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
  2007GrossCarrying
                                  
                                  
                                  Accumulated
                                  
                                  
                                  CarryingAmount
                                  
                                  
                                  Amortization
                                  
                                  
                                  AmountGoodwill
                                  
                                  $
                                  492,144
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  492,144Software
                                  
                                  
                                  708,250
                                  
                                  
                                  
                                  41,164
                                  
                                  
                                  
                                  667,086Unallocated
      Assets
                                  
                                  
                                  13,566,020
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  13,566,020Total
                                  
                                  $
                                  14,766,414
                                  
                                  
                                  $
                                  41,164
                                  
                                  
                                  $
                                  14,725,250
 
 
 Goodwill
represents the excess of the purchase price over the sum of the amounts assigned
to assets acquired less liabilities assumed in respect to the JRM, Lifeguard and
USHBG acquisitions.  None of this goodwill is expected to be deducted
for tax purposes.
  Amortization
expense related to all of the Company’s identifiable intangible assets for the
years ended December 31, 2008 and 2007 was approximately $3.1 million and $41
thousand, respectively.  Management estimates amortization expense of
approximately $3.2 million over the next five years.  Future
amortization of intangible assets is shown in the following table:
 
 F-21
 
 
 2009
                            
                            $
                            1,031,8662010
                            
                            
                            803,5522011
                            
                            
                            602,6112012
                            
                            
                            586,4442013
                            
                            
                            146,613Thereafter
                            
                            
                            -Total
                            
                            $
                            3,171,086
  
 The
weighted-average remaining amortization period for customer and vendor
relationships, software and amortizable trademarks and tradenames is 4.25 years,
1.90 years and 4 months, respectively.
 
 The
following table presents goodwill and intangible assets not subject to
amortization at December 31, 2008 and 2007.
 
 2008
                          
                          
                          2007Goodwill
                          
                          $
                          6,408,605
                          
                          
                          $
                          492,144Trademarks
      and tradenames
                          
                          
                          165,200
                          
                          
                          
                          -$
                          6,573,805
                          
                          
                          $
                          492,144
 
 
 Based on
the Company’s impairment analysis and consideration of the current and expected
future market conditions, we determined that goodwill and certain intangible
assets related to the JRM, LifeGuard and USHBG reporting units were impaired in
accordance with Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible
Assets (SFAS 142), and the Company recorded non-cash, pre-tax total
impairment charges of approximately $305.4 thousand, $9.1 million and $5.9
million, respectively.  The analysis was conducted by independent valuation
specialists.  The decline in estimated fair values resulted from an
analysis of the current economic conditions, the Company’s performance to budget
and the lower estimated future cash flows.
 
 Inherent
in management’s fair value determinations are certain judgments and estimates,
including projections of future cash flows, the discount rate reflecting the
risk inherent in future cash flows, the interpretation of current economic
indicators and market valuations and our strategic plans with regard to our
operations.  A change in these underlying assumptions would cause a change
in the results of the tests, which could cause the fair value of one or more
reporting units to be more or less than their respective carrying amounts.
 In addition, to the extent that there are significant changes in market
conditions or overall economic conditions or the Company’s strategic plans
change, it is possible that the Company’s conclusion regarding impairment could
change.
 
 The
Company has recognized an aggregate impairment loss on goodwill and other
intangible assets in the amount of approximately $15.3 million for the year
ended December 31, 2008.  This impairment loss has been included
within the Company’s loss from operations under the caption “Impairment loss on
goodwill and other intangible assets.”  Of the aggregate impairment
loss, approximately $3.6 million was attributable to carrying amounts of
goodwill.  The following table details the impairment loss by intangible
asset category as well as by reporting unit.
 
 Reporting
      UnitIntangible
      asset category:
                        
                        JRM
                        
                        
                        LifeGuard
                        
                        
                        USHBG
                        
                        
                        TotalGoodwill
                        
                        $
                        165,844
                        
                        
                        $
                        -
                        
                        
                        $
                        3,431,700
                        
                        
                        $
                        3,597,544Customer
      and vendor relationships
                        
                        
                        113,900
                        
                        
                        
                        9,084,800
                        
                        
                        
                        2,257,000
                        
                        
                        
                        11,455,700Trademarks
      and tradenames
                        
                        
                        25,700
                        
                        
                        
                        -
                        
                        
                        
                        230,000
                        
                        
                        
                        255,700$
                        305,444
                        
                        
                        $
                        9,084,800
                        
                        
                        $
                        5,918,700
                        
                        
                        $
                        15,308,944
  F-22
 
 
 NOTE 10
– ACCRUED EXPENSES AND OTHER LIABILITIES
  Accrued
expenses and other liabilities consist of the following at December 31, 2008 and
2007:
 
 2008
                        
                        
                        2007Payroll
                        
                        $
                        261,719
                        
                        
                        $
                        252,828Allowance
      for sales refunds and chargebacks
                        
                        
                        380,498
                        
                        
                        
                        19,442Tax
      liability
                        
                        
                        -
                        
                        
                        
                        438,903Professional
      fees
                        
                        
                        592,721
                        
                        
                        
                        -Selling
      expense
                        
                        
                        -
                        
                        
                        
                        590,888Interest
                        
                        
                        225,488
                        
                        
                        
                        283,291Litigation
                        
                        
                        250,000
                        
                        
                        
                        3,700,000Other
                        
                        
                        718,889
                        
                        
                        
                        453,201Total
                        
                        $
                        2,429,315
                        
                        
                        $
                        5,738,553
 
 
 
 NOTE 11
- LOANS AND NOTES PAYABLE
 
 Loans and
notes payable consist of the following at December 31, 2008 and
2007:
 
 2008
                      
                      
                      2007Promissory
      notes payable to investors and stockholders; bearing interest ranging from
      8% to 10% per annum; due through December 2006; currently in
      default
                      
                      $
                      425,000
                      
                      
                      $
                      572,500Convertible
      promissory notes payable to investors and stockholders; bearing interest
      ranging from 10% to 11% per annum; due through December 2006; currently in
      default
                      
                      
                      100,000
                      
                      
                      
                      122,000Convertible
      promissory notes payable to investors and stockholders; bearing interest
      ranging from 8% to 10% per annum; due through December
2007
                      
                      
                      -
                      
                      
                      
                      357,000Promissory
      notes payable to investors and stockholders; bearing interest of 1.53% per
      annum; due through June 2004, increasing to 15% thereafter, currently in
      default
                      
                      
                      114,950
                      
                      
                      
                      114,950Promissory
      notes payable to Company Executives bearing interest of 6% per annum;
      payable on demand
                      
                      
                      814,500
                      
                      
                      
                      -Revolving
      consumer credit cards
                      
                      
                      378,485
                      
                      
                      
                      228,557Capital
      lease obligation, at an effective interest rate of 5.2%
                      
                      
                      93,838
                      
                      
                      
                      -Promissory
      notes payable to related parties (on demand; noninterest
      bearing)
                      
                      
                      18,592
                      
                      
                      
                      19,523Total
      loans and notes payable
                      
                      $
                      1,945,365
                      
                      
                      $
                      1,414,530
  As of
December 31, 2008 and December 31, 2007, all notes and loans payable were
classified as current maturities.
 
 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.  At December
31, 2008, all of the promissory notes payable are classified as current due to
either maturity dates or events of default.
 
 F-23
 
 The
Company is in the process of negotiating either a conversion to equity or a
restructuring of the terms of the notes.  For the year ended December
31, 2008, the Company, upon notification by the noteholders, converted
approximately $452 thousand of outstanding notes payable including accrued
interest of approximately $98 thousand into approximately 5.7 million shares of
common stock.
 
 During
the year ended December 31, 2008, the Company was able to negotiate settlements
for outstanding notes payable resulting in a gain of approximately $179
thousand.  This is included in Other Income (Expense) in the
Consolidated Statements of Operations.
 
 On April
25, 2008, the Company issued $575 thousand of promissory notes with detachable
warrants to acquire approximately 1.9 million  shares to investors and
stockholders.  The notes bear interest at 10% per annum accruing
quarterly and are due April 25, 2010.  The holders of the warrants
have the ability, under certain circumstances, to require cash
settlement.  Therefore, the warrants have been classified as
liabilities.  The fair value of the warrants of approximately $504
thousand was determined by an independent valuation specialist using the
Black-Scholes Option Pricing Model with a volatility of 139%, risk free rate of
3.14%, a five year expected term and no dividends.  Proceeds equal to
the full fair value of the warrants were assigned to the warrants, resulting in
discount on the convertible notes in the amount of approximately $504
thousand.  The discount was amortized to interest expense using the
effective interest rate method.  On August 9, 2008, the Company
received a call notice on these notes.  The Company on
September 8, 2008, paid $575 thousand of principal and approximately $22
thousand of accrued interest.  Unamortized discount of approximately
$480 thousand existed at the time of payoff and, consequently, was recognized as
additional interest expense.
  The
following schedule details the future minimum lease payments on capital leases
at December 31, 2008:
 Year
      ending December 31:2009
                          
                          $
                          43,4882010
                          
                          
                          30,9552011
                          
                          
                          18,4232012
                          
                          
                          6,1052013
                          
                          
                          -Total
      minimum payments
                          
                          
                          98,971Less:
      Amount representing interest
                          
                          
                          (5,133
                          )Present
      value of capital lease obligations
                          
                          
                          93,838Less:
      Current Portion
                          
                          
                          (40,938
                          )Long-term
      capital lease obligations
                          
                          $
                          52,900
 NOTE
12 – ASSETS AND LIABILITIES MEASURED AT FAIR VALUE
 
 Financial
instruments which are measured at estimated fair value in the consolidated
financial statements include certain non-compensatory
warrants.  The fair value of these warrants was determined by an
independent expert 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:
 
 December
      31, 2008Fair
      Value Measurements at Reporting Date UsingSignificantUnobservableInputs
                                              
                                              
                                              Total(Level
      3)
                                              
                                              
                                              Fair
      ValueWarrants
                                              
                                              $
                                              13,315,364
                                              
                                              
                                              $
                                              13,315,364Total
      liabilities
                                              
                                              $
                                              13,315,364
                                              
                                              
                                              $
                                              13,315,364
 
 F-24
 
 
 The
Company has categorized its assets and liabilities measured at fair value into
the SFAS 157 three-level fair value hierarchy, 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 certain warrants.  The valuation methodology uses a
combination of observable and unobservable inputs in calculating fair
value.
 
 The
changes in level 3 liabilities measured at fair value on a recurring basis are
summarized as follows:
 
 Fair
      Value MeasurementsUsing
      Significant Unobservable Inputs(Level
      3)Warrants(Gain)
      or LossRecognizedBalance
                                                    
                                                    
                                                    Reclassification
                                                    
                                                    
                                                    
                                                    in
      Earnings
                                                    
                                                    BalanceBeginning
      of
                                                    
                                                    
                                                    of
      Warrants as
                                                    
                                                    
                                                    
                                                    from
      Change in
                                                    
                                                    End
      ofPeriod
                                                    
                                                    
                                                    Liabilities
                                                    
                                                    Issuance
                                                    
                                                    Fair
      Value
                                                    
                                                    PeriodFor
      the Year Ended December 31, 2008Warrants
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    31,464,419
                                                    
                                                    
                                                    $
                                                    (18,731,693
                                                    )
                                                    
                                                    $
                                                    12,732,726Non-compensatory
      warrants
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    626,638
                                                    
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    (44,000
                                                    )
                                                    
                                                    $
                                                    582,638Total
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    626,638
                                                    
                                                    
                                                    $
                                                    31,464,419
                                                    
                                                    
                                                    $
                                                    (18,775,693
                                                    )
                                                    
                                                    $
                                                    13,315,364
 
 For the
year ended December 31, 2008, total unrealized gain of approximately
$18.8 million, is included in Other Income (Expense) in the Consolidated
Statements of Operations under the caption “Change in fair value of
warrants.”  The unrealized gain for the year ended December 31, 2008
is net of losses on initial issuance of warrants of approximately $14.8
million.
  Fair
Value of Financial Instruments
 The fair
values of accounts receivable and accounts payable approximate their carrying
values due to the short term nature of these instruments.  The fair
values of 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.
 
 F-25
 
 
 NOTE
13—PREFERRED STOCK
 
 The
Company is authorized to issue 20 million shares of preferred
stock.
 
 During
the year ended December 31, 2008, the Company exchanged all, 694.6 shares, of
its Series D Convertible Preferred Stock outstanding, par value $.001 per share
with an aggregate stated value of approximately $6.9 million (the “Series D
Preferred Stock”) together with accrued but unpaid dividends thereon equal to
approximately $807.4 thousand (the “Series D Unpaid Dividends”) for 775.34
shares of the Company’s newly designated Series J Convertible Preferred Stock,
par value $.001 per share (the “Series J Preferred Stock”).  The
Company also exchanged all, 139 shares, of its Series E Convertible Preferred
Stock outstanding, par value $.001 per share with a stated value of
approximately $1.4 million (the “Series E Preferred Stock”) together with
accrued but unpaid dividends thereon equal to approximately $168.0 thousand (the
“Series E Unpaid Dividends”) for 155.82 shares of the Company’s newly designated
Series K Convertible Preferred Stock, par value $.001 per share (the “Series K
Preferred Stock”).  By the end of the year, both Series J and K
Preferred Stock outstanding were converted to approximately 775.3 million and
77.9 million shares of Class A Common Stock, respectively.
 
 Series B,
C, D, E, G, H, I, J and K Preferred Stock are entitled to receive dividends
payable on the stated value of the preferred stock at a rate of six percent (6%)
per annum, which shall be cumulative, accrue daily from the issuance date and be
due and payable on the first day of each calendar quarter.  Such
dividends accrue whether or not declared, but no dividend shall be paid unless
there are profits, surplus or other funds legally available for the payment of
dividends.  Dividends are payable in cash or common stock, at the
option of the holder.  The accumulation of unpaid dividends shall bear
interest at a rate of six percent (6%) per annum.  At December 31,
2008 and 2007, accrued and unpaid dividends and interest related to the
preferred stock are approximately $880 thousand and approximately $480 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, B, C, D, E, G, H, I, J and K as of December 31,
2008 was approximately $155.0 thousand, $0, $0, $0, $0, $12.7 million, $4.1
million, $8.6 million, $0 and $0, respectively.
 
 The table
below sets forth the preferred stock outstanding at December 31, 2008 and
2007.  Note that no shares of Series B, Series C, Series J or Series K
Preferred Stock were outstanding at December 31, 2008 and
2007.
  2008
                        
                        
                        2007Series
      A
                        
                        
                        155
                        
                        
                        
                        155Series
      D
                        
                        
                        -
                        
                        
                        
                        695Series
      E
                        
                        
                        -
                        
                        
                        
                        139Series
      G
                        
                        
                        1,200
                        
                        
                        
                        300Series
      H
                        
                        
                        400
                        
                        
                        
                        -Series
      I
                        
                        
                        850
                        
                        
                        
                        -2,605
                        
                        
                        
                        1,289
 
 Preferred Stock Series
A
 
 As of
December 31, 2008, 155 shares of Series A Convertible Preferred Stock (“Series A
Preferred Stock”) were outstanding. There were no issuances of Series A
Preferred Stock during the year ended December 31, 2008.  Each share
of Series A Preferred Stock is convertible into 2.0 thousand shares of Class A
common stock, subject to adjustment for stock dividend, stock split or
combination, reclassification, reorganization, consolidation, merger or sale of
all or substantially all of the assets or other corporate event.  As
of December 31, 2008, the outstanding shares of Series A Preferred Stock were
convertible into 310.0 thousand shares of Class A common stock.
 
 Preferred Stock Series
B
 
 Each
share of Series B Convertible Preferred Stock (“Series B Preferred Stock”) is
convertible at any time, at the option of the holder, into one share of Class A
common stock, subject to adjustment for stock dividends, stock split or
combination, reclassification, reorganization, consolidation, merger or sale of
all or substantially all of the assets or other corporate event.  
There were no issuances of Series B Preferred Stock during the year ended
December 31, 2008.  As of December 31, 2008, no shares of Series B
Preferred Stock were outstanding.
 
 
 F-26
 
 
 Preferred Stock Series
C
 
 Each
share of Series C Mandatory Convertible Preferred Stock (“Series C Preferred
Stock”) is deemed to have a value of $10.0 thousand and is convertible at any
time, at the option of the holder, into such amount of shares of Class A common
stock purchasable for $10.0 thousand on the day of conversion at the lesser of
$2.88 or seventy-five percent (75%) of the lowest closing bid price during the
five days immediately prior to the conversion date (the “Series C Conversion
Price”).  The Series C Conversion Price is subject to adjustment for
stock dividends, stock split or combination, reclassification, reorganization,
consolidation, merger or sale of all or substantially all of the assets or other
corporate event.  There were no issuances of Series C Preferred Stock
during the year ended December 31, 2008.  As of December 31, 2008, no
shares of Series C Preferred Stock were outstanding.
  Preferred Stock Series
D
 
 Each
share of Series D Preferred Stock is convertible at any time after the second
anniversary of the date of issuance, at the option of the holder, into that
number of shares of Class A Common Stock equal to the $10.0 thousand divided by
$0.01 (the “Series D Conversion Price”).  The Series D Conversion
Price is subject to adjustment for certain events, including the payment of a
dividend payable in capital stock of the Company, any stock split, combination,
or reclassification and certain issuances of Class A Common Stock or securities
convertible into or exercisable for Class A Common Stock at a price per share or
conversion price less than the then applicable Series D Conversion
Price.  In the event of certain corporate changes, including any
consolidation or merger in which the Company is not the surviving entity, sale
or transfer of all or substantially all of the Company’s assets, certain share
exchanges and certain distributions of property or assets to the holders of
Class A Common Stock, the holders of the Series D Preferred Stock have the right
to receive upon conversion, in lieu of shares of Class A Common Stock otherwise
issuable, such securities and/or other property as would have been issued or
payable as a result of such corporate change with respect to or in exchange for
the Class A Common Stock issuable upon conversion of the Series D Preferred
Stock.  The shares of Series D Preferred Stock, generally, become
convertible into Class A Common Stock two years after
issuance.   If on July 15, 2011, any share of Series D Preferred
Stock remains outstanding and a registration statement covering the resale of
all of the Class A Common Stock underlying the Series D Preferred Stock is
effective and has been effective for 90 days prior to such date, the Company
must convert each share of the Series D Preferred Stock into Class A Common at
the then applicable Series D Conversion Price. There were no issuances of
Series D Preferred Stock during the year ended December 31, 2008; however, on
December 31, 2008, the Company exchanged 694.6 shares of Series D Preferred
Stock with a stated amount of approximately $6.9 million and accrued dividends
of approximately $807.4 thousand for 775.34 of the Company’s designated Series J
Preferred Stock. As of December 31, 2008, there were no outstanding shares
of Series D Preferred Stock and therefore there would have been no convertible
shares into Class A Common Stock.
 
 In
connection with the Series D Preferred Stock, the Company recorded an aggregate
beneficial conversion feature of approximately $6.4 million.  The
Company accounted for the beneficial conversion feature in accordance
with EITF 00-27and EITF 98-5.  The resulting discounts have been
accreted as a dividend to the preferred stockholders from the date of issuance
to the earliest conversion date, using the effective yield method.
Accretion recognized for the year ended December 31, 2008 was approximately $5.9
million.
 
 Preferred Stock Series
E
 
 Each
share of Series E Preferred Stock is convertible after the second anniversary of
the issuance date of such shares, at the option of the holder, into that number
of shares of Class A Common Stock equal to $10.0 thousand divided by $0.02 (the
“Series E Conversion Price”).  The Series E Conversion Price is
subject to adjustment for certain events, including the payment of a dividend
payable in capital stock of the Company, any stock split, combination or
reclassification and certain issuances of Class A Common Stock or securities
convertible into or exercisable for Class A Common Stock at a price per share or
conversion price less than the then applicable Series E Conversion
Price.  In the event of certain corporate changes, including any
consolidation or merger in which the Company is not the surviving entity, sale
or transfer of all or substantially all of the Company’s assets, certain share
exchanges and certain distributions of property or assets to the holders of
Class A Common Stock, the holders of the Series E Preferred Stock have the right
to receive upon conversion, in lieu of shares of Class A Common Stock otherwise
issuable, such securities and/or other property as would have been issued or
payable as a result of such corporate change with respect to or in exchange for
the Class A Common Stock issuable upon conversion of the Series E Preferred
Stock.
 
 The
Company at its option may call for redemption of all  the Series E
Preferred Stock at any time, provided (a) the closing trading price of the Class
A common stock exceeds $0.50 per share (as quoted on the principal exchange,
including for this purpose, the NASDAQ National Market on which it is then
listed, or if it is not so listed, the closing bid price per share for such
stock, as reported by NASDAQ, the OTC Bulletin Board, the National Quotation
Bureau, Incorporated or other similar service which regularly reports closing
bid quotations for such stock) for 15 trading days during any 20-trading day
period; and (b) there is at the time of the call for redemption by the
Corporation, and has been for the period specified in (a) above preceding such
call, an effective registration statement covering the resale of the shares of
Class A common stock underlying the Series E Preferred Stock.  The Company
shall effect any redemption of the Series E Preferred Stock by paying in cash in
exchange for each share of Series E Preferred Stock to be redeemed a sum equal
to 150% of the stated value of such shares of Series E Preferred Stock plus all
accruing dividends accrued but unpaid thereon, whether or not declared, with
respect to such share.
 
 
 F-27
 
 
 There
were no issuances of Series E Preferred Stock during the year ended December 31,
2008; however, on December 31, 2008, the Company exchanged 139 shares of Series
E Preferred Stock with a stated amount of approximately $1.4 million and accrued
dividends of approximately $168.2 thousand for 155.82 of the Company’s
designated Series K Preferred Stock. As of December 31, 2008, there were no
outstanding shares of Series E Preferred Stock and therefore there would have
been no convertible shares into Class A Common Stock.
 
 The
shares of Series E Preferred Stock, generally, become convertible into Class A
Common Stock two years after issuance.   If on July 15, 2011, any
share of Series E Preferred Stock remains outstanding and a registration
statement covering the resale of all of the Class A Common Stock underlying the
Series E Preferred Stock is effective and has been effective for 90 days prior
to such date, the Company must convert each share of the Series E Preferred
Stock into Class A Common at the then applicable Conversion Price.
 
 In
connection with the Series E Preferred Stock, the Company recorded an aggregate
beneficial conversion feature of $970. thousand.  The Company
accounted for the beneficial conversion feature in accordance with EITF 00-27
and EITF 98-5. The resulting discounts have been accreted as a dividend to
the preferred stockholders from the date of issuance to the earliest
conversion date, using the effective yield method.  Accretion recognized
for the year ended December 31, 2008 was $865 thousand.
  Preferred Stock Series
G
 
 Each
share of Series G Preferred Stock is convertible at any time, at the option of
the holder, into that number of shares of Class A Common Stock equal to the
$10.0 thousand divided by $5.00 (the “Series G Conversion
Price”).  The Series G Conversion Price is subject to adjustment for
certain events, including the payment of a dividend payable in capital stock of
the Company, any stock split, combination, or reclassification and certain
issuances of Class A Common Stock or securities convertible into or exercisable
for Class A Common Stock at a price per share or conversion price less than the
then applicable Series G Conversion Price.  In the event of certain
corporate changes, including any consolidation or merger in which the Company is
not the surviving entity, sale or transfer of all or substantially all of the
Company’s assets, certain share exchanges and certain distributions of property
or assets to the holders of Class A Common Stock, the holders of the Series G
Preferred Stock have the right to receive upon conversion, in lieu of shares of
Class A Common Stock otherwise issuable, such securities and/or other property
as would have been issued or payable as a result of such corporate change with
respect to or in exchange for the Class A Common Stock issuable upon conversion
of the Series G Preferred Stock.  In addition, if on November 7, 2009,
the Series G Conversion Price then in effect is higher than the current market
price of the Company’s Class A Common Stock, then the Series G Conversion Price
shall be reduced to such current market price  (provided that the
current market price shall never be less than $0.01).  If on July 15, 2011,
any share of Series G Preferred Stock remains outstanding and a registration
statement covering the resale of all of the Class A Common Stock underlying the
Series G Preferred Stock is effective and has been effective for 90 days prior
to such date, the Company must convert each share of the Series G Preferred
Stock into Class A Common at the then applicable Conversion Price.
 
 If the
Conversion Price is reduced below $1.50 as a result of an adjustment on November
7, 2009, the Company may, within ten (10) days after November 7, 2009, elect to
redeem all, but not less than all, of the outstanding Series G Preferred Stock
by paying cash in exchange for each share to be redeemed in an amount equal to
150% of the stated value, less all dividends paid thereon.
 
 On
January 31, 2008, March 13, 2008 and April 30, 2008, the Company issued 300, 400
and 200 shares of its Series G Mandatory Convertible Preferred Stock
(“Series G Preferred Stock”) for proceeds of $3.0 million, $4.0 million and $2.0
million, respectively.
 
 In
connection with the Series G Preferred stock issued on March 13, 2008 and April
30, 2008, detachable warrants for 45.0 million and 22.5 million of Class A
common stock, respectively, exercisable for five years at an exercise price of
$0.375 were issued.  As the holders of the warrants had the ability,
under certain circumstances, to require cash settlement these warrants
were initially classified as liabilities in accordance with SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity (SFAS
150).  The fair value of the warrants was determined by a third–party
valuation specialist based upon the Black-Scholes-Merton Option Pricing
Model.
 
 At
December 31, 2008, the fair value of these warrants is approximately $3.9
million.  For the year ended December 31, 2008, the effect of
mark-to-market adjustments was a decrease in value of approximately $12.3
million and has been recorded as “Change in fair value of redeemable warrants”
within the accompanying Statements of Operations.  See Note 12 for
additional fair value disclosure information.
 
 As the
fair value of the warrants at issuance exceeded the proceeds, the preferred
stock has no recorded value and losses representing the excess of the fair value
of the warrants over the proceeds of approximately $7.3 million and
approximately $3.0 million were recorded at March 13, 2008 and April
30, 2008 respectively.
 
 At
December 31, 2008, the cash settlement provision relating to these warrants was
removed.   The warrants remain classified as liabilities under
the provisions of EITF Issue No. 00-19.
 
 
 F-28
 
 
 As of
December 31, 2008, 1,200 shares Series G Preferred Stock were outstanding and
convertible into 2.4 million Class A common shares.
 
 Preferred Stock Series
H
 
 Each
share of Series H Preferred Stock is convertible at any time, at the option of
the holder, into that number of shares of Class A Common Stock equal to the
$10.0 thousand divided by $5.00 (the “Series H Conversion
Price”).  The Series H Conversion Price is subject to adjustment for
certain events, including the payment of a dividend payable in capital stock of
the Company, any stock split, combination, or reclassification and certain
issuances of Class A Common Stock or securities convertible into or exercisable
for Class A Common Stock at a price per share or conversion price less than the
then applicable Series H Conversion Price.  In the event of certain
corporate changes, including any consolidation or merger in which the Company is
not the surviving entity, sale or transfer of all or substantially all of the
Company’s assets, certain share exchanges and certain distributions of property
or assets to the holders of Class A Common Stock, the holders of the Series H
Preferred Stock have the right to receive upon conversion, in lieu of shares of
Class A Common Stock otherwise issuable, such securities and/or other property
as would have been issued or payable as a result of such corporate change with
respect to or in exchange for the Class A Common Stock issuable upon conversion
of the Series H Preferred Stock.  In addition, if on November 7, 2009,
the Series H Conversion Price then in effect is higher than the current market
price of the Company’s Class A Common Stock, then the Series H Conversion Price
shall be reduced to such current market price (provided that the current
market price shall never be less than $0.01).  If on July 15, 2011,
any share of Series H Preferred Stock remains outstanding and a registration
statement covering the resale of all of the Class A Common Stock underlying the
Series H Preferred Stock is effective and has been effective for 90 days prior
to such date, the Company must convert each share of the Series H Preferred
Stock into Class A Common at the then applicable Conversion Price.
 
 If the
Conversion Price is reduced below $1.50 as a result of an adjustment on November
7, 2009, the Company may, within ten (10) days after November 7, 2009, elect to
redeem all, but not less than all, of the outstanding Series H Preferred Stock
by paying cash in exchange for each share to be redeemed in an amount equal to
150% of the stated value, less all dividends paid thereon.
 
 On June
2, 2008, the Company issued 400 shares of its Series H Convertible Preferred
Stock (“Series H Preferred Stock”) and a warrant agreement to acquire 45.0
million shares of the Company’s Class A Common Stock, exercisable for five (5)
years at an exercise price of $0.375, for an aggregate cash purchase price of
$4.0 million.  As the holders of the warrants had the ability, under
certain circumstances, to require cash settlement, these warrants were
classified as liabilities in accordance with SFAS 150.  The fair value
of the warrants was determined by a third–party valuation specialist based upon
the Black-Scholes Option Pricing Model.
 
 At
December 31, 2008 the fair value of these warrants is $2.7
million.  For the year ended December 31, 2008, the effect of
mark-to-market adjustments was a decrease in value of approximately
$5.9 million and has been recorded as “Change in fair value of warrants”
within the accompanying statements of operations.  See Note 12 for
additional fair value disclosure information.
 
 As the
fair value of the warrants at issuance exceeded the proceeds, the preferred
stock has no recorded value and a loss representing the excess of the fair value
of the warrants over the proceeds of approximately $4.6 million was recorded at
June 2, 2008.
 
 At
December 31, 2008, the cash settlement provision relating to these warrants was
removed. The warrants remain classified as liabilities under the provisions of
EITF Issue No. 00-19.
 
 
 As of
December 31, 2008, 400 shares of Series H Preferred Stock were outstanding and
convertible into 800.0 thousand Class A common shares.
 
 Preferred Stock Series
I
 
 The
Company is authorized to issue 10.0 thousand shares of Series I Preferred
Stock.  Each share is convertible at any time, at the option of the
holder, into that number of shares of Class A Common Stock equal to the $10.0
thousand divided by $5.00 (the “Series I Conversion Price”).  The
Series I Conversion Price is subject to adjustment for certain events, including
the payment of a dividend payable in capital stock of the Company, any stock
split, combination, or reclassification and certain issuances of Class A Common
Stock or securities convertible into or exercisable for Class A Common Stock at
a price per share or conversion price less than the then applicable Series I
Conversion Price.  In the event of certain corporate changes,
including any consolidation or merger in which the Company is not the surviving
entity, sale or transfer of all or substantially all of the Company’s assets,
certain share exchanges and certain distributions of property or assets to the
holders of Class A Common Stock, the holders of the Series I Preferred Stock
have the right to receive upon conversion, in lieu of shares of Class A Common
Stock otherwise issuable, such securities and/or other property as would have
been issued or payable as a result of such corporate change with respect to or
in exchange for the Class A Common Stock issuable upon conversion of the Series
I Preferred Stock.  In addition, if on November 7, 2009 the Series I
Conversion Price then in effect is higher than the current market price of the
Company’s Class A Common Stock, then the Series I Conversion Price shall be
reduced to such current market price (provided that the current market
price shall never be less than $0.01).  If on July 15, 2011 any share
of Series I Preferred Stock remains outstanding and a registration statement
covering the resale of all of the Class A Common Stock underlying the Series I
Preferred Stock is effective and has been effective for 90 days prior to such
date, the Company must convert each share of the Series I Preferred Stock into
Class A Common at the then applicable Conversion Price.
 
 
 F-29
 
 
 If the
Conversion Price is reduced below $1.50 as a result of an adjustment on November
7, 2009, the Company may, within 10 days after November 7, 2009 elect to redeem
all, but not less than all, of the outstanding Series I Preferred Stock by
paying cash in exchange for each share to be redeemed in an amount equal to 150%
of the stated value, less all dividends paid thereon.
 
 So long
as there is an aggregate of not less than 363 shares of Series I Preferred Stock
and Series D Preferred Stock issued and outstanding (subject to appropriate
adjustment for any stock split, stock dividend combination or other similar
event with respect to the Series I Preferred Stock), the majority of the holders
of Series I Preferred Stock, voting exclusively as a separate class and with
each share of Series I Preferred Stock entitled to one vote, shall have the
right to nominate and elect two of the members of the Board of Directors of the
Corporation.
 
 On
September 30, 2008, October 6, 2008 and December 31, 2008, the Company issued
400, 200 and 250 shares of its Series I Convertible Preferred Stock (“Series I
Preferred Stock”) and a warrant agreement to acquire 45 million, 22.5 million
and 28.1 million shares of the Company’s Class A Common Stock, exercisable for
five (5) years at an exercise price of $0.375, for an aggregate cash purchase
price of $4 million, $2 million, and $2.5 million, respectively.  As the
holders of the warrants had the ability, under certain circumstances, to require
cash settlement these warrants were classified as liabilities in accordance with
SFAS 150.  The fair value of the warrants was determined by a
third–party valuation specialist based upon the Black-Scholes-Merton Option
Pricing Model.
  At
issuance, the fair value of the warrants was allocated to the warrants and the
residual value of $850 thousand, $740 thousand and $700 thousand was allocated
to the preferred stock, respectively.
 
 At
December 31, 2008, the fair value of these warrants is approximately $6
million.  For the year ended December 31, 2008, the effect of
mark-to-market adjustments was a decrease in value of $225 thousand and has been
recorded as “Change in fair value of  warrants” within the
accompanying statements of operations.  See Note 12 for additional
fair value disclosure information.
 
 At
December 31, 2008, the cash settlement provision relating to these warrants was
removed. The warrants remain classified as liabilities under the provisions of
EITF Issue No. 00-19.
 
 As of
December 31, 2008, 850 shares Series I Preferred Stock were outstanding and
convertible into 1.7 million Class A common shares.
 
 Preferred Stock Series
J
 
 The
Company is authorized to issue 775.34 shares of Series J Preferred
Stock.  During the year, the Company issued 775.34 shares of Series J
Preferred Stock.  Each share of Series J Preferred Stock is
convertible at any time after issuance, at the option of the holder, into that
number of shares of Class A Common Stock equal to $10 thousand divided by $0.01
(the “Series J Conversion Price”).  The Series J 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 J 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 J 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 J Preferred
Stock.  On December 31, 2008, the 775.34 shares of Series J were
converted into Class A Common Stock.  As of December 31, 2008, there
were no outstanding shares of Series J Preferred Stock and therefore there would
have been no convertible shares into Class A Common Stock.  If on July
15, 2011, any share of Series J Preferred Stock remains outstanding and a
registration statement covering the resale of all of the Class A Common Stock
underlying the Series J Preferred Stock is effective and has been effective for
90 days prior to such date, the Company must convert each share of the Series J
Preferred Stock into Class A Common at the then applicable Series J Conversion
Price.
 
 F-30
 
 
 
 Preferred Stock Series
K
 
 The
Company is authorized to issue 155.82 shares of Series K Preferred
Stock.  During the year, the Company issued 155.82 shares of Series K
Preferred Stock.  Each share of Series K Preferred Stock is
convertible at any time after issuance, at the option of the holder, into that
number of shares of Class A Common Stock equal to $10 thousand divided by $0.02
(the “Series K Conversion Price”).  The Series K 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 K 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 K 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 K Preferred
Stock.  On December 31, 2008, the 155.82 shares of Series K were
converted into Class A Common Stock. As of December 31, 2008, there were no
outstanding shares of Series K Preferred Stock and therefore there would have
been no convertible shares into Class A Common Stock.  If on July 15,
2011, any share of Series K Preferred Stock remains outstanding and a
registration statement covering the resale of all of the Class A Common Stock
underlying the Series K Preferred Stock is effective and has been effective for
90 days prior to such date, the Company must convert each share of the Series K
Preferred Stock into Class A Common at the then applicable Series K Conversion
Price.
 
 
 NOTE
14 - COMMON STOCK
  The
Company has authorized one billion three hundred sixty million (1,360,000,000)
Class A Common shares and one hundred twenty million (120,000,000) Class B
common shares.  On all matters required by law to be submitted to a
vote of the holders of common stock, each share of Class A Common Stock is
entitled to one vote per share, and each share of Class B Common Stock is
entitled to five votes.
 
 During
the year ended December 31, 2008, various stockholders converted approximately
27.4 million shares of Class B common shares to Class A common
shares.  As of December 31, 2008, 200 thousand Class B Common shares
were outstanding.
 
 In
addition, on December 31, 2008, the Company issued approximately 775.3 million
and approximately 77.9 million shares of Class A Common Stock as a result of the
conversion of its outstanding Series J and K Preferred Stock outstanding,
respectively.
 
 NOTE
15 – 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 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 common stock at the time of grant.
Generally, options shall be exercisable at 20%, per year, and shall be
outstanding for ten years. As of December 31, 2008 and 2007, no options have
been granted under the Plan.
 
 The fair
value of each option award that is not 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.
  
 F-31
 
 
 Assumptions
used to determine the fair value of the stock options and warrants granted for
the years ended December 31, 2008 and 2007 are as follows:
  Weighted
      average values:Expected
      dividends
                          0%
                          0%Expected
      volatility
                          175%
      - 245%
                          223%
      - 245%Risk
      free interest rate
                          2.78%
      - 4.52%
                          3.49%
      - 4.52%Expected
      life
                          5 years
                          5 years
 
 
 Equity Awards
Issued
 
 The
following tables detail the equity awards that were granted during 2008 and 2007
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 common stock.  The
contractual term of the warrants issued during the years ended December 31, 2008
and December 31, 2007, was five years.
 
 Warrants
 
 During
the year ended December 31, 2008, the Company issued warrants to purchase an
aggregate of approximately 213.9 million shares of common stock.  At
December 31, 2008, there were approximately 231.5 million and
approximately 8.0 million warrants outstanding to purchase Class A and
Class B common stock, respectively, exercisable at varying prices through
2013.
 
 Certain
of these warrants are liability instruments issued in conjunction with preferred
stock and convertible promissory notes while others are non-compensatory
warrants classified as liability instruments.  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. As of December 31, 2008, approximately 218.4 million warrants were
classified as liabilities.  No warrants were classified as liabilities
at December 31, 2007.  The remaining warrants are compensatory
warrants, issued to employees and others in exchange for services.
 
 The
following table summarizes compensatory warrant activity:
 
 Class
      A WarrantsYear
      Ended December 31,2008Warrants
                                                
                                                
                                                Weighted
      Average Exercise Price
                                                
                                                
                                                Weighted
      Average Remaining Contractual Term
                                                
                                                
                                                Aggregate
      Intrinsic ValueWarrants
      outstanding, beginning of year
                                                
                                                
                                                20,452,850
                                                
                                                
                                                $
                                                0.33
                                                
                                                
                                                
                                                4.10
                                                
                                                
                                                $
                                                3,937,404Warrants
      issued
                                                
                                                
                                                2,425,000
                                                
                                                
                                                
                                                0.58Warrants
      cancelled or expired
                                                
                                                
                                                (200,850
                                                )
                                                
                                                
                                                0.07Warrants
      exercised
                                                
                                                
                                                (700,000
                                                )
                                                
                                                
                                                0.17Warrants
      reclassed to liabilities during year
                                                
                                                
                                                (8,852,000
                                                )
                                                
                                                
                                                0.22Warrants
      outstanding, end of year
                                                
                                                
                                                13,125,000
                                                
                                                
                                                $
                                                0.46
                                                
                                                
                                                
                                                3.76
                                                
                                                
                                                $
                                                -Warrants
      exercisable, end of year
                                                
                                                
                                                11,200,000
                                                
                                                
                                                $
                                                0.43
                                                
                                                
                                                
                                                3.68
                                                
                                                
                                                $
                                                -Class
      B WarrantsYear
      Ended December 31,2008Warrants
                                                
                                                
                                                Weighted
      Average Exercise Price
                                                
                                                
                                                Weighted
      Average Remaining Contractual Term
                                                
                                                
                                                Aggregate
      Intrinsic ValueWarrants
      outstanding, beginning of year
                                                
                                                
                                                7,965,000
                                                
                                                
                                                $
                                                0.44
                                                
                                                
                                                
                                                4.46
                                                
                                                
                                                $
                                                435,000Warrants
      issued
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Warrants
      cancelled or expired
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Warrants
      exercised
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -
                                                
                                                
                                                
                                                -Warrants
      outstanding, end of year
                                                
                                                
                                                7,965,000
                                                
                                                
                                                $
                                                0.44
                                                
                                                
                                                
                                                3.46
                                                
                                                
                                                $
                                                -Warrants
      exercisable, end of year
                                                
                                                
                                                7,965,000
                                                
                                                
                                                $
                                                0.44
                                                
                                                
                                                
                                                3.46
                                                
                                                
                                                $
                                                -
  
 F-32
 
 
 
 The
following table summarizes the status of warrants outstanding and exercisable at
December 31, 2008:
 
 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
                                                                                  
                                                                                  
                                                                                  
                                                                                  219,820,217
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.37
                                                                                  
                                                                                  
                                                                                  
                                                                                  4.48$0.50
      to $0.99
                                                                                  
                                                                                  
                                                                                  
                                                                                  7,050,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.50
                                                                                  
                                                                                  
                                                                                  
                                                                                  3.94$1.00
      to $1.49
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,450,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  1.23
                                                                                  
                                                                                  
                                                                                  
                                                                                  1.36228,320,217
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.38
                                                                                  
                                                                                  
                                                                                  
                                                                                  4.45Class
      BOutstanding
      and Exercisable WarrantsRange
      of
                                                                                    Exercise
                                                                                    Prices
                                                                                  
                                                                                  
                                                                                  Number
      of
                                                                                    Warrants
                                                                                  
                                                                                  
                                                                                  Weighted
                                                                                    Average
                                                                                    Exercise
      P
                                                                                    rice
                                                                                  
                                                                                  Weighted
                                                                                    Average
                                                                                    Remaining
                                                                                    Contractual
      Life
                                                                                    in
      Years$0.01
      to $0.49
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,500,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.16
                                                                                  
                                                                                  
                                                                                  
                                                                                  1.41$0.50
      to $0.99
                                                                                  
                                                                                  
                                                                                  
                                                                                  6,465,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.50
                                                                                  
                                                                                  
                                                                                  
                                                                                  3.93$1.00
      to $1.49
                                                                                  
                                                                                  
                                                                                  
                                                                                  -
                                                                                  
                                                                                  
                                                                                  $
                                                                                  -
                                                                                  
                                                                                  
                                                                                  
                                                                                  -7,965,000
                                                                                  
                                                                                  
                                                                                  $
                                                                                  0.44
                                                                                  
                                                                                  
                                                                                  
                                                                                  3.46
 
 
 As of
December 31, 2008, there was approximately $797.7 thousand of
total unrecognized compensation cost related to non-vested warrants that is
expected to be recognized over a weighted-average period of 1
year.  The intrinsic value of warrants exercised during the years
ended December 31, 2008 and 2007 was approximately $144 thousand and
approximately $2.3 million, respectively.  The total fair value of
warrants vested during the year ended December 31, 2008 was approximately
$200 thousand. The weighted average exercise price of warrants granted during
the year ended December 31, 2008 was $0.58.  The weighted average
grant date fair value of warrants granted during the years ended December 31,
2008 and 2007 was $0.41 and $0.35, respectively.
 
 During
the years ended December 31, 2008 and 2007, stock-based compensation
recognized relating to the issuance of warrants to employees and consultants was
approximately $893 thousand and approximately $7.8 million,
respectively.
 
 A summary
of the status of the Company's non-vested warrants as of December 31, 2008, and
the changes during the year ended December 31, 2008, is presented
below.  There were no non-vested outstanding Class B warrants
outstanding as of December 31, 2008 and 2007, nor were there any issuances
during the year.
 
 Class
      A WarrantsYear
      Ended December 31,2008Warrants
                            
                            
                            Weighted
      Average Grant-Date Fair ValueNon-vested,
      beginning of year
                            
                            
                            -
                            
                            
                            $
                            -Warrants
      issued
                            
                            
                            3,550,000
                            
                            
                            
                            0.42Warrants
      vested
                            
                            
                            (375,000
                            )
                            
                            
                            0.40Warrants
      forfeited
                            
                            
                            -
                            
                            
                            
                            -Non-vested,
      end of year
                            
                            
                            3,175,000
                            
                            
                            $
                            0.43
 
 F-33
 
 
 
 
 
 A summary
of the status of the Company's non-compensatory warrants classified as
liabilities on the balance sheet as of December 31, 2008 that are not included
above, is presented below.
 
 Year
      Ended December 31,2008Warrants
                                            
                                            
                                            Weighted
                                              Average
                                              Exercise
      Price
                                            
                                            
                                            Weighted
                                              Average
                                              Remaining
      Contractual
                                              Term
                                            
                                            
                                            Aggregate
                                              Intrinsic
                                              ValueBeginning
      balance of liability warrants
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            $
                                            -Warrants
      reclassified during year
                                            
                                            
                                            8,852,000
                                            
                                            
                                            
                                            0.22
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Warrants
      issued
                                            
                                            
                                            211,518,217
                                            
                                            
                                            
                                            0.38
                                            
                                            
                                            
                                            -Warrants
      cancelled or expired
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Warrants
      exercised
                                            
                                            
                                            (2,002,000
                                            )
                                            
                                            
                                            0.02
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Warrants
      outstanding and exercisable, end of year
                                            
                                            
                                            218,368,217
                                            
                                            
                                            $
                                            0.37
                                            
                                            
                                            
                                            4.47
                                            
                                            
                                            $
                                            458,500
 
 
 Stock Awards
Issued
 
 During
the years ended December 31, 2008 and 2007, 3.2 million and approximately
27.9 million shares of common stock were granted and issued for various
purposes, such as employment compensation and for goods and
services.  The Company’s stock awards consist of Class A and Class B
Common Stock.  The grant date fair value is based on the share price as of
the award date.  For the years ended December 31, 2008 and 2007,
approximately $1.2 million and $5.3 million, respectively, of share-based
compensation was recognized within the Statement of
Operations.
 
 Stock-Based Compensation
Expense
 
 For the
years ended December 31, 2008 and 2007, the Company recognized stock-based
compensation expense, including both expense related to compensatory warrants
and expense related to share awards, within the Statement of Operations for the
years ended December 31, 2008 and 2007 as follows:
  2008
                          
                          
                          2007Stock-based
      compensation:Professional
      fees
                          
                          $
                          1,581,267
                          
                          
                          $
                          5,089,900Payroll
      and employee benefits
                          
                          
                          482,740
                          
                          
                          
                          8,022,450Total
                          
                          $
                          2,064,007
                          
                          
                          $
                          13,112,350
 
 F-34
 
 
 NOTE 16
- INCOME TAXES
  The below
tables present the Company’s current year income tax provision and the temporary
differences that result from the differences in recognition criteria of certain
income and expense items for financial reporting purposes and income tax
purposes.
  Income
tax expense (benefit) for the years ended December 31, 2008 and 2007 consisted
of:
 
 2008
                                  
                                  
                                  2007Computed
      tax (benefit) expense
                                  
                                  $
                                  (11,363,695
                                  )
                                  
                                  $
                                  (8,153,119
                                  )Change
      in deferred tax valuation allowance
                                  
                                  
                                  11,363,695
                                  
                                  
                                  
                                  8,153,119Income
      tax expense (benefit)
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
    Temporary
      differences that give rise to deferred tax assets and liabilities are
      summarized as follows:2008
                          
                          
                          2007Deferred
      tax assets:Net
      operating loss carryforward
                          
                          $
                          33,126,268
                          
                          
                          $
                          27,502,170Allowance
      for sales refunds and chargebacks
                          
                          
                          137,234
                          
                          
                          
                          7,516Reserve
      for commission reversal
                          
                          
                          -
                          
                          
                          
                          4,275Provision
      for litigation costs
                          
                          
                          87,756
                          
                          
                          
                          1,170,796Deferred
      compensation
                          
                          
                          103,163
                          
                          
                          
                          -Warrants
                          
                          
                          336,133
                          
                          
                          
                          -Other
                          
                          
                          47,652
                          
                          
                          
                          -Gross
      deferred tax asset
                          
                          
                          33,838,205
                          
                          
                          
                          28,684,757Deferred
      tax liabilities:Depreciation
      of fixed assets
                          
                          
                          75,555
                          
                          
                          
                          44,638Warrants
                          
                          
                          1,514,869
                          
                          
                          
                          -Identifiable
      intangibles
                          
                          
                          1,235,196
                          
                          
                          
                          -Gross
      deferred tax liability
                          
                          
                          2,825,620
                          
                          
                          
                          44,638Deferred
      tax asset - net
                          
                          
                          31,012,585
                          
                          
                          
                          28,640,119Valuation
      allowance
                          
                          
                          (31,012,585
                          )
                          
                          
                          (28,640,119
                          )Net
      deferred tax asset
                          
                          $
                          -
                          
                          
                          $
                          -
 F-35
 
 As of
December 31, 2008, realization of the Company’s net deferred tax assets of
approximately $31,000,000 was not considered more likely than not, and
accordingly, a valuation allowance of an equal amount was provided. The net
change in the total valuation allowance during the year ended December 31, 2008
was approximately $2,373,000, which consisted of current year operations and
adjustments related to the purchase accounting of the acquisitions.
 
 The
Company has a total of approximately $88,000,000 of net operating losses
available to be offset against future taxable income and that begin to expire
between 2011 and 2028.
 
 On
January 1, 2007, The Company adopted the provisions of FIN 48.  The
adoption of FIN 48 did not have a significant effect on the Company’s
consolidated financial statements.
 
 The
Company is subject to U.S. federal income taxes and to income taxes
in various states in the U.S.  Tax regulations within each
jurisdiction are subject to the interpretation of the related tax laws and
regulations and require significant judgment to apply.  The Company is
no longer subject to U.S. federal, state and local tax examinations by tax
authorities for years before 2004.  The Company does not anticipate
significant changes to its current uncertain tax positions through December 31,
2009.
 
 The
Company will recognize interest and penalties related to unrecognized tax
benefits in the provision for income taxes for the period when
incurred.  Since inception, we have been subject to tax by both
federal and state taxing authorities. Until the respective statutes of
limitations expire, we are subject to income tax audits in the jurisdictions in
which we operate. We are no longer subject to U.S. federal tax examinations
for fiscal years prior to 2005, and we are not subject to audits prior to the
2004 fiscal year for the majority of the state jurisdictions.
  
 The
following table illustrates the difference between the statutory income tax
rates applicable to the Company versus the effective tax expense (benefit) rate
for the years ended December 31, 2008 and 2007.
  2008
                                          
                                          2007Tax
      provision at U.S. federal income tax rate
                                          
                                          $
                                          (11,535,643
                                          )
                                          
                                          
                                          34.0
                                          %
                                          
                                          $
                                          (7,218,264
                                          )
                                          
                                          
                                          34.0
                                          %State
      income tax provision net of federal tax benefit
                                          
                                          
                                          (1,231,600
                                          )
                                          
                                          
                                          3.6
                                          %
                                          
                                          
                                          (972,343
                                          )
                                          
                                          
                                          4.6
                                          %Non-Deductible
      Goodwill Impairment and Amortization
                                          
                                          
                                          1,353,757
                                          
                                          
                                          
                                          (4.0
                                          )%
                                          
                                          
                                          -
                                          
                                          
                                          
                                          0.0
                                          %Meals
      & Entertainment
                                          
                                          
                                          41,750
                                          
                                          
                                          
                                          (0.1
                                          )%
                                          
                                          
                                          15,810
                                          
                                          
                                          
                                          (0.1
                                          )%Other
                                          
                                          
                                          8,041
                                          
                                          
                                          
                                          0.0
                                          %
                                          
                                          
                                          21,678
                                          
                                          
                                          
                                          (0.1
                                          )%Change
      in Valuation Allowance
                                          
                                          
                                          11,363,695
                                          
                                          
                                          
                                          (33.5
                                          )%
                                          
                                          
                                          8,153,119
                                          
                                          
                                          
                                          (38.4
                                          )%Provision
      for income taxes
                                          
                                          $
                                          -
                                          
                                          
                                          
                                          0.0
                                          %
                                          
                                          $
                                          -
                                          
                                          
                                          
                                          0.0
                                          %
  
 NOTE
17 - EARNINGS PER SHARE
 
 The
Company follows the provisions of SFAS No. 128, Earnings Per Share (SFAS 128)
which requires the disclosure of basic and diluted earnings per common share for
all periods presented.  Earnings (loss) per share are computed using
the basic and diluted calculations on the face of the statement of operations.
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. 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 loss per share when the
issuance of the shares is no longer contingent.  Weighted average
shares outstanding include both Class A and Class B Common stock.  There is
no difference between the dividend rights and earnings allocation of Class A and
Class B Common stock.
 
 The
following is the computation of basic and diluted net earnings (loss) per common
share for the years ended December 31, 2008 and 2007:
 
 2008
                              
                              
                              2007Numerator:Net
      loss
                              
                              $
                              (33,928,361
                              )
                              
                              $
                              (21,230,186
                              )Less
      preferred stock dividend and accretions
                              
                              
                              (8,054,985
                              )
                              
                              
                              (1,046,134
                              )Net
      loss applicable to common stockholders
                              
                              $
                              (41,983,346
                              )
                              
                              $
                              (22,276,320
                              )Denominator:Weighted
      average basic and fully diluted shares outstanding
                              
                              
                              149,676,100
                              
                              
                              
                              119,654,979Net
      loss per common share - basic and diluted
                              
                              $
                              (0.28
                              )
                              
                              $
                              (0.19
                              )
 
 
 F-36
 
 
 
 During
the years ended December 31, 2008 and 2007, the effect of outstanding
exercisable warrants, convertible debt, and convertible preferred stock were not
included within the Company’s earnings (loss) per share calculation as their
effect would be anti-dilutive.  Weighted average shares outstanding
include both Class A and Class B common stock.  Securities that could
potentially dilute earnings per share in the future, but which were not included
in the calculation of diluted earnings per share because to do so would have
been anti-dilutive for the periods presented, are as follows:
 
 As
      of December 31,2008
                            
                            
                            2007Potentially
      dilutive securities outstanding at end of period:Common
      stock warrants
                            
                            
                            239,460,217
                            
                            
                            
                            28,417,850Convertible
      preferred stock:Series
      A
                            
                            
                            310,000
                            
                            
                            
                            310,000Series
      D
                            
                            
                            -
                            
                            
                            
                            694,600,000Series
      E
                            
                            
                            -
                            
                            
                            
                            69,500,000Series
      G
                            
                            
                            2,400,000
                            
                            
                            
                            600,000Series
      H
                            
                            
                            800,000
                            
                            
                            
                            -Series
      I
                            
                            
                            1,700,000
                            
                            
                            
                            -Total
                            
                            
                            5,210,000
                            
                            
                            
                            765,010,000Weighted-average
      share equivalents outstanding
                            
                            
                            890,982,049
                            
                            
                            
                            595,122,570
 
 
 NOTE
18 - COMMITMENTS AND CONTINGENCIES
 
 The
Company is committed under several leases of office space expiring at various
dates through September 30, 2015.   For the years ended December
31, 2008 and 2007, rent expense was approximately $538 thousand and
approximately $158 thousand, respectively.
 
 The
following is a schedule of future minimum lease payments required under the
Company’s various leased offices.
 
 For
      the Year Ended December 31,2009
                              
                              $
                              496,4332010
                              
                              
                              379,8462011
                              
                              
                              290,8802012
                              
                              
                              137,1042013
                              
                              
                              141,204Thereafter
                              
                              
                              194,389$
                              1,639,856
 
 
 
 NOTE 19
- RELATED PARTY TRANSACTIONS
 
 As part
of the acquisition agreement between the Company and JRM, the Company assumed
approximately $287.1 thousand of liabilities of which approximately $163.4
thousand and $69.2 thousand represent personal credit card balances and business
credit lines, respectively. The Company will continue to pay the monthly
required payments for 18 months and will continue to do so if the 18-month
minimum sales target of JRM is met. The liabilities are personally guaranteed by
two of the senior vice presidents of the JRM Division and are recorded within
the Company’s loans and notes payable category on the accompanying balance
sheet. As of December 31, 2008 and 2007, the outstanding balance of these
personal credit cards and business credit lines was approximately $202.5
thousand and $222.4 thousand, respectively.
 
 F-37
 
 
 During
the years ended December 31, 2008 and 2007, LifeGuard marketed a membership
product which it licensed from DirectMed, a company 33% owned by an employee and
former majority stockholder of LifeGuard. LifeGuard paid DirectMed a branding
fee based on the number of memberships sold. For the years ended December 31,
2008 and 2007, the branding fee paid to DirectMed was approximately $492.3
thousand and approximately $60.4 thousand, respectively.  In addition,
LifeGuard owes DirectMed approximately $524.3 and approximately $590.8 thousand
at December 31, 2008 and 2007, respectively, for unpaid branding fees. 
Branding fees are included in sales commissions in the accompanying statements
of operations.
 
 The
Company and Jay Shafer (President at the time) entered into a promissory note in
the amount of $500 thousand payable to Jay Shafer on August 15, 2008 evidencing
a loan in that amount made by Mr. Shafer to the Company. The promissory note
bears interest at 6% and is payable upon demand. On September 9, 2008, the
Company paid the promissory note with accrued interest of approximately $2.1
thousand.
 
 On
September 25, 2008 and October 25, 2008, the Company and Jay Shafer (Chief
Executive Officer at this time) entered into promissory notes in the amount of
$500 thousand and $300 thousand payable to Jay Shafer evidencing loans made by
Mr. Shafer to the Company in those amounts. The promissory notes bear interest
at 6% and are payable upon demand. As of December 31, 2008, the principal
balance remains outstanding and the Company has recorded accrued interest
expense of approximately $11.5 thousand.
 
 NOTE
20 – 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:
LifeGuard Benefit Services, U.S. Health Benefits Group, Zurvita Marketing, JRMBenefits
Consultants, 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
companythat sells
healthcare,financial
services, and
consumerproducts 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.
  
 F-38
 
 
 Summarized
financial information concerning the Company's reportable segments is shown in
the following:
 
 For
      the Year Ended December 31, 2008LifeGuard
                                          
                                          
                                          USHBG
                                          
                                          
                                          Zurvita
                                          
                                          
                                          JRM
                                          
                                          
                                          Corporate
      and Other
                                          
                                          TotalTotal
      revenue
                                          
                                          $
                                          24,537,797
                                          
                                          
                                          $
                                          4,240,932
                                          
                                          
                                          $
                                          2,371,142
                                          
                                          
                                          $
                                          291,697
                                          
                                          
                                          $
                                          1,054,542
                                          
                                          
                                          $
                                          32,496,110Net
      loss before income taxes
                                          
                                          $
                                          (17,144,058
                                          )
                                          
                                          $
                                          (6,690,822
                                          )
                                          
                                          $
                                          (5,977,226
                                          )
                                          
                                          $
                                          (761,928
                                          )
                                          
                                          $
                                          (3,354,327
                                          )
                                          
                                          $
                                          (33,928,361
                                          )Income
      taxes
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Net
      loss
                                          
                                          $
                                          (17,144,058
                                          )
                                          
                                          $
                                          (6,690,822
                                          )
                                          
                                          $
                                          (5,977,226
                                          )
                                          
                                          $
                                          (761,928
                                          )
                                          
                                          $
                                          (3,354,327
                                          )
                                          
                                          $
                                          (33,928,361
                                          )Total
      assets held
                                          
                                          $
                                          8,834,704
                                          
                                          
                                          $
                                          6,375,261
                                          
                                          
                                          $
                                          1,394,586
                                          
                                          
                                          $
                                          184,754
                                          
                                          
                                          $
                                          1,701,279
                                          
                                          
                                          $
                                          18,490,584For
      the Year Ended December 31, 2007LifeGuard
                                          
                                          
                                          USHBG
                                          
                                          
                                          Zurvita
                                          
                                          
                                          JRM
                                          
                                          
                                          Corporate
      and Other
                                          
                                          TotalTotal
      revenue
                                          
                                          $
                                          3,191,256
                                          
                                          
                                          $
                                          
                                          
                                          
                                          $
                                          
                                          
                                          
                                          $
                                          73,628
                                          
                                          
                                          $
                                          1,055,978
                                          
                                          
                                          $
                                          4,320,862Net
      loss before income taxes
                                          
                                          $
                                          (362,346
                                          )
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          (128,908
                                          )
                                          
                                          $
                                          (20,738,932
                                          )
                                          
                                          $
                                          (21,230,186
                                          )Income
      taxes
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Net
      loss
                                          
                                          $
                                          (362,346
                                          )
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          -
                                          
                                          
                                          $
                                          (128,908
                                          )
                                          
                                          $
                                          (20,738,932
                                          )
                                          
                                          $
                                          (21,230,186
                                          )Total
      assets held
                                          
                                          $
                                          2,624,912
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          
                                          $
                                          25,168
                                          
                                          
                                          $
                                          16,628,785
                                          
                                          
                                          $
                                          19,278,865
 
 
 Total
depreciation and amortization expense for the year ended December 31, 2008 for
Lifeguard, USHBG, Zurvita, JRM and Corporate and Other was $2.5 million, $798.6
thousand, $11.9 thousand, $23 thousand and $45.9 thousand,
respectively.  For the year ended December 31, 2007, total
depreciation and amortization expense for Lifeguard, USHBG, Zurvita, JRM and
Corporate and Other was $75 thousand, $0, $0, $0 and $13.7 thousand,
respectively.
 
 F-39
 
 
 A
reconciliation of segment revenue and assets to consolidated revenue and assets
is as follows:
 
 December
      31, 2008
                                                                                        
                                                                                        
                                                                                        December
      31, 2007RevenuesTotal
      revenues for reportable segments
                                                                                        
                                                                                        $
                                                                                        32,496,110
                                                                                        
                                                                                        
                                                                                        $
                                                                                        4,320,862Elimination
      of intersegment revenues
                                                                                        
                                                                                        
                                                                                        (3,034,288
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -Total
      consolidated revenue
                                                                                        
                                                                                        $
                                                                                        29,461,822
                                                                                        
                                                                                        
                                                                                        $
                                                                                        4,320,862Net
      LossTotal
      profit or loss for reportable segments
                                                                                        
                                                                                        $
                                                                                        (33,928,361
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (21,230,186
                                                                                        )Elimination
      of intersegment profits
                                                                                        
                                                                                        
                                                                                        -
                                                                                        
                                                                                        
                                                                                        
                                                                                        -Total
      net (loss)
                                                                                        
                                                                                        $
                                                                                        (33,928,361
                                                                                        )
                                                                                        
                                                                                        $
                                                                                        (21,230,186
                                                                                        )AssetsDecember
      31, 2008
                                                                                        
                                                                                        
                                                                                        December
      31, 2007Total
      assets for reportable segements
                                                                                        
                                                                                        $
                                                                                        18,490,584
                                                                                        
                                                                                        
                                                                                        $
                                                                                        19,278,865Elimination
      of intersegment receivables
                                                                                        
                                                                                        
                                                                                        (1,296,484
                                                                                        )
                                                                                        
                                                                                        
                                                                                        -Total
      consolidated assets
                                                                                        
                                                                                        $
                                                                                        17,194,100
                                                                                        
                                                                                        
                                                                                        $
                                                                                        19,278,865
 
 
 
 NOTE 21
- SUBSEQUENT EVENTS
 
 On
January 13, 2009, the Company entered into a securities purchase agreement with
Vicis for the sale of 400 shares of Series I preferred stock and 45million
warrants with a strike price of  $0.375.  The Company
received the $4.0 million purchase price payment on January 7,
2009.
  On March
5, 2009, the Board of Directors of the Company approved the elimination of the
series of Company preferred stock listed below.  The certificate of
elimination was filed with the State of Delaware on March 13, 2009, none of the
authorized shares of the following series of preferred stock were
outstanding at the time of the filing.
  ·
              Series
      B Convertible Preferred Stock, par value $.001 per share - Certificate of
      Designation  filed on September 29,
  2000;
 ·
              Series
      C Mandatory Convertible Preferred Stock, par value $.001 per share -
      Certificate of Designation filed on October 12,
  2004;
 ·
              Series
      D Convertible Preferred Stock, par value $.001 per share - Amended and
      Restated Certificate of Designation  filed on May 9, 2007
      (original Certificate of Designation filed on July 11,
    2006);
 ·
              Series
      E Convertible Preferred Stock, , par value $.001 per share - Amended and
      Restated Certificate of Designation filed on July 18, 2006 (original
      Certificate of Designation filed on July 11,
  2006);
 ·
              Series
      J Convertible Preferred Stock, par value $.001 per share - Certificate of
      Designation filed on December 31, 2008;
and
 ·
              Series
      K Convertible Preferred Stock, par value $.001 per share - Certificate of
      Designation filed on December 31,
2008.
 
 On March
5, 2009, the Board of Directors of the Company approved the issuance of
19,757,377 shares of Class A common stock to a Company for payment in full for
its services to the Company.
 
 On March
16, 2009, the Company entered into an informal agreement (“Informal Agreement”)
with Vicis Capital Master Fund for the purchase by Vicis of (a) 400 shares of
the Company’s Series I Convertible Preferred Stock, par value $0.001 per share
and (b) a warrant to acquire 45.0 million shares of the Company’s Class A Common
Stock, par value $0.001 per share for an aggregate cash purchase price of $4.0
million. The Informal Agreement is subject to the execution of definitive
written agreements. The Company received the $4.0 million purchase price payment
on March 16, 2009. However, the Company has not issued the Shares or the
Warrant. The Shares and Warrant will be issued upon execution of definitive
written agreements.