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 year ended July 31, 2011





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





For the transition period from _________ to _________





Commission file number 333-145898





ZURVITA HOLDINGS, INC.


(Exact name of registrant as specified in its charter)





Delaware

26-0531863(State or other jurisdiction of

(I.R.S. Employerincorporation or organization)

Identification No.)




800 Gessner, Suite 110Houston, Texas 77024(Address of principal executive offices) (zip code)





(713) 464-5002(Registrant’s telephone number, including area code)





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





Securities Registered Pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $0.0001 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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 common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of July 31, 2011 was $0.04 * 4,958,366 = $198,355.





The number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2011: 61,498,713 shares of common stock, par value $0.0001.





DOCUMENTS INCORPORATED BY REFERENCE


None.














ZURVITA HOLDINGS HOLDINGS, INC.





FORM 10-K


For the Year Ended July 31, 2011





TABLE OF CONTENTS





PART I

PAGE NO.ITEM 1.
DESCRIPTION OF BUSINESS.
1ITEM 1A.
RISK FACTORS.
5ITEM 1B.
UNRESOLVED STAFF COMMENTS.
10ITEM 2.
PROPERTIES.
10ITEM 3.
LEGAL PROCEEDINGS.
10ITEM 4.
RESERVED.
10PART IIITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
11ITEM 6.
SELECTED FINANCIAL DATA.
12ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
12ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
20ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
21ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
47ITEM 9A.
CONTROLS AND PROCEDURES.
47ITEM 9B.
OTHER INFORMATION.
48PART IIIITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
49ITEM 11.
EXECUTIVE COMPENSATION.
52ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
54ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
56ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES.
58ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
59SIGNATURES
60

















PART I







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,”  “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.





ITEM 1. DESCRIPTION OF BUSINESS





Overview





Our consolidated financial statements include the accounts of Zurvita Holdings, Inc. (referred to herein as the “Company,” “Zurvita Holdings,” “we,” “us” or “our”) and our wholly-owned subsidiary Zurvita, Inc. (Zurvita).  Material intercompany transactions and balances have been eliminated upon consolidation.  Zurvita Holdings is a national network marketing company offering high-quality products and services targeting individuals, families and small businesses.  Products are sold through Zurvita’s network of independent sales consultants.





Business History





Red Sun was incorporated in the State of Delaware on June 28, 2007, as a development stage company to engage in the acquisition and exploration of mineral properties.  Red Sun was a shell company.





Zurvita was incorporated in the State of Delaware on January 25, 2008.   Prior to the consummation of a Share Exchange agreement, Zurvita was a wholly-owned subsidiary of The Amacore Group, Inc. (“Amacore”).





On July 30, 2009 (the “Closing Date”), Red Sun entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Zurvita and the holders of all of the issued and outstanding securities of Zurvita prior to the Closing Date (the “Zurvita Securities Holders”), pursuant to which, among other things, the Zurvita Securities Holders contributed all of their securities of Zurvita to Red Sun in exchange for Red Sun’s issuance of 9.3 million shares of common stock of Red Sun (the “Share Exchange”).





Prior to the consummation of the Share Exchange, Matthew Taylor was Red Sun’s President, Secretary, Treasurer, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and sole Director.  Mr. Taylor owned 66.7 percent of its issued and outstanding securities.





Pursuant to the terms of the repurchase agreement (the “Repurchase Agreement”), Red Sun repurchased all of Mr. Taylor’s shares of common stock for a total repurchase price of $210 thousand. Immediately after the repurchase of these shares: (1) the former shareholders of Zurvita received shares of common stock of Red Sun in exchange for all of their shares of Zurvita, (2) Mr. Taylor appointed the following individuals as directors and officers of the Company: Jay Shafer, Chief Executive Officer and Director; Jason Post, Chief Financial Officer; Richard Diamond, Director; Paul Morrison, Director; Christopher D. Phillips, Director; and Guy Norberg, Director and (3) Mr. Taylor resigned from his Red Sun officer positions and from the Red Sun board of directors.





Concurrent with the closing of the Share Exchange Transaction, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an accredited investor and closed a private placement offering pursuant to which it raised gross proceeds of $1.75 million and, among other things, issued and sold convertible preferred stock (the “Preferred Stock”) convertible into shares of the Company’s common stock (“Conversion Shares”) at an initial conversion price of $0.0625, subject to adjustment (the “Private Placement”).  The Company completed the Private Placement pursuant to which it raised gross proceeds of $1.75 million.




As a result of the Share Exchange Transaction and the consummation of the transactions pursuant to the Repurchase Agreement,  Red Sun experienced a change in control and ceased to be a shell company. Zurvita became the Company’s wholly-owned subsidiary and the former shareholders of Zurvita became the owners of approximately 66 percent of the Company’s issued and outstanding shares of common stock and 44 percent of the voting rights of total equity securities outstanding (after giving effect to subsequent issuances of common stock).  The combined entity elected to change its name from Red Sun Mining, Inc. to Zurvita Holdings, Inc. while maintaining Red Sun’s status as a SEC registrant and we are continuing the business plan of Zurvita only.


1


Business Strategy





Zurvita’s business model embraces a direct sales approach that utilizes the power of network marketing.  The business strategy relies on a marketing sales force that compensates independent business owners (“Consultants”) not only for sales of Company products and services they personally generate, but also for the sales of other Consultants whom they introduced to the business, creating a sales organization of Consultants and a hierarchy of multiple levels of compensation.  The products, services and business opportunities are typically marketed directly to potential business partners, consumers and small businesses by means of referrals, national advertising, video promotions, conferences, the Internet, and word-of-mouth marketing.





Consultants become associated with the Company through an independent contractor relationship and receive remuneration for selling products and services and for expanding their network of people doing the same by promoting Zurvita’s business opportunity.  This model provides each independent sales Consultant an opportunity to make a living on a full-time basis and to obtain long-term financial security through creating long-term residual income.





Recently, Zurvita entered into the growing Health & Wellness industry with its recent launch of “Zeal”, a nutritional drink, and will be entering the weight management market with the launch of Zurvita’s Zeal Weight Management Program in late October 2011.




Zurvita has developed business processes to dramatically increase performance success:





Strengthen Brand Recognition





National and regional marketing efforts are administrated to support corporate and “personal” branding initiatives.  Inherent to the network marketing industry is the axiom that people do not follow products or features, but rather the people with whom they relate to on a personal level.  Zurvita not only invests resources to promote its corporate brand, but has developed a technological platform allowing Consultants to build web-based personal branded sites enhancing their position as affiliate marketers of Zurvita programs and services.





Increase Product and Service Offerings





Zurvita continues to explore the marketplace for new products and services that are anticipated by consumers. These are essential consumer and business solutions in large and growing markets. The network marketing industry mandates a state of continuous improvement by offering its Consultants and customers products and services that offer time, value and conveniences at cost competitive prices.





Marketing





Zurvita’s marketing strategies open new, innovative marketing and sales avenues for Consultants to build income through expansion of their sales organization and the residual benefits offered through the sale of products and services.  The marketing strategy features unique components beyond the traditional approach indicative of most network marketing companies.





Technology





Zurvita recognizes the Internet is a powerful platform for the network marketer.  The highly social aspect of the Internet lends itself as a natural marketing vehicle and continuously opens a new population of prospects.  Zurvita offers Consultants robust “back office” support complimented with sales and marketing tools.





Training and Support





The success of an external marketing program is only as effective as the internal marketing strategies to keep Consultants informed and engaged.  Zurvita is committed to a variety of communication initiatives that promote leadership and business effectiveness.  Weekly telephone/webinar meetings as well as informational seminars create opportunities to develop leaders and to promote Zurvita’s business opportunity.  National conferences and regional events further support Zurvita’s efforts to train and develop its national sales force.





Products and Services





Our products consist of membership products and services, non-membership products and services, and consumable health and wellness products. Our products are sold directly to consumers through our network of independent sales Consultants.


2


Our principal products include the following:




Product
Description
Key FeaturesZeal
All-in-one natural nutritional drink.  Synergistic blend of whole food concentrates providing an excellent source of nutrients, antioxidants & vitamins.  Zeal is a proprietary wellness formula that promotes long-term health and wellness.
Stabilized Rice Bran is the main ingredient and  contains  numerous vitamins and minerals as well as containing over 120 antioxidants.  Zeal  also contains a Super Green Food, Moringa Oleifera, which contains 60 separate nutritional elements as well as other whole food concentrates and essential minerals. This all-in-one powdered nutritional drink is  stable and light weight and comes in a grab-n-go single serving bottle.Zeal Weight Management Program
Using Zeal as the foundation for long term health, Zeal Weight Management Program combines Zeal Protein Shakes, Zeal Burn and Zeal Cleanse to effectively assist the consumer in their efforts to lose weight or maintain a "healthier" weight.
The Zeal Weight Management Program is a complete system that contains an advanced thermogenic formula (Zeal Burn) containing Advantra-Z. It also contains an herbal and probiotic formula (Zeal Cleanse) designed to promote digestive health. A significant part of the program are meal replacement protein shakes with carbohydrate blocking ingredients that help reduce overall caloric intake.Zlinked
ZLinked provides turn-key advertising solutions for small- and medium-sized businesses to connect with consumers on the Internet, including professionally managed pay-per-click (PPC), search engine optimization (SEO), and organic search result ranking.  Its online search directory actively pushes ads to an internal local advertising network as well as popular 3rd party search engines.
Premiere placement on its own national search directory: zlinked.com. Organic results on high traffic websites. Strategic placement on internal Ad network. 3rd party placement on popular search engines; Google, Ask, Bing, Yahoo. A low cost option in Online Advertising.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 repair services, roadside assistance and life event counseling.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 discount medical programs. Services include access to a national network of board certified physicians providing telephone consultations to diagnose, recommend treatment and write short term non- narcotic prescriptions. Members further experience discounted medical services through network providers in vision, hearing, pharmacy, diagnostic, imaging and lab benefits.Zurvita Tech
A membership plan that provides member discounted rates on computer and technology support needs.
Program includes discounted prices on 24/7 remote technical support; nationwide onsite technical support and remote data backup and access.Zurvita Care Saver
A membership program offering members cell phone concierge service and various retail shopping, dining, travel and recreational discounts.
Program that includes restaurants, movie theatres, local retailers, daily services, personal care and pet care providers.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, Georgia, New York, Ohio, Indiana 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.Zurvita Mobile
Zurvita gives customer choices and the ability to choose from all the major carriers for cellular service.
Zurvita Mobile, through association with our fulfillment partner, is a fully authorized dealer for all the major carriers including AT&T Alltel Wireless, Sprint-Nextel, T-Mobile and Verizon Wireless. Members have the flexibility to choose cell phones and providers from one convenient online location.Zurvita Commercial Energy Solutions
Certain states have deregulated electric and natural gas industries permitting commercial enterprises the option to choose where they may purchase their energy.
Program offers competitive commercial utility services (electric & natural gas) in Texas and California. The program is offered in these deregulated energy markets by selling commercial energy via Zurvita’s energy technology portal platform.  The  portal provides Zurvita energy consultants a state-of-the-art web-based portal to manage business, track revenue and commissions,  and present competitive usage and rate data to potential energy customers.




3





Employees





As of July 31, 2011, Zurvita Holdings had 18 full-time employees.





Customers





Zurvita’s customers can either be consultants who purchase products or third party consultants.




Competition





The Company operates in the highly competitive business-to-business segment that consists of many different companies ranging from the small sole proprietors to large multi-national domestic and foreign corporations who sell competing products or who are vying for our membership’s consumer spending dollars.  We expect our competition to continually change with the advent of new products and services that contend for our current membership’s discretionary spending dollars or diminish the perceived value of our products and services. There are many competitors who are more established than we are and have greater financial and non-financial resources than we do.





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 RegulationMany 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.





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.





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 representatives 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





4




·
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.




Our network marketing program is subject to a number of federal and state regulations administered by the FTC and various state agencies in the United States. Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria.





Insurance




The Company significantly mitigates risk by contracting with other companies who ultimately provide the insurance benefits that are embedded within certain of 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.




Corporate Information




Zurvita Holdings is a Delaware corporation formed on June 28, 2007.  Zurvita Holdings principal executive offices are located at 800 Gessner Suite 110, Houston, Texas 77024.




ITEM 1A. RISK FACTORS





Our business faces risks and uncertainties, including those discussed below and elsewhere in this report. These factors represent risks and uncertainties that could have a material adverse effect on our business, results of operations and financial condition. Additional risks and uncertainties not presently known to us or that we do not presently consider significant also may impair our business or the trading price of our securities. Whenever the terms “our,” “we” and the “Company” are used in this Risk Factors section, they refer to Zurvita Holdings or any of its subsidiaries.





Risks Related to Our Business





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





We have a history of net losses and have an accumulated deficit of approximately $19.8 million, from inception through July 31, 2011.  We have historically generated significant net operating losses and negative operating cash flows.  We believe that without significant equity and/or debt investment from outside sources, we will not be able to sustain our 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.





Our business is difficult to evaluate because we have had a limited operating history and have experienced significant changes.





We have a limited operating history, and the Company’s business has undergone significant transformation during the past several years as a result of changes in the Company’s ownership, the services and products offered, changes in market conditions, changes in our targeted membership, and are 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 majority owned by shareholders who are considered related parties and who will be able to make important decisions about our business and capital structure.





Related parties own approximately 92% of our outstanding common stock and approximately 96% of the voting power of all equity securities.  Of the related parties, a significant percentage of the Company’s outstanding securities are controlled by Amacore who owns approximately 61% of our outstanding common stock and 32% of the voting power of all equity securities.  As a result, Amacore’s interests will be significantly represented in certain corporate matters such as the election of the members of our board of directors, appointment of new management and approval of any action requiring stockholder approval.  Amacore’s interest in exercising control over us and our business may conflict with the interests of our other stockholders.  Amacore’s control may also discourage others from acquiring us or from making a significant investment in us.  Related parties collective interest in exercising control over us and our business may conflict with the interests of our other non-related party stockholders.  The significant related party control may also discourage others from acquiring us or from making a significant investment in us.


5








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 double-dip 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.





We currently generate significant revenue through our independent sales consultants.





We derive our revenue through product sales of our independent sales consultants.  In the event we are unable to attract, motivate and retain our independent sales consultants base our business, financial condition and results of operations could be materially and adversely affected as the Company’s revenue is directly tied to the activity levels of its sales consultant base.





We may be unable to fund future growth.





Our business strategy calls for expansion through an increase in our independent sales consultant base and entry into the health and wellness and weight management markets.  We will require significant funding for additional personnel, capital expenditures as well as for working capital purposes. Financing may not be available to us on favorable terms, if at all. If adequate funds are not available on acceptable terms, then we may not be able to meet our business objectives for expansion and profitability which could consequently harm our business, results of operations and financial condition.





In addition, if we raise 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 stockholders and other series of preferred stockholders. Furthermore, if we raise capital or acquire businesses by incurring indebtedness, we will become subject to the risks associated with indebtedness, including interest rate fluctuations and any financial or other covenants that our lender may require. Moreover, if our 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.





Our growth may be limited if it is unable to attract and retain qualified personnel.





Our business is largely dependent on the skills, experience and performance of key members of our senior management team. We plan to increase the Company’s operations and finance personnel. We believe that our success depends largely on its ability to attract and retain highly-skilled and qualified technical and managerial 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 industry in which we operate. The inability to hire or retain qualified personnel may hinder our ability to implement its business strategy and may harm our business.





Our future 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.





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.





Our ability to anticipate and respond to market trends and changes in consumer preferences could affect our financial results.





Our success depends on our ability to anticipate, gauge and react in a timely and effective manner to changes in consumer spending patterns and preferences for products and services. We must continually work to develop new products, maintain and enhance the recognition of our branded products. Furthermore, material shifts or decreases in market demand for our products, including as a result of changes in consumer spending patterns and preferences, could result in lower revenue.




Any future acquisition may expose us to additional risks
  Our business plan does not preclude growth through the acquisitions of qualified companies who complement our current product offerings or enhance our product distribution. The financing for any future acquisition could dilute the interests of our stockholders or result in an increase in our indebtedness or both. Acquisitions may entail numerous risks, including:


6





·
difficulties in assimilating acquired operations or products, including the loss of key employees from acquired businesses and disruption to our direct selling channel;


·
diversion of management’s attention from our core business


·
adverse effects on existing business relationships with suppliers and customers; and


·
risks of entering markets in which we have limited or no prior experience.





Our failure to successfully complete the integration of any acquired business could have a material adverse effect on our business, financial condition and operating results. In addition, there can be no assurance that we will be able to identify suitable acquisition candidates or consummate acquisitions on favorable terms.





We face significant competition for our products and services.





While our products and services are relatively new, the direct-to-consumer industry is intensely competitive, continually evolving and, in some cases, subject to rapid change. We expect the intensity of competition and the pace of change to be increased or at least be maintained in the future. Many of our potential competitors have greater financial, technical, product development, marketing and other resources than us. These organizations may be better known than we are and may have more customers or members than us. We cannot provide assurance that we 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;





We must replace the customers lost 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;


·
discontinuance of third-party products and services





We depend 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.





We depend 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 and liability or personal claims.  Replacing existing third-party vendors with more expensive or less quality third-party vendors could decrease our profitability and harm our reputation.




We may incur material product liability or personal injury claims, which could increase our costs and harm our financial condition and operating results.


Our health and wellness and weight management products consist of vitamins, minerals, proteins and other ingredients that are classified as foods or dietary supplements and are not subject to pre-market regulatory approval by the Food and Drug Administration (“FDA”) or other regulatory authorities in the United States or elsewhere.  As a marketer of nutritional and dietary supplements that are ingested by consumers, we may be subjected to various product liability or personal injury claims, including that the products contain contaminants, the products include inadequate instructions to their uses, or the products include inadequate warnings concerning side effects and interactions with other substances. Some of our products contain ingredients that do not have long histories of human consumption.  Previously unknown adverse reactions resulting from human consumption of these ingredients could occur.  As a marketer of product manufactured by third parties, we may also be liable for product liability claims for products we did not manufacture.  While our agreements with manufacturers require the manufacturer to indemnify us, whether such indemnification is sufficient to cover any product liability claim will depend on the creditworthiness of such manufacturers and the terms of the indemnification.  We may be unable to recover fully from an indemnifying third party manufacturer with respect to a product liability claim.  There can be no assurance that our existing or future products liability insurance coverage will be sufficient to cover any possible product liability risks or that such insurance will continue to be available to us on economically feasible terms.  Any such product liability or personal injury claim could adversely affect our reputation and consumer confidence in our products, and could have material negative impact on our revenues and expenses and ability to secure adequate insurance coverage.





7








We are dependent on a single credit card processing and payment collection company.


In the event our credit card processor ceases operations or terminates its agreement with us, there can be no assurance the Company could find and retain a replacement credit card processor on a timely basis, if at all.  This would severely restrict our ability to generate and collect sales.  Any service interruptions, delays or quality problems could result in delays in collecting payments, which could adversely affect our revenue and profitability.





We 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.





Our network marketing program could be found to be not in compliance with current or newly adopted laws or regulations in one or more markets, which could prevent us from conducting our business in these markets and harm our financial condition and operating results.





Our network marketing program is subject to a number of federal and state regulations administered by the FTC and various state agencies in the United States.  We are subject to the risk that, in one or more markets, our network marketing program could be found not to be in compliance with applicable law or regulations.  Regulations applicable to network marketing organizations generally are directed at preventing fraudulent or deceptive schemes, often referred to as “pyramid” or “chain sales” schemes, by ensuring that product sales ultimately are made to consumers and that advancement within an organization is based on sales of the organization’s products rather than investments in the organization or other non-retail sales-related criteria.  The regulatory requirements concerning network marketing programs do not include “bright line” rules and are inherently fact-based, and thus, we are subject to the risk that these laws or regulations or the enforcement or interpretation of these laws and regulations by governmental agencies or courts can change.  The failure of our network marketing program to comply with current or newly adopted regulations could negatively impact our business in a particular market or in general.





We face potential liability related to the privacy and security of personal information it collects from consumers through its website and marketing operations.





Internet user privacy has become a major issue both in the United States and abroad. We have privacy policies posted on its website that we believe comply with applicable laws requiring notice to users about our 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 we operate our website and could harm our business. Further, we cannot assure you that the privacy policies and other statements on our website or our practices will be found sufficient to protect us 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 us which in turn could adversely affect our ability to attract and retain customers.





We may become involved in the future, in legal proceedings that, if adversely adjudicated or settled, could adversely affect our financial results.





We have in the past been a party to litigation and have incurred significant legal costs and settlement expense.  In general, litigation claims can be expensive and time consuming to bring or defend against and could result in settlements or damages that could significantly affect our financial results.





Healthcare reform measures could hinder or prevent our products’ commercial success.




The healthcare industry is undergoing fundamental changes resulting from political, economic and regulatory influences.  In the United States, comprehensive programs have been proposed that seek to increase access to healthcare for the uninsured, to control the escalation of healthcare expenditures within the economy and to use healthcare reimbursement policies to balance the federal budget.  On March 23, 2010, health reform legislation was approved by Congress and has been signed into law.  The reform legislation provides that most individuals must have health insurance, will establish new regulations on health plans, create insurance pooling mechanisms and other expanded public health care measures, and impose new taxes on sales of medical devices and pharmaceuticals.  Since this legislation is recently enacted and will require the adoption of implementing regulations, we cannot predict the effect, if any, that it will have on our business, but this legislation and similar federal and state initiatives may have the effect of reducing medical procedure volumes, increasing our taxes and otherwise adversely affect our business, possibly materially.




8





We expect that Congress and state legislatures will continue to review and assess healthcare proposals, and public debate of these issues will likely continue.  We cannot predict which, if any, of such reform proposals will be adopted and when they might be adopted.  Other countries also are considering healthcare reform.  Significant changes in healthcare systems could have a substantial impact on the manner in which we conduct our business and could require us to revise our strategies.




Risks Related to Our Stock





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 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 expected to be characterized by significant price volatility when compared to seasoned issuers, and we expect that our future share price will be more volatile than a seasoned issuer for the indefinite future. 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 Markets Group (OTCQX) and 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:


9








·
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.





We became public by means of a reverse merger, and, as a result, we are subject to the risks associated with the prior activities of the public company.





Additional risks may exist because Zurvita became public through a reverse merger with Red Sun, which did not have significant operations or assets prior to the time of the transaction. Red Sun was a development stage company from the time of its inception until the time of the Share Exchange. Prior to the Share Exchange, Red Sun had no significant business operations and generated no revenues. We may require the cooperation or assistance of persons or organizations, such as auditors, previously associated with Red Sun in connection with future matters that could be costly or difficult to secure. Although we performed a due diligence review of Red Sun, we still may be exposed to undisclosed liabilities resulting from its prior operations and we could incur losses, damages or other costs as a result. In connection with the Share Exchange, claims may not be brought against such shareholders after six months from the closing of the Share Exchange. Therefore, any liabilities associated with the prior operations, capitalization or ownership of securities of our company by the shareholders of Red Sun may be borne by the holders of securities issued in the Share Exchange or the Private Placement.





Our common stock may be affected by limited trading volume and price fluctuations, each of which could adversely impact the value of our common stock.





We believe that factors such as quarterly fluctuations in our financial results and changes in the overall economy or the condition of the financial markets could cause the price of our Common stock to fluctuate substantially. These fluctuations also may cause short sellers to enter the market from time to time in the belief that we will have poor results in the future. We cannot predict the actions of market participants and, therefore, can offer no assurances that the market for our stock will be stable or appreciate over time.





ITEM 1B. UNRESOLVED STAFF COMMENTS





None.





ITEM 2. PROPERTIES





Zurvita Holdings’s management offices are located at 800 Gessner Suite 110, Houston, TX 77024.  These facilities are leased and consist of approximately 4 thousand square feet.  The lease expires on July 31, 2012.





ITEM 3. LEGAL PROCEEDINGS





From time to time, the Company may become involved in litigation relating to claims arising out of its operations in the normal course of business. We are not involved in any pending legal proceeding or litigation and, to the best of our knowledge, no governmental authority is contemplating any proceeding to which we are a party, which would reasonably be likely to have a material adverse effect on the Company.





ITEM 4.  RESERVED


10








PART II





ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.





Market Information





The common stock of the Company is quoted for trading on the OTC Markets Group (the “OTCQX”) under the symbol “ZRVT.PK” for the year ended July 31, 2011 and was quoted for trading on the OTC Bulletin Board (“OTCBB”) under the symbol “ZRVT.OB” for the year ended July 31, 2010.  Set forth below are the quarterly high and low bid prices for our common stock for the years ended July 31, 2011 and 2010.





2011
High
LowOctober 31, 2010
0.40
0.10January 30, 2011
0.19
0.03April 30, 2011
0.08
0.02July 31, 2011
0.05
0.032010
High
LowOctober 31, 2009
1.49
0.10January 30, 2010
1.49
0.51April 30, 2010
1.08
0.11July 31, 2010
2.00
0.11





Holders





As of July 31, 2011, 61,498,713 shares of our common stock are issued and outstanding and there were 96 stockholders of record.





Dividends





The Company has never paid any cash dividends on the common stock and does not anticipate paying cash dividends in the foreseeable future. Our current policy is to retain earnings, if any, to fund operations, and the development and growth of our business. Any future determination to pay cash dividends will be at the discretion of the Board of Directors and will be dependent upon the Company’s financial condition, results from operations, capital requirements, applicable contractual restrictions, restrictions in the organizational documents and any other factors that the Board of Directors deems relevant.





Shares Authorized for Issuance Under Equity Compensation Plans





During 2009,  Zurvita’s Board of Directors adopted the 2009 Incentive Stock Plan (the 2009 Plan), pursuant to which we reserved for issuance 6 million shares of Zurvita common stock to be used as awards to employees, directors, consultants, and other service providers. The purpose of the 2009 Plan is to provide an incentive to attract and retain officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into Zurvita’s development and financial success.  Under the 2009 Plan, Zurvita is authorized to issue incentive stock options intended to qualify under Section 422 of the Internal Revenue Code (“Code”), non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2009 Plan is administered by the Board designated Compensation Committee.


11








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
5,175,000
$0.20
825,000Equity compensation plans not approved by security holders
-
-
-Total
5,175,000
$0.20
825,000





ITEM 6. SELECT FINANCIAL DATA





Not applicable.





ITEM 7. 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 year ended July 31, 2011 to 2010.





·
Liquidity and capital resources– This section provides an analysis of our cash flows for the year ended July 31, 2011 and 2010, 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 2011Annual Report on Form 10K.





Overview





Description of Business





Zurvita Holdings is a national network marketing company offering high-quality products and services targeting individuals, families and small businesses.  The Company’s differentiated services feature consumer products and small business solutions offered through a growing network of independent sales consultants.  Zurvita Holdings offers a unique business-to-business strategy with turnkey solutions for commercial and residential energy, advertising, telecommunications and healthcare services.  The Company also markets numerous low-cost ancillary products, such as legal assistance and restoration services for identity theft and consumer credit.


12


Results of Operations




For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010


Increase

(Decrease)Revenues

$
4,628,534


$
6,306,020


$
(1,677,486
)Cost of Sales


3,207,153



4,620,780



(1,413,627
)Gross Profit


1,421,381



1,685,240



(263,859
)Operating Expenses


5,568,091



8,768,439



(3,200,348
)Operating Loss


(4,146,710
)


(7,083,199
)


2,936,489Other Income (Loss)


5,769,775



(4,448,345
)


10,218,120Income (Loss) Before Income Taxes


1,623,065



(11,531,544
)


13,154,609Income Taxes


4,486



(19,629
)


24,115Net Income (Loss )

$
1,618,579


$
(11,511,915
)

$
13,130,494Basic and Diluted Earnings (Loss) Per Share

$
0.03


$
(0.20
)




Revenue:





For the year ended July 31, 2011, revenue was approximately $4.6 million, as compared to approximately $6.3 million for the year ended July 31, 2010, a decrease of approximately $1.7 million.  Significant decreases in Administrative websites, marketing fees and materials and membership fees contributed to the decrease in overall revenue.  The various components of total revenue are discussed below.





Administrative Websites


Administrative website sales were approximately $1.2 million for the year ended July 31, 2011, as compared to approximately $2.1 million for the year ended July 31, 2010.  The approximate $900 thousand decrease in administrative website sales was result of a reduction in sales consultants joining the Company and attrition of the existing sales consultant base during the year ended July 31, 2011, due to product issues and the lack of products that appealed to the general sales consultant base.





Advertising Sales


The Company’s advertising sales were approximately $703 thousand for the year ended July 31, 2011, as compared to approximately $936 thousand for the year ended July 31, 2010.  The approximate $233 thousand decrease is due to the advertising sales technology platform having technical shortcomings that led to adverse refund and persistency rates that made selling the product difficult.  The Company is addressing these issues by redesigning the ZLinked technology platform to lower operating cost, to allow for more competitive product pricing, and to provide enhanced functions and services that are expected to increase the product’s performance and market value.




Commissions


The Company’s commission revenue for the year ended July 31, 2011, were approximately $450 thousand as compared to approximately $479 thousand for the year ended July 31, 2010.  The approximate $29 thousand decrease is due to run off of the Company’s residential energy block of business.  The Company did not market residential energy during the year ended July 31, 2011. The Company is currently marketing commercial energy in the State of Texas on a limited basis.




Consumable Products


The Company’s commission revenue for the year ended July 31, 2011, were approximately $450 thousand as compared to approximately $479 thousand for the year ended July 31, 2010.  The approximate $29 thousand decrease is due to run off of the Company’s residential energy block of business.  The Company did not market residential energy during the year ended July 31, 2011. The Company is currently marketing commercial energy in the State of Texas on a limited basis.




Marketing Fees and Materials


The Company’s marketing fees and materials revenue for the year ended July 31, 2011, were approximately $836 thousand as compared to approximately $1.9 million for the year ended July 31, 2010.  The approximate $1.1 million decrease is due to several factors: (1) in February 2011, the Company changed how sales consultants join the business by eliminating the marketing fee; and (2) the Company experienced attrition in its active sales consultant base prior to the launch of Zeal as a result of a lack of products that appealed to the general sales consultant base.





13





Membership Fees


The Company’s membership fees were approximately $446 thousand for the year ended July 31, 2011, as compared to $924 thousand for the year ended July 31, 2010.  The decrease in membership revenue is a result of the Company’s efforts to focus on the sale of advertising, energy, and consumable products as they are higher margin products.




Cost of Sales:





Total cost of sales for the year ended July 31, 2011, was approximately $3.2 million as compared to approximately $4.6 million for the year ended July 31, 2010.  The decrease in overall revenue resulted in less commissions paid to sales consultants as well as product benefit and service cost.  The various components of cost of sales are discussed below.




Benefit and Service Cost




Benefit and service cost represents the direct cost of the membership and subscription products sold such as administrative websites, advertising sales, marketing materials and membership fees.  Benefit and service cost was approximately $1.1 million as compared to approximately $1.6 million.  The decrease is due to less administrative website sales, advertising sales and membership fees.




Consumable Products Manufacturing Cost




Consumable products manufacturing cost represents Zeal’s manufactured cost and the cost of shipping the product to customers.  For the year ended July 31, 2011, this cost of sales component was $200 thousand.  Zeal was launched in February 2011; therefore, there is no such prior year cost.




Sales Commissions




The Company pays its independent sales agents on a commission basis.  Sales commissions for the year ended July 31, 2011, were approximately $1.9 million as compared to approximately $3 million for the year ended July 31, 2010.  The decrease of $1.1 million is a result of less administrative website sales, advertising subscriptions, marketing fees, and membership fees.




Gross Profit Percentage:





For the year ended July 31, 2011, gross profit was approximately $1.4 million or 31%, as compared to approximately $1.7 million or 27% for the year ended July 31, 2010.  Although revenues and gross profit for the year ended July 31, 2011, decreased, the Company was able to achieve an increase in gross profit percentage.  The following factors contributed to the increase in gross profit percentage: (1) The Company’s consumable product has a higher margin than the Company’s legacy products; and (2) the Company used less costly sales incentives.





Operating Expenses:





Our operating expenses for the year ended July 31, 2011 and for the year ended July 31, 2010, were approximately $5.6 million and $8.7 million, respectively.





The table below sets forth components of our operating expenses for year ended July 31, 2011, compared to the corresponding prior year period:


14





For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010


Increase

(Decrease)Depreciation

$
37,254


$
35,555


$
1,699Impairment loss on marketing agreement


-



2,000,000



(2,000,000
)Office related expenses


543,713



412,587



131,126Payroll and benefits


2,231,322



1,887,185



344,137Professional fees


880,835



1,276,437



(395,602
)Selling and marketing


1,668,545



2,949,708



(1,281,163
)Travel


206,422



206,967



(545
)Total operating expenses

$
5,568,091


$
8,768,439


$
(3,200,348
)





Depreciation expense for the year ended July 31, 2011, was approximately $37 thousand, an increase of approximately $1.7 thousand over the same prior year period.  The increase is related to the purchase of computer hardware and other office equipment needed to accommodate the Company’s personnel growth.





As of July 31, 2010, management had determined there were impairment indicators present with respect to the Company’s marketing agreement, an intangible asset, rendering it completely impaired.  Consequently, the Company recognized an impairment loss of $2 million for the year ended July 31, 2010.  The Company did not have intangible assets during the year ended July 31, 2011.





Office related costs include rent, insurance, utilities and office maintenance. For the year ended July 31, 2011 these costs were approximately $141 thousand, $33 thousand, $92 thousand, and $278 thousand, respectively, as compared to $111 thousand, $30 thousand, $56 thousand, and $216 thousand for the year ended July 31, 2010.  The overall increase of approximately $131 thousand is directly related to the additional IT services added related to maintaining the ZLinked Technology platform.





Payroll and related expenses for the year ended July 31, 2011 was approximately $2.2 million, an increase of approximately $344 thousand over the same prior year period.  The increase is attributable to the hiring of a Vice President of Marketing, as well as transitioning certain ZLinked consultants to full-time employees.





Professional fees consist of consulting, accounting fees, contract labor and legal costs. For the year ended July 31, 2011, these costs were approximately $204 thousand, $279 thousand, $231 thousand and $167 thousand, respectively, as compared to $719 thousand, $322 thousand, $35 thousand, and $200 thousand for the year ended July 31, 2010.  Significant reductions in consulting and legal expenses led to an overall professional fees decrease of approximately $396 thousand.  The increase in accounting fees was due to the Company changing its auditors and the predecessor auditor’s inability to provide consent to the use of their opinion on prior year financial statements which led to a re-audit of the prior year financial statements by the current auditor.  The contract labor costs increased as a result of contracting additional services to maintain and support the ZLinked technology.





Selling and marketing expenses for the year ended July 31, 2011, were $1.7 million as compared to $2.9 million for the year ended July 31, 2010, a decrease of approximately $1.3 million over the prior reporting period.  The significant decrease is due to less amortization of deferred costs such as agent advanced compensation and other prepaid marketing costs between the periods.





Business travel expenses for the year ended July 31, 2011, were approximately $206 thousand, a decrease of approximately $545 as compared to the year ended July 31, 2010.  Travel expenses remained comparable to prior year, although total sales decreased, as the company traveled to regional markets to launch Zeal as well as to recruit new sales consultants.





Other Income (Expense):





Gain on change in fair value of embedded share conversion feature





An embedded share conversion feature exists within the Company’s convertible note payable.  The Company has determined the conversion feature to be a derivative instrument and has estimated its fair value at the time of issuance and at each subsequent reporting period.  We recorded an unrealized gain on the conversion feature for the year ended July 31, 2011of approximately $462 thousand and an unrealized gain of approximately $131 thousand for the year ended July 31, 2010.  These unrealized gains are a non-cash item not impacting operating cash flows or results of operations before other income and expenses. See Note 12 – Assets and Liabilities Measured at Fair Value, to financial statements contained within Item 8 of Part II of this Form 10-K for additional information with respect to the estimation of the fair value of this conversion feature.


15


Gain (loss) on change in fair value of warrants





The Company’s liability warrants are recorded at fair value.  Their fair value is subject to remeasurement on a recurring basis.  For the year ended July 31, 2011, the change in fair value of these warrants was approximately a gain of $6.1 million, as compared to a loss of approximately $4.0 million for the year ended July 31, 2010.  The gain in fair value for the year ended July 31, 2011is a result of the significant decline in share price from $0.34 to $0.04 which is used as an input in fair valuing the warrants.  The loss in fair value for the year ended July 31, 2010 is (1) a result of the 4-to-1 forward share split that occurred on August 11, 2009 that had the effect of increasing the number of outstanding warrants by 21.42 million and (2) using a comparatively higher share price as an input in fair valuing the warrants.  These gains and losses are a non-cash item not impacting operating cash flows or results of operations before other income and expenses. See Note 12 – Assets and Liabilities Measured at Fair Valueto financial statements contained within Item 8 of Part II of this Form 10-K, for additional information with respect to the estimation of the fair value of these warrants.





Gain on sale of non component entity





On July 26, 2011, the Company entered into a $10 purchase agreement with Mark Jarvis (Co-CEO) for the sale of ZurTel, a non-component entity of the Company.  At the time of disposition, ZurTel had assets of $73 and a $52 thousand intercompany liability payable to Zurvita Holdings. The sale resulted in a non-cash gain of $51,937.





Interest expense





Interest expense for the year ended July 31, 2011, was approximately $362 thousand, as compared to $271 thousand for the year ended July 31, 2010.  The increase in interest expense is a result of accreting the discount recognized on the Company’s $2 million interest bearing convertible note issued on October 9, 2009.  Accretion of $323 thousand is included within interest expense for the year ended July 31, 2011, as compared to $233 thousand of accretion included within interest expense for the year ended July 31, 2010.





Loss on change in fair value of marketable securities





The Company’s marketable securities consist of non-registered common stock. The Company fair values these securities on a recurring basis.  The Company recorded an unrealized loss of $443 thousand for the year ended July 31, 2011 as compared to the unrealized loss of $290 thousand recorded for the year ended July 31, 2010.  These losses are a non-cash item not impacting operating cash flows or results of operations before other income and expenses. See Note 12 – Assets and Liabilities Measured at Fair Value, to financial statements contained within Item 8 of Part II of this Form 10-K for additional information with respect to the determination of fair value for the Company’s marketable securities.





Loss on note receivable





On July 26, 2011, the Company sold to Mark Jarvis (Co-CEO) ZurTel, LLC (“ZurTel”), a non-component entity.  Prior to the sale, ZurTel was indebted to Zurvita Holdings in the amount of $52 thousand and evidenced by a promissory note.  Subsequent to the sale, management assessed the collectibility of the note as low and, consequently, recorded a $52 thousand loss for the year ended July 31, 2011.  ZurTel’s shell status and credit history, as well as its proposed business plan were the main reasons for recognizing the credit loss.





Income Taxes:





For the year ended July 31, 2011, the Company estimated approximately $4 thousand in tax expense as compared to $23 thousand for the year ended July 31, 2010.  The decrease between the periods is a result of the Company changing its method for estimating its Texas gross margin tax accrual as a result of access to improved data inputs used in estimating the tax accrual.





The Company realized no federal tax benefit from the deferred tax asset resulting from its historical net operating loss carryforwards as the deferred tax asset is fully reserved.





Net Income (Loss):





The Company had net income of approximately $1.6 million for the year ended July 31, 2011, as compared to a net loss of $11.6 million for the year ended July 31, 2010.  The main reason the Company went from a loss to earnings is due to the $6.1 million unrealized gain on the change in fair value of the Company’s liability warrants.





Earnings (Loss) per Common Share:





Earnings per common share amounted to $0.03 for the year ended July 31, 2011, as compared to a loss per common share of $0.20 for the year ended July 31, 2010.  The aforementioned factors contributing to the increase in net income also contribute to the increase in earnings per share.


16








Off Balance Sheet Arrangements





As of July 31, 2011, the Company did not have any off balance sheet arrangements.





Liquidity and Capital Resources





The following table compares our cash flows for the year ended July 31, 2011 to the corresponding prior period:





For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010Net cash used in operating activities

$
(3,793,665
)

$
(3,132,041
)Net cash used in investing activities


1,686,097



(2,490,484
)Net cash provided by financing activities


1,819,032



4,521,014Net (decrease) increase in cash

$
(288,536
)

$
(1,101,511
)





Since its inception, the Company has met its capital needs principally through sale of its equity securities and the issuance of debt.  The proceeds from the sale of these securities have been used for the Company’s operating expenses, such as salary expenses, professional fees, rent expenses and other general and administrative expenses discussed above.  At July 31, 2011, the Company had negative working capital of approximately $1.4 million, an accumulated deficit of approximately $19.8 million and negative cash flows from operating activities of approximately $3.8 million. Since its inception, the Company has used approximately $10.1 million in operations.





We believe that without significant equity and debt investment from outside sources, the Company will not be able to sustain its current planned operations for the next 12 months.  During fiscal 2010, the Company raised from a shareholder $5.3 million of equity funding.  During fiscal 2011, the Company raised from a shareholder $1.5 million of equity funding.  In order to raise capital, the Company may sell additional equity or issued additional convertible debt securities which would result in additional dilution to our stockholders. The issuance of additional debt would result in increased expenses and could subject us to covenants that may have the effect of restricting our operations. We can provide no assurance that additional financing will be available in an amount or on terms acceptable to us, if at all. If we are unable to obtain additional funds when they are needed or if such funds cannot be obtained on terms favorable to us, we may be unable to execute upon our business plan or pay our costs and expenses as they are incurred, which could have a material, adverse effect on our business, financial condition and results of operations. Currently, the Company does not maintain a line of credit or term loan with any commercial bank or other financial institution. The Company has approximately $2.6 million of outstanding notes payable as of July 31, 2011.  These issues raise substantial doubt about our ability to continue as a going concern for a reasonable period.





Critical Accounting Policies





Revenue Recognition





Administrative Websites





Company’s independent representatives pay a fee to the Company entitling them to use of websites that facilitate their business operations.  Revenue is recognized ratably over the website subscription period.





Advertising Sales





The Company markets subscriptions to a service that facilitates the ability of customers, typically small business owners, to display commercial advertising via an on-line search directory.  Revenue is recognized ratably over the advertising subscription period.





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.


17


Consumable Products





The company markets a nutritional drink called “Zeal”.  Revenue from the sale of this consumable product is recognized upon shipment of the product.





Marketing Fees and Materials





Prior to January 2011, the independent sales consultants paid the Company an annual fee to become marketing representatives on behalf of the Company.  In exchange, the representatives received access, on an annual basis, to various marketing and promotional materials and tools, as well as access to a customized management reporting platform.  Accordingly, revenue from marketing fees is recognized over an annual period.





The Company also earns ancillary revenue from the sale of marketing materials to sales consultants.  Revenue is recognized when marketing materials are delivered.





Membership Fees





The Company recognizes revenues from membership fees as earned for the sales of other lifestyle discount benefit programs, such as household protection and personal financial services.  These arrangements are generally renewable monthly and revenue is recognized over the renewal period.  These products often include elements sold through contracts with third-party providers.  Based on consideration of each contractual arrangement, revenue is reported on a gross basis.





Use of Estimates





The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including the allowance for sales refunds and chargebacks, capitalization of certain assets, depreciable/amortizable lives, impairment of long-lived assets, determination of amount of allowance for doubtful accounts, the fair value of marketable securities, the expected volatility of common stock, and the fair value of common stock and warrants as well as the allocation of proceeds from the issuance of debt and equity instruments.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.




Marketable Securities





The Company’s marketable securities consist of non-registered common stock. The Company fair values these securities on a recurring basis and has accounted for these securities as trading securities in accordance with U.S. GAAP.  These investments are carried in the accompanying consolidated balance sheet at fair value, with the difference between cost and fair value (unrealized gains and losses) included in the Statement of Operations.  Marketable securities are classified as current assets as they are available to meet the current operating needs of the Company.





Share-Based Compensation





The Company recognizes the cost resulting from all share-based payment transactions in the financial statements using a fair-value-based measurement method.  The Company uses the Black-Scholes Option Pricing Model in computing the fair value of warrant instrument issuances.





The measurement date for valuing share-based payments made to non-employees is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or the date at which the counterparty’s performance is complete.





Convertible Instruments





The Company reviews the terms of convertible debt and preferred stock 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 or the number of shares is variable 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 host instrument.  The resulting discount to the debt instrument or to the redemption value of convertible preferred securities is accreted through periodic charges to interest expense over the term of the note or to dividends over the period to earliest conversion date using the effective interest rate method, respectively.


18





Derivative Financial Instruments





The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants to purchase the Company’s common stock and the embedded conversion features of debt and preferred instruments that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions.  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.





Income Taxes





The Company accounts for income taxes using an asset and liability method pursuant to which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided against deferred tax assets based on the weight of available evidence when it is more likely than not that some or all of the deferred tax assets will not be realized.





When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others 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.





Fair Value Measurements





U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability to a third party with the same credit standing (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. Fair value is a market-based measurement determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant, not based solely upon the perspective of the reporting entity. When quoted prices are not used to determine fair value, consideration is given to three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. Entities are required to determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. Inputs to fair valuation techniques are prioritized, allowing for the use of unobservable inputs to the extent that observable inputs are not available. The applicable guidance 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. The input levels are defined 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.


19


ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.





Not applicable.







































20


ITEM 8. FINANCIAL STATEMENTS.





Report of Independent Registered Public Accounting Firm









To the Board of Directors and Stockholders




Zurvita Holdings, Inc.











We have audited the accompanying consolidated balance sheets of Zurvita Holdings, Inc. as of July 31, 2011 and July 31, 2010, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended.  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 audits.




We conducted our audits 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 audits provide a reasonable basis for our opinion.




In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Zurvita Holdings, Inc. as of July 31, 2011 and July 31, 2010, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.




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 not generated sufficient cash flows from operations to meet its needs.  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/ Meeks International, LLC




Tampa, Florida




October 28, 2011




21





ZURVITA HOLDINGS, INC.
 CONSOLIDATED BALANCE SHEETS
  July 31, 2011


July 31, 2010As Adjusted(Note 3)ASSETSCurrent assetsCash

$
906


$
289,442Marketable securities (at fair value)


36,800



480,000Note receivable - related party


-



1,702,000Accounts receivable


202,710



137,123Agent advanced compensation


-



448,553Deferred expenses


50,315



127,351Prepaid expenses


40,054



41,173Total current assets


330,785



3,225,642Property, plant and equipment (net)


73,551



94,965Merchant account deposit


-



115,333Total assets

$
404,336


$
3,435,940LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICITCurrent liabilitiesAccounts payable

$
236,809


$
249,762Accounts payable - related party


319,816



243,066Notes payable - current


158,127



284,967Notes payable - related party


465,000



-Accrued expenses


313,140



332,217Deferred revenue


114,796



808,957Deferred compensation - related party


97,546



110,238Income tax payable


4,486



2,628Total current liabilities


1,709,720



2,031,835Notes payable - long term


1,961,860



1,639,268Fair value of share conversion feature


-



462,013Fair value of warrants


299,600



6,370,000Total liabilities


3,971,180



10,503,116Redeemable preferred stock


6,026,747



4,550,747Stockholders' deficitCommon stock ($.0001 par value, 300,000,000 shares authorized; 69,498,713 and 69,497,713 shares issued and 61,498,713 and 61,497,713 shares outstanding as of July 31, 2011 and July 31, 2010, respectively)


6,950



6,950Treasury stock


(210,000
)


(210,000
)Additional paid-in capital


10,384,491



9,978,738Accumulated deficit


(19,775,032
)


(21,393,611
)Total stockholders' deficit


(9,593,591
)


(11,617,923
)Total liabilities, redeemable preferred stock and stockholders' deficit

$
404,336


$
3,435,940
 
 The accompanying notes are an integral part of these consolidated financial statements.
 22




ZURVITA HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF OPERATIONS
  For the Year EndedJuly 31,2011


2010REVENUESAdministrative websites

$
1,233,233


$
2,055,060Advertising sales


703,032



936,230Commissions


450,149



479,225Consumable products


958,655



-Marketing fees and materials


836,972



1,911,851Membership fees


446,493



923,654Total revenues


4,628,534



6,306,020COST OF SALESBenefit and service cost


1,143,321



1,577,858Consumable products manufacturing cost


200,142



-Sales commissions


1,863,690



3,042,922Total cost of sales


3,207,153



4,620,780GROSS PROFIT


1,421,381



1,685,240OPERATING EXPENSESDepreciation


37,254



35,555Impairment loss on marketing agreement


-



2,000,000Office related expenses


543,713



412,587Payroll and employee benefits


2,231,322



1,887,185Professional fees


880,835



1,276,437Selling and marketing


1,668,545



2,949,708Travel


206,422



206,967Total operating expenses


5,568,091



8,768,439Loss from operations before other income (expenses)


(4,146,710
)


(7,083,199
)OTHER INCOME (EXPENSE)Gain on change in fair value of share conversion feature


462,013



131,413Gain (loss) on change in fair value of warrants


6,094,400



(3,980,580
)Gain (loss) on extinguishment of debt


14,000



(50,000
)Gain on sale of non-component entity


51,937



-Interest expense


(362,141
)


(270,919
)Interest income


4,766



11,741Loss on change in fair value of marketable securities


(443,200
)


(290,000
)Loss on note receivable


(52,000
)


-Total other income (expense)


5,769,775



(4,448,345
)Income (loss) before income taxes


1,623,065



(11,531,544
)Income tax (benefit)


4,486



(19,629
)Net income (loss)

$
1,618,579


$
(11,511,915
)Basic and diluted earnings (loss) per share

$
0.03


$
( 0.20
)Basic and diluted weighted average number of common shares outstanding


61,498,713



56,711,644
 
 The accompanying notes are an integral part of these consolidated financial statements.
 23




ZURVITA HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
  Shares Common Stock


Common Stock


Treasury Stock


Additional Paid-In Capital


Accumulated Deficit


Total Stockholder's DeficitBalance, July 31, 2009 (As Adjusted See Note 3)


56,440,000


$
6,444


$
(210,000
)

$
9,094,182


$
(9,881,696
)

$
(991,070
)Share-based compensation


4,203,447



421



-



618,006



-



618,427Exercise of comon stock warrants


60,565



6



-



30,276



-



30,282Reclassification of liability warrants to equity


593,701



59



-



186,294



-



186,353Issuance of common stock in connection with debt restructure


200,000



20



-



49,980



-



50,000Net loss available to common stockholders


-



-



-



-



( 11,511,915
)


(11,511,915
)Balance, July 31, 2010


61,497,713


$
6,950


$
( 210,000
)

$
9,978,738


$
( 21,393,611
)

$
( 11,617,923
)Share-based compensation


-



-



-



405,253



-



405,253Exercise of comon stock warrants


1,000



-



-



500



-



500Net income available to common stockholders


-



-



-



-



1,618,579



1,618,579Balance, July 31, 2011


61,498,713


$
6,950


$
( 210,000
)

$
10,384,491


$
( 19,775,032
)

$
( 9,593,591
)
 
 The accompanying notes are an integral part of these consolidated financial statements.
 24


ZURVITA HOLDINGS, INC.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   For the Year EndedJuly 31, 2011


July 31, 2010Cash flows from operating activitiesNet income (loss)

$
1,618,579


$
(11,511,915
)Adjustments to reconcile net income (loss) to net cash used in operating activities:Amortization of note payable discount


192,372



140,307Amortization of deferred marketing costs


-



657,400Depreciation


37,255



35,555Share-based compensation


405,253



682,138Gain on change in fair value of share conversion feature


(462,013
)


(131,413
)Gain on sale of noncomponent entity


(51,937
)


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


(6,094,400
)


3,980,580Gain on extinguishment of debt


(14,000
)


-Loss on change in fair value of marketable securities


443,200



290,000Loss on debt restructure


-



50,000Loss on impairment on marketing agreement


-



2,000,000Loss on note receivable


52,000



-Changes in operating assets and liabilitiesIncrease in accounts receivable


(65,586
)


(89,391
)Decrease in agent advanced compensation


448,553



749,793Decrease (increase) in deferred expenses


77,037



(127,351
)Decrease (increase) in prepaid expenses


20,745



(17,047
)Increase in accounts payable and accrued expenses


306,130



174,429Decrease in deferred revenue


(694,161
)


(125,364
)Decrease (increase) in deferred compensation related party


(12,692
)


110,238Net cash (used in) operating activities


(3,793,665
)


(3,132,041
)Cash flows from investing activities:Net identifiable assets sold


(63
)


-Net proceeds from promissory note recievable


1,702,000



-Purchase of promissory note


-



(1,702,000
)Purchase of property and equipment


( 15,840
)


(18,484
)Purchase of marketable securities


-



(770,000
)Net cash provided by (used in) investing activities


1,686,097



(2,490,484
)Cash flows from financing activities:Advanced security proceeds


-



-Proceeds from borrowings


465,000



-Proceeds from exercise of warrants


500



30,282Proceeds from sale of preferred stock


1,500,000



5,300,000Principal payments made on notes payable


(146,468
)


(809,268
)Net cash provided by financing activities


1,819,032



4,521,014Net change in cash balance


(288,536
)


(1,101,511
)Beginning cash


289,442



1,390,953Ending cash

$
906


$
289,442Supplemental disclosure of cash flow informationCash paid for interest

$
13,750


$
33,435Cash paid for taxes

$
2,627


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




25




ZURVITA HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEARS ENDED JULY 31, 2011 and 2010












NOTE 1 – NATURE OF OPERATIONS





Our consolidated financial statements include the accounts of Zurvita Holdings, Inc. (referred to herein as the “Company,” “Zurvita Holdings,” “we,” “us” or “our”) and our wholly-owned subsidiary Zurvita, Inc. (Zurvita).  Material intercompany transactions and balances have been eliminated upon consolidation.  Zurvita Holdings is a national network marketing company offering high-quality products and services targeting individuals, families and small businesses.  Products are sold through Zurvita’s network of independent sales consultants.


Management’s Assessment of Liquidity





Since the Company’s inception, the Company has primarily met its operating cash requirements through equity contributions from The Amacore Group, Inc. (Amacore), who was the Company’s sole shareholder prior to July 30, 2009.  Subsequent to July 30, 2009, the Company has sold several series of preferred stock for gross proceeds of $6.8 million to another related party. We are using the proceeds from the sale of preferred stock to subsidize the Company’s operations as the Company’s revenues and operating cash flows are not currently sufficient to support the Company’s current operations.





At July 31, 2011, the Company had negative working capital of approximately $1.3 million, an accumulated deficit of approximately $19.8 million and negative cash flows from operating activities of approximately $3.8 million. Since the date of inception, the Company has used approximately $10.1 million in operations.





The Company believes that without the support of its related party stockholders its cash resources would be insufficient to sustain current planned operations for the next 12 months. 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 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.





These issues raise substantial doubt about our ability to continue as a going concern for a reasonable period.





NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





In June 2009, the Financial Accounting Standards Board (“FASB”) approved FASB Accounting Standards Codification (“Codification”) as the single source of authoritative accounting guidance used in the preparation of financial statements in conformity with U.S. GAAP for all non-governmental entities. Codification, which changed the referencing and organization of accounting guidance without modification of existing U.S. GAAP, is effective for interim and annual periods ending after September 15, 2009.  Since it did not modify existing U.S. GAAP, Codification did not have any impact on the Company’s financial condition or results of operations.





Revenue Recognition





Administrative Websites





Company’s independent representatives pay a fee to the Company entitling them to use of websites that facilitate their business operations.  Revenue is recognized ratably over the website subscription period.





Advertising Sales





The Company markets subscriptions to a service that facilitates the ability of customers, typically small business owners, to display commercial advertising via an on-line search directory.  Revenue is recognized ratably over the advertising subscription period.




26





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.





Consumable Products





The company markets a nutritional drink called “Zeal”.  Revenue from the sale of this consumable product is recognized upon shipment of the product.





Marketing Fees and Materials





Prior to January 2011, the independent sales consultants paid the Company an annual fee to become marketing representatives on behalf of the Company.  In exchange, the representatives received access, on an annual basis, to various marketing and promotional materials and tools as well as access to a customized management reporting platform.  Accordingly, revenue from marketing fees is recognized over an annual period.





The Company also earns ancillary revenue from the sale of marketing materials to sales consultants.  Revenue is recognized when marketing materials are delivered.





Membership Fees





The Company recognizes revenues from membership fees as earned for the sales of other lifestyle discount benefit programs, such as household protection and personal financial services.  These arrangements are generally renewable monthly and revenue is recognized over the renewal period.  These products often include elements sold through contracts with third-party providers.  Based on consideration of each contractual arrangement, revenue is reported on a gross basis.





Refunds and Chargebacks





The Company records a reduction in revenue for estimated refunds and chargebacks from credit card companies based upon actual history and management’s evaluation of current facts and circumstances.   Refunds and chargebacks totaled approximately $129 thousand and $390 thousand for the year ended July 31, 2011 and 2010, respectively, and were recorded as a reduction of revenue in the accompanying statements of operations.  Estimates for an allowance for refunds and chargebacks totaled approximately $10 thousand and $14 thousand is included in accrued expenses in the accompanying  consolidated balance sheets as of July 31, 2011 and July 31, 2010, respectively.





Selling and Marketing Costs





The Company classifies merchant account fees, fulfillment costs and lead cost not identifiable with specific product sales within selling and marketing costs within the Statement of Operations.





Concentration of Credit Risk





All of the Company’s credit card processing is with one merchant processor, as well as all marketing sales commission payments are calculated by a third-party service provider.





Use of Estimates





The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including the allowance for sales refunds and chargebacks, capitalization of certain assets, depreciable/amortizable lives, impairment of long-lived assets, determination of amount of allowance for doubtful accounts, the fair value of marketable securities, the expected volatility of common stock, and the fair value of common stock and warrants as well as the allocation of proceeds from the issuance of debt and equity instruments.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, including those for the above-described items, are reasonable.




27





Marketable Securities





The Company’s marketable securities consist of non-registered common stock. The Company fair values these securities on a recurring basis and has accounted for these securities as trading securities in accordance with U.S. GAAP.  These investments are carried in the accompanying consolidated balance sheet at fair value, with the difference between cost and fair value (unrealized gains and losses) included in the Statement of Operations.  Marketable securities are classified as current assets as they are available to meet the current operating needs of the Company.





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 July 31, 2011 and July 31, 2010, 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.





Share-Based Compensation





The Company recognizes the cost resulting from all share-based payment transactions in the financial statements using a fair-value-based measurement method.  The Company uses the Black-Scholes Option Pricing Model in computing the fair value of warrant instrument issuances.





The measurement date for valuing share-based payments made to non-employees is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached or the date at which the counterparty’s performance is complete.





Convertible Instruments





The Company reviews the terms of convertible debt and preferred stock 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 or the number of shares is variable 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 host instrument.  The resulting discount to the debt instrument or to the redemption value of convertible preferred securities is accreted through periodic charges to interest expense over the term of the note or to dividends over the period to earliest conversion date using the effective interest rate method, respectively.





Derivative Financial Instruments





The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants to purchase the Company’s common stock and the embedded conversion features of debt and preferred instruments that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions.  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.





Income Taxes





The Company accounts for income taxes using an asset and liability method pursuant to which deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided against deferred tax assets based on the weight of available evidence when it is more likely than not that some or all of the deferred tax assets will not be realized.





28


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.





Fair Value Measurements





U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability to a third party with the same credit standing (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. Fair value is a market-based measurement determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant, not based solely upon the perspective of the reporting entity. When quoted prices are not used to determine fair value, consideration is given to three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. Entities are required to determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. Inputs to fair valuation techniques are prioritized, allowing for the use of unobservable inputs to the extent that observable inputs are not available. The applicable guidance 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. The input levels are defined 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 (Loss) Per Share





Basic earnings (loss) per share is 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.





Subsequent Events





Management has evaluated subsequent events through the date the financial statements were issued.








29





NOTE 3 - RESTATEMENT





On July 30, 2009, the Company entered into a marketing and sales agreement with Amacore, pursuant to which the Company agreed to remit its merchant account deposit of $115,333 to Amacore upon its merchant processor’s release of such deposit.  The effect of this obligation was inadvertently not included within the Company’s consolidated balance sheet and consolidated statement of operations for the year ended July 31, 2009. The Company has corrected this error within its comparative financial statements for the year ended July 31, 2011 by retrospectively adjusting the Company’s consolidated balance sheet as of July 31, 2010 and the beginning deficit balance as of July 31, 2009 within the Company’s consolidated statement of stockholders’ deficit.





The effects of this correction on the Company’s financial statements are presented as follows:




ZURVITA HOLDINGS, INC.
 CONSOLIDATED BALANCE SHEETS
  July 31, 2010





July 31, 2010As Originally Filed


Adjustments


As RestatedASSETSCurrent assetsCash

$
289,442

$



$
289,442Marketable securities (at fair value)


480,000






480,000Note recievable - related party


1,702,000






1,702,000Accounts receivable


137,123






137,123Agent advanced compensation


448,553






448,553Deferred expenses


127,351






127,351Deferred marketing costs


-






-Other assets


41,173






41,173Total current assets


3,225,642



-



3,225,642Property, plant and equipment (net)


94,965







94,965Merchant account deposit


115,333







115,333Total assets

$
3,435,940


$
-


$
3,435,940LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilitiesAccounts payable

$
249,762


$



$
249,762Accounts payable - related party


127,733



115,333



243,066Notes payable - current


284,967







284,967Accrued expenses


332,217







332,217Deferred revenue


808,957







808,957Deferred compensation - related party


110,238







110,238Income tax payable


2,628







2,628Total current liabilities


1,916,502



115,333



2,031,835Notes payable - long term


1,639,268







1,639,268Fair value of share conversion feature


462,013







462,013Fair value of warrants


6,370,000







6,370,000Total liabilities


10,387,783



115,333



10,503,116Redeemable preferred stock


4,550,747







4,550,747Stockholders' deficitCommon stock ($.0001 par value, 300,000,000 shares authorized; 69,497,713 shares issued and 61,497,713 shares outstanding as of July 31, 2010)


6,950







6,950Treasury stock


(210,000
)






(210,000
)Additional paid-in capital


9,978,738







9,978,738Accumulated deficit


(21,278,278
)


(115,333
)


(21,393,611
)Total stockholders' deficit


(11,502,590
)


(115,333
)


(11,617,923
)Total liabilities and stockholders' deficit

$
3,435,940


$
-


$
3,435,940





30





NOTE 4 – 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 July 31, 2011 and 2010.




For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010Cashless exercise of warrants

$
-


$
122,580Common stock issuance for consulting services


-



134,790Common stock issuance for debt restructure


-



50,000Embedded conversion feature on note payable issued


-



593,426Financed insurance agreement


19,726



22,031Interest converted to principal


130,220



92,387Note payable issued for marketing agreement


-



1,406,574Reclassification of warrants liability to equity


-



186,353








NOTE 5 – AGENT ADVANCED COMPENSATION





The Company entered into loan agreements with certain of its independent sales agents which represent advanced compensation.  The agreements have an approximately 2 year term; however, if an agent is still selling for the Company at the maturity date then the note is forgiven.  Therefore, the Company is expensing them over the term of the loan.  The expense is recognized in selling and marketing expenses on the statement of operations as it is not directly related to sales of product or services.  Approximately $735 thousand and $1.2 million of expense was recognized for year ended July 31, 2011 and 2010, respectively.  As of July 31, 2011, all notes had matured and were forgiven.  At July 31, 2010, the balance of the loans was approximately $449 thousand.




NOTE 6 – DEFERRED EXPENSES





For sales of subscriptions for which the service periods crosses reporting periods, the associated commissions paid to the Company’s sales representatives are deferred and amortized over the subscription period.  As of July 31, 2011 and July 31, 2010, the balances of the deferred commissions were approximately $2 thousand and $127 thousand, respectively, and are classified as a current asset.  The decrease in deferred commissions is due to the decrease in overall revenue.  The remaining approximately $48 thousand of deferred expense at July 31, 2011 is attributable to an advertising agreement where the Company paid in advance for a magazine advertisement, as well as a lead management system.  This agreement did not exist for the year ended July 31, 2010.




31





NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET





Property, Plant and Equipment, net of accumulated depreciation, consist of the following at July 31, 2011 and 2010:





July 31, 2011


July 31, 2010Computer hardware

$
36,368


$
26,558Furniture and fixtures


55,217



54,838Equipment and machinery


30,818



25,168Leasehold improvements


55,560



55,560177,963



162,124Less accumulated depreciation


(104,412
)


(67,159
)Total

$
73,551


$
94,965


Depreciation expense for the years ended July 31, 2011 and 2010 was approximately $37 thousand and approximately $36 thousand, respectively.





NOTE 8 – NOTES PAYABLE





Notes payable consist of the following:





July 31, 2011


July 31, 2010Related party convertible note payable; face amount $2 million; bearing interest of 6% per annum; secured; principal payment due on October 9, 2012

$
1,961,860


$
1,639,268Related party Promissory note payable; bearing interest of 15% per annum; unsecured; due on demand


465,000



-Promissory note payable; bearing interest of 7.5% per annum; unsecured; principal payments due monthly approximately $27 thousand through July 2011; currently in default


158,127



284,967Total notes payable


2,584,987



1,924,235Less current portion


623,127



284,967Total long-term debt

$
1,961,860


$
1,639,268





The convertible note’s principal balance is due three years from the date of issuance and convertible at any time at the option of the holder at a conversion price of $0.25 per share.  The Company has accounted for the conversion feature as an embedded derivative instrument requiring it to be separated from the note payable and reported at fair value.  The fair value of the conversion feature at issuance date was approximately $593 thousand.  The separation of the conversion feature from the note payable resulted in a discount on the note payable and a share conversion liability in the amount of approximately $593 thousand.





The share conversion liability is subject to recurring fair value adjustments each reporting period (see Note 12 - Assets and Liabilities Measured at Fair Value).  The discount is amortized over the life of the note payable using the effective interest method and recorded as interest expense in the statement of operations.  During the years ended July 31, 2011 and 2010, total interest expense related to the convertible note payable was approximately $323 and $241 thousand, respectively.   Of the interest expense recognized for the years ended July 31,  2011 and 2010, approximately $130 thousand and $92 thousand, respectively, was elected by the Company to be deferred and added to the principal of the note.





32


At July 31, 2011, the said note was convertible into approximately 8.89 million shares of common stock with a market value of approximately $357 thousand.





The Company is in default with respect to the promissory note due July 2011.   Consequently, the Company has accrued interest in accordance with the promissory notes’ default provision at an interest rate of 18%.





The following is a schedule of the future maturity payments required under the Company’s promissory notes payable.





As of July 31, 2011Current

$
623,1272012


2,361,3192,984,446Net of discount on convertible note payable


(399,459
)$
2,584,987





Of the notes payable, approximately $623 thousand is classified as a current liability as of July 30, 2011.





NOTE 9 – ACCRUED EXPENSES





Accrued expenses consist of the following at July 31, 2011 and 2010:





July 31, 2011


July 31, 2010Commissions

$
130,705


$
173,314Interest


32,286



7,672Marketing materials


1,284



37,830Payroll


58,252



41,549Professional fees


-



2,500Refund reserve


10,000



14,192Rent


4,757



8,340Sales tax payble


34,601



19,004Unclaimed property


41,255



27,816Total

$
313,140


$
332,217


NOTE 10- DEFERRED REVENUE





Deferred revenue consists of the following at July 31, 2011 and July 31, 2010:





July 31, 2011


July 31, 2010Advertising

$
20,574


$
80,563Consumable products


6,806



-Direct response media


45,854



29,674Marketing fees


15,875



582,955Member fees


25,687



115,765Total

$
114,796


$
808,957


NOTE 11 – DEFERRED COMPENSATION





Deferred compensation is made up of compensation due to Mark Jarvis, Co-Chief Executive Officer, and a consultant.  These two individuals deferred their compensation in an effort to manage cash flow while the Company undertook several capital intensive initiatives.  As of July 31, 2011 and July 31, 2010, the balance of deferred compensation was approximately $98 thousand and $110 thousand, respectively.




33





NOTE 12 – ASSETS AND LIABILITIES MEASURED AT FAIR VALUE





Financial instruments which are measured at estimated fair value on a recurring basis in the consolidated financial statements include marketable securities, a embedded share conversion feature and non-compensatory warrants.  The fair value of the marketable securities was determined by the market price as quoted on the OTC.  The fair value of the share conversion feature and warrants was determined by an independent expert valuation specialist using the Black-Scholes Option Pricing Model.





Assets and liabilities measured at estimated fair value and their corresponding fair value hierarchy is summarized as follows:





July 31, 2011

Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical Assets

(Level 1)


Significant Unobservable Inputs

(Level 3)


Total

Fair ValueMarketable securities

$
36,800


$
-


$
36,800Total assets

$
36,800


$
-


$
36,800Share conversion feature

$
-


$
-


$
-Warrants


-



299,600



299,600Total liabilities

$
-


$
299,600


$
299,600
 
 
 July 31, 2010

Fair Value Measurements at Reporting Date UsingQuoted Prices in Active Markets for Identical Assets

(Level 1)


Significant Unobservable Inputs

(Level 3)


Total

Fair ValueMarketable securities

$
480,000


$
-


$
480,000Total assets

$
480,000


$
-


$
480,000Share conversion feature

$
-


$
462,013


$
462,013Warrants


-



6,370,000



6,370,000Total liabilities

$
-


$
6,832,013


$
6,832,013





The Company has categorized its assets and liabilities measured at fair value into the three-level fair value hierarchy, as defined in Note 2, based upon the priority of inputs to respective valuation techniques. Assets included in the level 1 of the fair value hierarchy include marketable securities which are fair valued on a recurring basis using quoted market prices.  Liabilities included within level 3 of the fair value hierarchy presented in the preceding table include a share conversion feature and noncompensatory warrants.  The valuation methodology for liabilities within level 3 uses a combination of observable and unobservable inputs in calculating fair value.





The Company recorded an unrealized loss of $443 thousand and $290 thousand on its marketable securities for the years ended July 31, 2011 and 2010.  These losses have been included in the Statement of Operations caption “Loss on change in fair value of marketable securities.”




34


The changes in level 3 liabilities measured at fair value on a recurring basis during the years ended July 31, 2011 and 2010 are summarized as follows:




Fair Value Measurements Using Significant Unobservable Inputs (Level 3) Warrants





Balance Beginning of Period


Reclassification of Liability Warrants to Equity


Issuance


(Gain) Loss Recognized in Earnings from Change in Fair Value


Balance End of PeriodFor the Year Ended July 31, 2011Share conversion feature

$
462,013


$
-


$
-


$
(462,013
)

$
-Warrants

$
6,370,000


$
-


$
24,000


$
(6,094,400
)

$
299,600
   Balance Beginning of Period


Reclassification of Liability Warrants to Equity


Issuance


(Gain) Loss Recognized in Earnings from Change in Fair Value


Balance End of PeriodFor the Year Ended July 31, 2010Share conversion feature

$
-


$
-


$
593,426


$
(131,413
)

$
462,013Warrants

$
549,780


$
(186,353
)

$
2,025,993


$
3,980,580


$
6,370,000


For the years ended July 31, 2011 and 2010, an unrealized gain of approximately $462 thousand and $131 thousand, respectively, are included in earnings within the Statement of Operations caption “Gain on change in fair value of share conversion feature.”





For the years ended July 31, 2011 and 2010, an unrealized gain of $6.1 million and an unrealized loss of $4.0 million, respectively, are included in earnings within the Statement of Operations caption “Gain (loss) on change in fair value of warrants.”  The unrealized gains from the change in the fair value of warrants is a result of a decrease in the Company’s  share price from $0.24 to $0.04 which is used as an input  in the share price used in valuing the warrants.





Fair Value of Financial Instruments





The fair values of accounts receivable, accounts payable and accrued expenses 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.





NOTE 13—REDEEMABLE PREFERRED STOCK





The Company is authorized to issue 10 million shares of preferred stock with a par value of $0.0001 per share.  The following table summarizes the Preferred Stock issuances and number of Preferred Shares outstanding:


Shares Outstanding atPreferred Stock

Date ofIssuance

Issuance

July 31, 2011

July 31, 2010Series A

July 30, 2009

1,750,000

1,750,000Series B

October 6, 2009

2,000,000

2,000,000Series C

January 29, 2010

1,000,000

1,000,000Series C

June 3, 2010

2,300,000

2,300,000Series C

June 9, 2011

1,500,000

-







35


Series A, Series B and Series C Convertible Preferred Stock is collectively referred to herein as “Convertible Preferred Stock.”
  Significant rights of the Convertible Preferred Stock are discussed below:





Dividends





The Convertible Preferred Stock does not accrue dividends.





Voting Rights





Each holder of the shares of Convertible Preferred Stock shall have the right to the number of votes equal to the number of Conversion Shares then issuable upon conversion of the Convertible Preferred Stock held by such holder in all matters as to which shareholders are required or permitted to vote, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled to vote, together with the holders of Common Stock as a single class, with respect to any question upon which holders of Common Stock have the right to vote; provided, however, as to any holder of Convertible Preferred Stock, the right to vote such shares shall be limited to the number of shares issuable to such holder pursuant to certain beneficial ownership limitations (as listed below) as of the record date for such vote.  To the extent permitted under applicable corporate law, but subject to certain limitations on corporate actions as disclosed below, the Corporation’s shareholders may take action by the affirmative vote of a majority of all shareholders of the Company entitled to vote on an action.  Without limiting the generality of the foregoing, the Company may take any of the actions by the affirmative vote of the holders of a majority of the Convertible Preferred Stock and the Common Stock and other voting common stock equivalents, voting together as one class.





As long as any shares of Convertible Preferred Stock are outstanding, the Company shall not, without the written consent or affirmative vote of the holders of no-less than 51 percent of the then outstanding stated value of the Convertible Preferred Stock consenting or voting as a separate class from the common stock, the Company shall not, either directly or by amendment, merger, consolidation or otherwise:





(i) amend its certificate or articles of incorporation in any manner that adversely affects the rights of the holders of Convertible Preferred Stock;





(ii) alter or change adversely the voting or other powers, preferences, rights, privileges, or restrictions of the  Convertible Preferred Stock;





(iii) increase the authorized number of shares of preferred stock or  Convertible Preferred Stock or reinstate or issue any other series of preferred stock;





(iv)  redeem, purchase or otherwise acquire directly or indirectly any junior securities or any shares pari passu with the Convertible Preferred Stock;





(v) directly or indirectly pay or declare any dividend or make any distribution in respect of, any junior securities, or set aside any monies for the purchase or redemption (through a sinking fund or otherwise) of any junior securities or any shares pari passu with the Convertible Preferred Stock;





(vi) authorize or create any class of stock ranking as to dividends, redemption or distribution of assets upon a liquidation senior to or otherwise pari passu with the Convertible Preferred Stock; or





(vii) enter into any agreement with respect to any of the foregoing.





Liquidation Preferences





Upon any liquidation, dissolution or winding-down of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of the shares of Convertible Preferred Stock shall be paid in cash, before any payment shall be paid to the holders of common stock, or any other junior stock, an amount for each share of Convertible Preferred Stock held by such holder equal to the sum of the Stated Value thereof (such applicable amount payable with respect to a share of Convertible Preferred Stock sometimes being referred to as the “Individual Preferred Liquidation Preference Payment” and with respect to all shares of Convertible Preferred Stock in the aggregate sometimes being referred to as the “Aggregate Liquidation Preference Payment”).  If, upon such liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the assets to be distributed among the holders of shares of Convertible Preferred Stock shall be insufficient to permit payment to the holders of Convertible Preferred Stock of an aggregate amount equal to the Aggregate Liquidation Preference Payment, then the entire assets of the Corporation to be so distributed shall be distributed ratably among the holders of Convertible Preferred Stock (based on the Individual Preferred Liquidation Preference Payments due to the respective holders of Convertible Preferred Stock).





The liquidation value of Series A, Series B and Series C Convertible Preferred Stock was $1.75 million, $2 million and $4.8 million, respectively, as of July 31, 2011.





36


Conversion Rights





Each share of Convertible Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the original issue date (subject to beneficial ownership limitations as listed below), and without the payment of additional consideration by the holder thereof, into such number of fully-paid and nonassessable shares of common stock as is determined by dividing the Stated Value per share, by the Conversion Price in effect at the time of conversion.  The Conversion Price originallyfor Series A, B and C shall be $0.0625, $0.25 and $0.25, respectively; provided, however, that the Conversion Price, and the rate at which shares of Convertible Preferred Stock may be converted into shares of common stock, shall be subject to adjustment as a result of stock dividends, stock splits, and subsequent equity sales at a price lower than the Convertible Preferred Stock’s Conversion Price. Shares of Convertible Preferred Stock converted into common stock shall be canceled and shall not be reissued.





At July 31, 2011, Series A, Series B and Series C Convertible Preferred Stock is convertible into 28 million, 8 million and 19.2 million common shares, respectively.  If the Convertible Preferred Stock had been converted as of July 31, 2011, the aggregate market price of the common shares for Series A, Series B and Series C would have been approximately $1.1 million, $320 thousand, and $768 thousand, respectively.





Beneficial Ownership Limitations





The Company shall not affect any conversion of the Convertible Preferred Stock, and a holder shall not have the right to convert any portion of the Convertible Preferred Stock, to the extent that, after giving effect to the conversion, such holder (together with such holder’s affiliates, and any other person or entity acting as a group together with such holder or any of such holder’s affiliates) would beneficially own in excess 4.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock issuable upon conversion of Convertible Preferred Stock held by the applicable holder.  The Beneficial Ownership Limitation provisions may be waived by such holder, at the election of such holder, upon not less than sixty one (61) days’ prior notice to the Company, to change the Beneficial Ownership Limitation to 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the issuance of shares of common stock upon conversion of Convertible Preferred Stock held by the applicable holder and the provisions of this section shall continue to apply.  Upon such a change by a holder of the Beneficial Ownership Limitation from such 4.99% limitation to such 9.99% limitation, the Beneficial Ownership Limitation shall not be further waived by such holder.





Redemption Rights of the Company





Shares of the Convertible Preferred Stock shall be redeemable, in whole or in part, at the option of the Company, by resolution of its Board of Directors at any time after the original issue date and before the first (1st) anniversary of the original issue date at a price equal to one hundred and ten percent (110%) of the Stated Value.





Redemption Rights of Holder





The Convertible Preferred Stock is redeemable for cash in an amount representing the Stated Value of outstanding Convertible Preferred Stock. The following events give rise to a redemption triggering event:





·
The Company shall be party to a change of control transaction;


·
The Company shall fail to have available a sufficient number of authorized and unreserved shares of common stock to issue to such  holder upon a conversion;


·
Unless specifically addressed elsewhere in the Convertible Preferred Stock’s Certificate of Designation as a Triggering Event, the Corporation shall fail to observe or perform any other covenant, agreement or warranty contained in the Certificate of Designation, and such failure or breach shall not, if subject to the possibility of a cure by the Company, have been cured within 20 calendar days after the date on which written notice of such failure or breach shall have been delivered;


·
There shall have occurred a bankruptcy event or material monetary judgment;





If the Company fails to pay the redemption amount as a result of a triggering event on the date it is due, interest will accrue at a rate equal to the lesser of 18% per year, or the maximum rate permitted by applicable law, accruing daily from the date of the triggering event until the amount is paid in full.





37





Events that may result in the redemption for cash of preferred stock, and that are not within a company’s control may require the preferred stock to be classified outside of stockholders’ equity (in the mezzanine section). All of the above triggering events are presumed not to be within our control.  Accordingly, these instruments are recorded in our balance sheet in the caption Redeemable Preferred Stock, which is outside of stockholders’ equity.  Management estimates the probability of the triggering events to be remote due to the Company’s affiliation with stockholders that represent a majority of the outstanding common and preferred stock.  Therefore, the carrying value of the preferred stock has not been increased to the full redemption value.  The reason the carrying value is not equal to the redemption amount is due to the allocation of value to certain warrants issued in connection with the preferred stock. The following table summarizes for each preferred stock issuance the value allocated to the warrants and preferred stock:




Total


Value


Preferred StockPreferred Stock

Date of

Proceeds


Allocated to


CarryingIssuance

Issuance

Received


Warrants


AmountSeries A

July 30, 2009

$
1,750,000


$
539,000


$
1,211,000Series B

October 6, 2009

$
2,000,000


$
930,838


$
1,069,162Series C

January 29, 2010

$
1,000,000


$
431,415


$
568,585Series C

June 3, 2010

$
2,300,000


$
598,000


$
1,702,000Series C

June 9, 2011

$
1,500,000


$
24,000


$
1,476,000
  NOTE 14 - COMMON STOCK





The Company has authorized 300 million common shares with a par value of $0.0001 per share.   On all matters required by law to be submitted to a vote of the holders of common stock, each share of common stock is entitled to one vote per share.





On July 30, 2009, the Company granted Mr. Jarvis 1.8 million shares of common stock, to be held in escrow, in connection with the execution of an employment agreement.  These shares will be issued to Mr. Jarvis is accordance with the vesting period or upon completion of certain performance measures.  Due to the forward stock split, the amount of shares was increased to 7.2 million shares of common stock.  The shares are subject to a vesting period in which 3.6 million shares vest on July 30, 2010 and July 30, 2011, respectively.  The grant date fair value was approximately $306 thousand.





For the years ended July 31, 2011 and 2010, approximately $405 thousand and $229 thousand, respectively, of stock-based compensation expense was recognized, as a result of various share issuances.





On July 31, 2009, the Company entered into a stock repurchase agreement with a majority shareholder to purchase 8 million shares for $210 thousand or $0.26 per share.  The treasury stock was recorded at cost.  Management’s plan is to retain these shares.





NOTE 15 –WARRANTS





During 2009,  Zurvita’s Board of Directors adopted the 2009 Incentive Stock Plan (the 2009 Plan), pursuant to which we reserved for issuance 6 million shares of Zurvita common stock to be used as awards to employees, directors, consultants, and other service providers. The purpose of the 2009 Plan is to provide an incentive to attract and retain officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into Zurvita’s development and financial success.  Under the 2009 Plan, Zurvita is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2009 Plan is administered by the Board’s designated Compensation Committee.  As of July 31, 2011, approximately 5.2 million total options were issued under the 2009 Plan.





During the year ended July 31, 2011, the Company issued approximately 6.45 million warrants to purchase common stock.




38


The following table summarizes the status of all warrants outstanding and exercisable at July 31, 2011.




Outstanding WarrantsRange of Exercise Prices


Number of Warrants


Weighted Average Exercise Price


Weighted Average Remaining Contractual Life in Years$0.01 to $0.49



60,275,000



$        0.16



5.28$0.50 to $0.99



100,000



$        0.75



3.5360,375,000



$        0.16



5.28




Exercisable WarrantsRange of Exercise Prices


Number of Warrants


Weighted Average Exercise Price


Weighted Average Remaining Contractual Life in Years$0.01 to $0.49



58,958,497



$        0.16



5.31$0.50 to $0.99



100,000



$        0.75



3.5359,058,497



$        0.16



5.30


Compensatory Equity Warrants





During the year ended July 31, 2011, the Company issued compensatory equity warrants to purchase an aggregate of approximately 450 thousand shares of common stock.





Assumptions used to determine the fair value of the compensatory warrants granted during the years ended July 31, 2011 and 2010 are as follows.


July 31, 2011

July 31, 2010Expected dividends
0%

0%Expected volatility
65%

65%Risk free interest rate

0.70% - 1.30%

0.22% - 1.65%Expected life

5 years

6 months to 5 years





The following table summarizes the activity for compensatory warrants classified as equity for the year ended July 31, 2011.





Compensatory

Equity

Warrants


Weighted

Average

Exercise Price


Weighted

Average

Remaining

Contractual

Term


Aggregate

Intrinsic

ValueOutstanding at July 31, 2010


5,795,526


$
0.28



3.94


$
-Issued


450,000



0.24



-



-Exercised


(1,000
)


0.50



-



-Cancelled or Expired


(1,069,526
)


-



-



-Outstanding at July 31, 2011


5,175,000


$
0.22



3.89


$
-Exercisable at July 31, 2011


3,858,497


$
0.23



3.84


$
-




There were approximately 1 thousand warrants exercised for $500 during the year ended July 31, 2011 with no intrinsic value at the date of exercise.  The total fair value of warrants vested during the year ended July 31, 2011 was approximately $266 thousand.  The weighted average grant date fair value of warrants granted during the year ended July 31, 2011 and 2010 was $0 and $0.12, respectively.





A summary of the status of the Company's non-vested compensatory equity warrants of July 31, 2011, and the changes during the year ended July 31, 2011, is presented below.






39





Compensatory

Warrants


Weighted

Average

Grant-Date

Fair ValueNon-vested at July 31, 2010


2,620,467


$
0.16Issued


450,000



0.24Exercised


-



-Expired


-



-Vested


(1,753,964
)


0.34Non-vested at July  31, 2011


1,316,503


$
0.14





Total compensation cost related to non-vested awards not yet recognized is approximately $33 thousand and the weighted average period over which it is expected to be recognized is 1 year.





Non-compensatory Liability Warrants





During the year ended July 31, 2011, Zurvita issued in conjunction with preferred stock non-compensatory warrants to purchase an aggregate of approximately 6 million shares of common stock.  There were approximately 55.2 million non-compensatory warrants outstanding as of July 31, 2011, all of which were classified as liabilities.  These warrants are classified as liability instruments as net share settlement is not considered within the Company’s control or certain exercise prices are not fixed which has the potential to cause a variable number of shares and/or value exchange upon exercise.





The fair value of each option award classified as a liability on the balance sheets is estimated on the date of the grant using the Black-Scholes Pricing Model and the assumptions noted in the following table.  The stock price used approximates the market price less a marketability discount of 30%.  Expected volatility was determined by independent valuation specialist.  The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury Strip yield curve in effect at the time of grant.  The expected term of options granted represents the period of time that options granted are expected to be outstanding.





Assumptions used to determine the fair value of the non-compensatory warrants granted at and during the years ended July 31, 2011 and 2010 are as follows.





July 31, 2011

July 31, 2010Expected dividends
0%

0%Expected volatility
65%

65%Risk free interest rate

1.41% - 2.50%

2.01% - 2.29%Expected life

7 years

5 - 7 years


A summary of the activity of the Company's non-compensatory warrants classified as liabilities on the balance sheet during the year ended July 31, 2010 is presented below.




Non-

Compensatory

Warrants


Weighted

Average

Exercise

Price


Weighted

Average

Remaining

Contractual

TermOutstanding at July 31, 2010


49,200,000


$
0.14



6.23Issued


6,000,000



0.25



6.86Exercised


-



-



-Cancelled or Expired


-



-



-Outstanding and Exercisable at July 31, 2011


55,200,000


$
0.15



5.41




As of July 31, 2011, there was no unrecognized compensation cost related to non-compensatory liability warrants as all were immediately vested upon issuance.  There were no warrants exercised during the year ended July 31, 2011 therefore no intrinsic value associated with them.  There were approximately 525 thousand warrants exercised during the year ended July 31, 2010 with an associated intrinsic value of approximately $157 thousand at the date of exercise.  The total fair value of vested warrants at July 31, 2011 was approximately $24 thousand.  The weighted average grant date fair value of warrants granted during the year ended July 31, 2011 and 2010 was $0 and $0.09, respectively.








40





A summary of the status of the Company's non-vested non-compensatory liability warrants as of July 31, 2011, and the changes during the year ended July 31, 2011, is presented below.




Non-

Compensatory

Warrants


Weighted

Average

Grant-Date

Fair ValueNon-vested at July 31, 2010


-


$
-Issued


6,000,000



-Exercised


-



-Vested


(6,000,000
)


-Non-vested at July  31, 2010


-


$
-




Amacore Stock Warrants Issued




During 2008, The Amacore Group, Inc (“Amacore”) granted to Mr. Jarvis 800 thousand warrants to purchase common stock in connection with his employment agreement with the Company.  In the event the warrants are exercised, Amacore will issue the corresponding authorized and available common stock to Mr. Jarvis.  The contractual term of the warrants issued was five years.




Amacore had accelerated the vesting conditions of the original award prior to July 31, 2009 and, therefore, no compensation expense is recorded in fiscal 2010.  As of July 31, 2011, there were 800 thousand warrants outstanding and exercisable.  No warrants expired, nor were any warrants exercised or forfeited during the year ended July 31, 2011 and, therefore, no intrinsic value was realized.  As of July 31, 2011, the weighted average exercise price of warrants granted was $0.60.  The grant date fair value of the warrants granted was $0.43.




Stock-Based Compensation Expense




For the years ended July 31, 2011 and 2010, the Company recognized stock-based compensation expense, including both expense related to compensatory warrants and expense related to share awards, with the Statement of Operations as follows:




For the Year

Ended

July 31, 2011


For the Year

Ended

July 31, 2010Payroll and employee benefits

$
405,253


$
521,033Professional fees


-



28,343Total

$
405,253


$
549,376




NOTE 16 - INCOME TAXES





Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.






41





The components of the income tax provision (benefit) are as follows:





For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010Current:Federal income tax

$
-


$
-State income tax


4,486



(19,629
)Deferred:Federal income tax


-



-State income tax


-



-Total provision (benefit) for income taxes

$
4,486


$
(19,629
)




Temporary differences that give rise to deferred tax assets and liabilities are summarized as follows:





For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010Deferred tax assets:Deferred compensation

$
33,166


$
45,933Employee warrant compensation


210,185



98,409Fixed assets


11,452



10,934Marketing agreement intangible asset


680,000



680,000Membership reserve


5,155



7,661Unrealized loss on change in fair market value of warrants


-



1,353,397Unrealized loss on marketable securities


111,112



98,600Net operating loss carryforward


6,237,593



4,714,591Gross deferred tax asset


7,288,663



7,009,525Less deferred tax asset valuation allowance


(7,288,663
)


(6,964,845
)Deferred tax asset - net


-



44,680Deferred tax liabilities:Gain on share conversion


-



(44,680
)Gross deferred tax liability


-



(44,680
)Net deferred tax asset

$
-


$
-





As of July 31, 2011, realization of the Company’s net deferred tax assets of approximately $7.3 million 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 July 31, 2011, was approximately $324 thousand.





The Company has a total of $18.3 million of net operating losses available to be offset against future taxable income and that expire between 2028 and 2030.





The Company determined that there were no uncertain tax positions, and accordingly no associated interest and penalties were required to be accrued at July 31, 2011 and 2010, respectively.  The Company does not believe that there are any tax positions for which a material change in unrecognized tax benefit or liability is reasonable possible in the next twelve months.  The Company believes that there are no uncertain tax positions which, if recognized, would impact the effective tax rate.





Below is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate for the years ended July 31, 2011 and 2010.






42





For the Year

Ended

July 31, 2011







For the Year

Ended

July 31, 2010Tax provision at U.S. federal income tax rate

$
551,842



34.00
%

$
(3,920,725
)


-34.00
%State income tax provision net of federal


4,486



0.28
%


(19,629
)


-0.17
%Adjustment of merchant account deposit obligation


39,213



2.42
%


-



0.00
%Meals and entertainment


5,412



0.33
%


6,436



0.06
%Penalties


178



0.01
%


-



0.00
%Share conversion gain


(201,765
)


-12.43
%


-



0.00
%Warrant gain


(718,699
)


-44.28
%


-



0.00
%Change in valuation allowance


323,819



19.95
%


3,914,289



33.94
%Provision (benefit) for income taxes

$
4,486



0.28
%

$
(19,629
)


-0.17
%


NOTE 17 - EARNINGS (LOSS) PER SHARE




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 is 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, warrants, 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.





The following is the computation of basic and diluted net earnings (loss) per common share for the year ended July 31, 2011 and 2010:





For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010Numerator:Net income (loss) available to common stockholders

$
1,618,579


$
(11,511,915
)Denominator:Weighted average basic and fully diluted shares outstanding


61,498,713



56,711,644Net income (loss) per common share - basic and diluted

$
0.03


$
(0.20
)




During the years ended July 31, 2011 and 2010, the effect of convertible debt, outstanding exercisable warrants and convertible preferred stock were not included within the Company’s earnings (loss) per share calculation as they were either out-of-the money or anti-dilutive.








43





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 they were either out-of-the money or to do so would have been anti-dilutive are as follows:





For the Year Ended

July 31, 2011


For the Year Ended

July 31, 2010Potentially dilutive securities outstanding at end of period:Common stock warrants


60,375,000



54,995,526Convertible note payable


8,923,027



8,400,237Convertible preferred stock:Series A


28,000,000



28,000,000Series B


8,000,000



8,000,000Series C


19,200,000



13,200,000Total Preferred Stock


55,200,000



49,200,000Total potentially dilutive securities


124,498,027



112,595,763





NOTE 18 - COMMITMENTS AND CONTINGENCIES





The Company is committed under a lease of office space through July 31, 2012.  For the years ended July 31, 2011 and 2010, rent expense was approximately $108 thousand and $99 thousand, respectively.





The following is a schedule of future minimum lease payments required under the said lease.




As of July 31, 2011:2012

$
106,808Thereafter


-$
106,808


Employment Agreement with Mark Jarvis





On July 30, 2009, the Company entered into an employment agreement with Mark Jarvis (the “Jarvis Agreement”), pursuant to which Mr. Jarvis agreed to serve as Co-CEO of the Company for a term of two years.  Pursuant to the Jarvis Agreement, Mr. Jarvis shall receive annual compensation of $480 thousand (the “Base Salary”).  Mr. Jarvis shall also be entitled certain other benefits, including health insurance, as may be provided to other comparable executives of Zurvita Holdings.  In addition, within 30 days of the execution of the Jarvis Agreement, the Company shall place 7.2 million shares of the Company’s common stock in escrow on behalf of Mr. Jarvis (the “Initial Jarvis Shares”). The Initial Jarvis Shares are subject to a vesting period pursuant to which (i) 3.6 million shares shall vest on July 30, 2010, and (ii) 3.6 million shares shall vest on July 30, 2011.  In addition, in the event that for the first quarter ending six months after July 30, 2009 Zurvita Holdings is cash flow positive, the Company shall, within 30 days of the Company filing its Form 10-Q, issue to Mr. Jarvis 7.2 million shares.  Alternatively, for the two quarters ending six (6) months after Start-Up Period, (“Extended Measuring Quarters”), should the average Zurvita Holdings monthly cash flow during the Extended Measuring Quarters, as documented on the monthly cash flow statements, and verified in the Quarterly Report(s), be operationally cash flow positive, the Performance Shares shall be issued to Executive subject to a one year vesting period from the time of initial grant.  However, these shares were not issued at either of these aforementioned periods, as the requirements for issuance were not met.  In addition to his Base Salary, Mr. Jarvis shall also be eligible to receive certain incentive bonus compensation (the “Incentive Bonus”) based upon the revenue generated by Zurvita Holdings.  Mr. Jarvis’ Incentive Bonus shall be calculated as 10% of Zurvita Holdings income from operations before other income (expenses).  If Mr. Jarvis’ employment is terminated by the Company as a result of his disability (as such term is defined in the Jarvis Agreement), Mr. Jarvis shall be entitled to receive a lump sum payment equal to his (i) accrued but unpaid Base Salary, (ii) any outstanding expense reimbursements, (iii) any accrued but unpaid Incentive Bonus, (iv) a monthly amount, which when added to any amounts received by Mr. Jarvis from any disability policy in effect at the time of his disability, will equal Mr. Jarvis’ Base Salary for the 12 month period following the date of disability termination.





NOTE 19 - LEGAL PROCEEDINGS
 
 As of July 31, 2011, the Company was involved in various additional 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.


44


NOTE 20 - RELATED PARTY TRANSACTIONS





Commissions Paid





There are immediate family members of Mr. Jarvis, who operate as independent sales consultants who were paid agent advances and commission compensation which approximated $11 thousand and $82 thousand, respectively, for the year ended July 31, 2011, and approximately $37 thousand and $91 thousand, respectively, for the year ended July 31, 2010.   These payments were for work they performed on behalf of the Company.





Interest on Note Payable to Infusion Brands International, Inc. f/k/a OmniReliant Holdings, Inc.





The Company recognized interest expense with respect to the note payable due to Infusion Brands, who is a significant shareholder of the company.  For the year ended July 31, 2011 and 2010, interest expense was approximately $323 thousand and $241 thousand, respectively.  Of the interest expense recognized, approximately $192 thousand and $140 thousand relates to the amortization of the discount and approximately $130 thousand and $92 was added to the principal of the note for the years ended July 31, 2011 and 2010, respectively.





Agreement with Amacore





The Company entered into a Marketing and Sales Agreement on July 31, 2009, pursuant to which Amacore agreed to provide certain services to Zurvita.  In addition, pursuant to the Agreement, Zurvita shall continue to have the right to benefit from certain agreements which Amacore maintains with product and service providers.  For the year ended July 31, 2011, Zurvita paid Amacore $461 thousand, for these services, as compared to $478 thousand for the prior year.





On August 10, 2010, Amacore issued to the Company an on-demand promissory note for $1.7 million.  The note accrued interest at 6% per annum.  As of July 31, 2011, Amacore had repaid the note plus accrued interest of $16 thousand on August 17, 2010.





On January 14, 2011, the Company issued to Amacore an on-demand promissory note for $375 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had repaid the note plus accrued interest of $5 thousand.





On April 29, 2011, the Company issued to Amacore an on-demand promissory note for $30 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had repaid the note plus accrued interest of $147.





On June 30, 2011, the Company issued to Amacore an on-demand promissory note for $150 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had not repaid the note plus accrued interest of $2.5 thousand.





On June 30, 2011, the Company issued to Amacore an on-demand promissory note for $295 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had not repaid the note plus accrued interest of $1.8 thousand.





Note Payable to Mark Jarvis





On July 19, 2011, the Company issued to Mark Jarvis an on-demand promissory note for $20 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had not repaid the note plus accrued interest of $99.





ZurTel, LLC Promissory Note





The Company was issued by ZurTel, LLC (“ZurTel”) on July 26, 2011 a promissory note (“the Note”) to memorialize $52 thousand of intercompany funding.  The promissory note requires 6% simple, non-compounding interest with the first required payment of $26 thousand to be paid on or before August 15, 2011.  Thereafter, on the fifteenth day of each calendar month starting September 15, 2011, ZurTel shall pay to the Company an amount equal to ZurTel’s cash flow for the immediately preceding calendar month (or the entire amount outstanding under the Note, if less) until such time as all principal and interest outstanding under the Note has been paid in full.





Sale of ZurTel, LLC





On July 26, 2011, the Company entered into a $10 purchase agreement with Mark Jarvis (Co-CEO) for the sale of ZurTel, a non-component entity of the Company.  At the time of disposition, ZurTel had assets of $73 and a $52 thousand intercompany liability payable to Zurvita Holdings. The sale resulted in a non-cash gain of $51,937.




Securities Purchase Agreements
 
 On June 3, 2010 and June 9, 2011, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with an accredited investor whose principals are represented on our Board of Directors. Pursuant to the Purchase Agreements the Company issued and sold an aggregate of 3,800,000 shares of Series C Convertible Preferred Stock and Series C Common Stock Purchase Warrants to purchase an aggregate of 15,2000,000 shares of the Company’s Common Stock at an exercise price of $0.25 per share (the “Securities”).  The Company received an aggregate of $3,800,000 from said accredited investor as the purchase price for the Securities.




45





NOTE 21 – SUBSEQUENT EVENTS





On August 8, 2011, the Company entered into an oral agreement with an accredited investor who is a related party, subject to further negotiations, to sell to the said related party certain securities, including, but not limited to, convertible preferred stock and warrants to purchase common stock of the Company.  The purchase price of the common stock is expected to be $1.5 million, which funds were received from related party on August 8, 2011. However, a preferred stock purchase agreement and other related transaction documents are in the process of being negotiated with related party and, accordingly, have not been executed at this time.





On August 8, 2011, the Company paid off $445 thousand of notes payable to Amacore with accrued interest of approximately $5 thousand.




















46






ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.


We had no changes in or disagreements with accountants on accounting and financial disclosure in 2011 or 2010.
 
 ITEM 9A. 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. Our disclosure controls and procedures are 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 July 31, 2011 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 July 31, 2011 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 use of multiple locations for processing transactions causes a lack of standardization in the financial reporting process of the Company which 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 through the consolidating of accounting location.  Upon the consolidation of locations, the risk of incomplete and inaccurate reporting of financial information will be mitigated.  In addition, consultants are used to provide specialized technical skills such as valuation of warrant instruments requiring fair value accounting and impairment testing.  The use of specialists reduces 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.
 
  47
  Changes in Internal Controls
 
 There was no change in our internal control over financial reporting that occurred during the periods 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.
 
 ITEM 9B - OTHER INFORMATION
 
 Not Applicable.
            48
  PART III
 
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 The following table sets forth the respective names, ages and positions of our directors and executive officers.
 
 Name of Officers and Directors

Age

PositionJay Shafer

53

Co-Chief Executive Officer and DirectorMark Jarvis

52

Co-Chief Executive Officer and DirectorJason Post

36

Chief Financial OfficerRichard Diamond

47

DirectorShad Stastney

42

DirectorKeith Hughes

53

DirectorGuy Norberg

51

Director
 Executive Officers and Directors
 
 Jay Shafer – Chief Executive Officer and Director
 
 Jay Shafer is the Co-Chief Executive Officer and a Director of the Company.   Mr. Shafer also serves as Chief Executive Officer and as a director of Amacore.  Mr. Shafer also served as President of Amacore from January 2007 through December 2008.  Prior to joining Amacore, 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.
 
 
 Mark Jarvis – Co-Chief Executive Officer and Director
 
 Mark Jarvis is the Co-Chief Executive Officer and a Drector of the Company.  Mr. Jarvis was employed by Amacore as a Senior Vice President of Sales and Marketing solely responsible for the development of Zurvita, Inc., formally a wholly owned subsidiary of Amacore.  Mr. Jarvis served as Zurvita Inc.’s President from February 2008 through July 2009.  Prior to joining Amacore, Mr. Jarvis enjoyed a prosperous 26-year career in direct sales marketing with national companies Ameriplan, Reliv Nutritional Products, Primerica Financial Services and Amway.  His longevity and success in the direct sales industry demonstrates his visionary leadership in building high-performance teams and developing new business leaders for increased sales and organizational growth.
 
 Jason Post – Chief Financial Officer
 
 Jason Post is the Chief Financial Officer and Corporate Secretary of the Company.  Mr. Post also serves as Principal Accounting Officer and Corporate Secretary of Amacore.  Mr. Post’s background includes experience as an external auditor for Deloitte & Touche, LLP (“Deloitte”).  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.
 
 Richard Diamond – Director
 
 Richard Diamond is a Director of the Company.  Mr. Diamond has served as a Director of OmniReliant from its inception in August 21, 2006 thru June 18, 2010.  Since January 2008, Mr. Diamond has served as the President and Chief Executive Officer of Apogee Financial Investments, Inc. (“Apogee”) a private merchant bank incorporated in Florida. His areas of responsibility include administration, due diligence, document preparation and review, and assisting clients with corporate filings and compliance. Apogee owns 100% of Midtown Partners & Co., LLC, a FINRA licensed broker-dealer. From October 2004 to January 2008, Mr. Diamond served as the Senior Vice President of Apogee. From April 2000 until December 2005, Mr. Diamond served as Managing Member and Vice President of Apogee Business Consultants, LLC, a Nevada limited liability corporation specializing in reverse mergers and acquisitions. From October 2001 until December 2005, Mr. Diamond served as founder, President and sole director of RJ Diamond Consulting, Inc., a privately owned Florida corporation specializing in financial and public company consulting. From July 2003 until December 2003, Mr. Diamond served as a Director of Sabre Marketing, Inc. a private Florida corporation. From August 2001 until August 2002, Mr. Diamond served as the sole officer and director of Conus Holdings, Inc., a publicly reporting Nevada shell corporation.
  49
  Shadron Stastney – Director
 
 Shadron Stastney was elected to the Board of Directors in March 2010.  Mr. Statsney also serves on the board of directors of Amacore.  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 Corporation, MDwerks, Inc and Master Silicon Carbide Industries, Inc.
 
 Keith Hughes - Director
 
 Keith Hughes was elected to the Board of Directors in March 2010. Mr. Hughes also serves on the board of directors of Amacore.  Mr. Hughes has been the Chief Financial Officer and Chief Compliance Officer for Vicis Capital, LLC since January 2006.  From 1986 through 1998, Mr. Hughes worked at the Union Bank of Switzerland (UBS) where he was a Managing Director and the Equity Controller for North America.  From 1998 to 2001, he held various financial roles with hedge funds including Treasurer, Controller and Chief Financial Officer.  From 2001 to 2006, he worked at International Fund Services, the fund administrator, where he was a Managing Director of Operation.  Mr. Hughes is a CPA and received a B.A. in Accounting from St. John’s University in 1978.
 
 Guy Norberg – Director
 
 Guy Norberg is a Director of the Company.  Mr. Norberg also serves as President and as a member of the board of directors of Amacore.  Mr. Norberg has been the Senior Vice President, Sales and Marketing of Amacore since June, 2008.  Prior to joining Amacore, 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.
 
 BOARD OF DIRECTORS
 
 Audit, Nominating and Compensation Committees
 
 Our Board of Directors does not have standing audit and nominating committees, committees performing similar functions, or charters for such committees. Instead, the functions that might be delegated to such committees are carried out by our Board of Directors, to the extent required.  Our Board of Directors believes that the cost of establishing such committees, including the costs necessary to recruit and retain qualified independent directors to serve on our Board of Directors and such committees and the legal costs to properly form and document the authority, policies and procedures of such committees are not justified under our current circumstances.
 
 The Company has designated a Compensation Committee.
 
 Given our lack of operations to date, our Board of Directors believes that its current members have sufficient knowledge and experience to fulfill the duties and obligations of the audit committee for our company.
 
 We have no audit committee financial expert. We believe that the cost related to retaining a financial expert at this time is prohibitive. Further, because of our stage of development, we believe the services of a financial expert are not warranted.
 
 Our Board of Directors does not currently have a policy for the qualification, identification, evaluation, or consideration of board candidates. Our Board of Directors does not believe that a defined policy with regard to the qualification, identification, evaluation, or consideration of candidates recommended by stockholders is necessary at this time, due to the lack of operations and the fact that we have not received any stockholder recommendations in the past.
  50
  
 
 We expect to create one or more of such committees and/or policies as determined by our Board of Directors, provided that we will be required to have audit and compensation committees when, and if, our shares of Common Stock commence trading on the Nasdaq Capital or Global Market or on a national securities exchange such as the American Stock Exchange.
 
 As of July 14, 2010, the Company created within its Board, a Compensation Committee.
 
 Code of Ethics
 
 We have not yet adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, and principal accounting officer or controller, or persons performing similar functions. However, we intend to adopt a formal Code of Business Conduct and Ethics.
 
 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.
 
 During our last fiscal year, our board of directors had two telephone meetings. All other proceedings of the Board of Directors were conducted by written consent.
 
 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 1, 485 North Keller Road, Suite 450, Maitland, FL 32751,,Attention: Chairman. All candidate referrals are reviewed by at least one current board member.
 
 Audit Committee and Audit Committee Financial Expert
 
 As of July 31, 2011, the Company did not have an audit committee.  However, Richard Diamond who is a Director of the Board is considered the financial expert of the Board.  Since our common stock is not listed for trading on a national securities exchange, but rather quoted on the OTC Markets Group (the “OTCQX”), we are not subject to rules relating to the independence of our directors or audit committee members.
 
 Other Committees
 
 The Board has a compensation committee and functions of which are performed by Mark Jarvis, Keith Hughes and Jason Post.
 
 The Board has no 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.
 
 Involvement in Certain Legal Proceedings
 
 There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director, executive officer, promoter or control person of Company during the past five years.
 
 Director Independence
 
 Our common stock is quoted on the OTCQX, which does not have director independence requirements. None of our current board members are independent with respect to NASDAQ rule 4200(a)(15), which states a director is not considered to be independent if he or she also is an executive officer or employee of the corporation.
  51
  Term of Office
 
 Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
 
 Shareholder Communications
 
 Shareholder communications may be sent to our board of directors by mail addressed to: Board of Directors, Zurvita Holdings, Inc., 800 Gessner, Houston, Texas 77024.
 
 Additional Information
 
 You may request a copy of public filings made by the Company with the SEC, by writing to our Corporate Secretary at Zurvita Holdings, Inc., 800 Gessner, Houston, Texas 77024. Copies of the documents mentioned above also may be found on the SEC’s EDGAR database at www.sec.gov.
 
 ITEM 11. EXECUTIVE COMPENSATION
 
 Summary Compensation Table
 
 The following table sets forth the compensation earned for services for the two most recently completed years by (i) Zurvita Holdings’s Co-Chief Executive Officer’s and (ii) the one additional most highly compensated executive officers whose total compensation during the years ended July 31, 2011 and 2010.
   Name and Principal Position
Year

Base Salary

($)


Bonus

($)


Stock

Awards

($)(1)


Option

Awards

($)(1)


Non-Equity

Incentive Plan Compensation ($)


Nonqualified

Deferred

Compensation

Earnings

($)


All Other

Compensation

($)


Total

Compensation

($)Jay Shafer
2010


-



-



-



72,791



-



-



-



72,791Co-Chief Executive Officer and Director
2011


-



-



-



83,356



-



-



-



83,356Mark Jarvis
2010


480,000



-



229,606



9,400



-



-



-



719,006Co-Chief Executive Officer and Director
2011


480,000



-



229,606



-



-



-



-



683,606Jason Post
2010


-



-



-



44,085



-



-



-



44,085Chief Financial Officer
2011


-



-



-



46,946



-



-



-



46,946
 (1)  Represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS 123R.  For a discussion of valuation assumptions, see Note 13 to the financial statements contained in this Annual Report of Form 10K.
  Narrative Disclosure to Summary Compensation Table
 Employment Agreement with Mark Jarvis
 
 On July 30, 2009, the Company entered into an employment agreement with Mark Jarvis (the “Jarvis Agreement”), pursuant to which Mr. Jarvis agreed to serve as Co-CEO of the Company for a term of two years.  Pursuant to the Jarvis Agreement, Mr. Jarvis shall receive annual compensation of $480 thousand (the “Base Salary”).  Mr. Jarvis shall also be entitled certain other benefits, including health insurance, as may be provided to other comparable executives of Zurvita Holdings.  In addition, within 30 days of the execution of the Jarvis Agreement, the Company shall place 7.2 million shares of the Company’s common stock in escrow on behalf of Mr. Jarvis (the “Initial Jarvis Shares”). The Initial Jarvis Shares are subject to a vesting period pursuant to which (i) 3.6 million shares shall vest on July 30, 2010, and (ii) 3.6 million shares shall vest on July 30, 2011.  In addition, in the event that for the first quarter ending six months after July 30, 2009 Zurvita Holdings is cash flow positive, the Company shall, within 30 days of the Company filing its Form 10-Q, issue to Mr. Jarvis 7.2 million shares.  Alternatively, for the two quarters ending six (6) months after Start-Up Period, (“Extended Measuring Quarters”), should the average Zurvita Holdings monthly cash flow during the Extended Measuring Quarters, as documented on the monthly cash flow statements, and verified in the Quarterly Report(s), be operationally cash flow positive, the Performance Shares shall be issued to Executive.  These shares were not issued at either of these aforementioned periods, as the requirements for issuance was not met.  The Performance Shares shall be subject to a one year vesting period from the time of initial grant.  In addition to his Base Salary, Mr. Jarvis shall also be eligible to receive certain incentive bonus compensation (the “Incentive Bonus”) based upon the revenue generated by Zurvita Holdings.  Mr. Jarvis’ Incentive Bonus shall be calculated as 10% of Zurvita Holdings income from operations before other income (expenses).  If Mr. Jarvis’ employment is terminated by the Company as a result of his disability (as such term is defined in the Jarvis Agreement), Mr. Jarvis shall be entitled to receive a lump sum payment equal to his (i) accrued but unpaid Base Salary, (ii) any outstanding expense reimbursements, (iii) any accrued but unpaid Incentive Bonus, (iv) a monthly amount, which when added to any amounts received by Mr. Jarvis from any disability policy in effect at the time of his disability, will equal Mr. Jarvis’ Base Salary for the 12 month period following the date of disability termination.
  52
  
 
 2009 Incentive Stock Plan
 
 During 2009,  our Board of Directors adopted the 2009 Incentive Stock Plan (the 2009 Plan), pursuant to which we reserved for issuance 6 million shares of our common stock to be used as awards to employees, directors, consultants, and other service providers. The purpose of the 2009 Plan is to provide an incentive to attract and retain officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship and to stimulate an active interest of such persons into our development and financial success.  Under the 2009 Plan, Zurvita is authorized to issue incentive stock options intended to qualify under Section 422 of the Code, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards. The 2009 Plan is administered by the Board designated Compensation Committee.
 
 Director Compensation
 
 There is currently no formal Director Compensation Policy.
 
 Family Relationships
 
 Tracy Jarvis who is Mark Jarvis’ spouse has a commission agreement with the Company to recognize her for the past efforts in founding Zurvita Inc. and to reward her for her continued involvement in developing Zurvita Holdings’s business, marketing and compensation plans as well as her involvement in the recruitment of independent marketing representatives.  Significant terms of the agreement are detail below:
 
 Relationship – Tracy is designated as the master representative of the Company.  All existing and future independent representatives of the Company shall be in her downline and placed underneath her in the Company’s genealogy structure.
 
 Compensation – As sole compensation for her services, she will receive commissions based on her position in the Company’s downline for the sale of commissionable products.  Compensation shall begin the month following the first month during which the Company is cash-flow positive and in the same manner as the payment of compensation to the other independent marketing representatives.
 
 Term – The agreement is effective as of July 29, 2009 and shall continue so long as the Company and its successors or assigns sell commissionable products through independent representatives.
 
 Tracy continues to work with the Company to grow its independent representative base as well as consult on products and commission structures.
 
 Outstanding Equity Awards at Fiscal Year-End Table
 
 The following table sets forth, for each named executive officer, information regarding unexercised options as of the end of our fiscal year ended July 31, 2011.
 
  53
  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


100,000



-



0.25

11/13/2014Co-Chief Executive Officer


718,750



281,250



0.20

7/14/2015Mark Jarvis


100,000



-



0.25

11/13/2014Co-Chief Executive OfficerJason Post


100,000



-



0.25

11/13/2014Chief Financial Officer


382,815



167,185



0.20

7/14/2015(1) The securities listed in this column consist of unexercised warrants awarded to each name executive officer. Warrants presented herein are fully vested and immediately exercisable.(2) The securities listed in this column consist of warrants awarded to each named executive officer that are not vested and exercisable.
  Compensation of Directors
 
 The following table sets forth the compensation of directors for the years ended July 31, 2011 and 2010.
 
 Name and Principal Position
Year

Base Salary

($)


Bonus

($)


Stock Awards ($)(1)


Option Awards ($)(1)


Non-Equity Incentive Plan Compensation ($)


Nonqualified

Deferred

Compensation

Earnings ($)


All Other Compensation ($)(4)


Total Compensation ($)Richard Diamond
2010


-



-



-



9,400



-



-



-



9,400Director
2011


-



-



-



-



-



-



-



-Paul Morrison
2010


-



-



-



9,400



-



-



-



9,400Former Director
2011


-



-



-



-



-



-



-



-Guy Norberg
2010


-



-



-



72,791



-



-



-



72,791Director
2011


-



-



-



85,356



-



-



-



85,356Chris Phillips
2010


-



-



-



9,400



-



-



-



9,400Former Director
2011


-



-



-



-



-



-



-



-(1) Represents the dollar amount recognized for financial statement reporting purposes in accordance with SFAS 123R. For a discussion of valuation assumptions, see Note 13 to the financial statements contained in this Annual Report of Form 10K.
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
 The following table sets forth certain information known to us with respect to the beneficial ownership (as defined in Instruction 4 to Item 403 of Regulation S-K under the Securities Exchange Act of 1934) of our Common Stock by (i) each person who we anticipate being a beneficial owner of more than five percent (5%) of any class of our voting securities, (ii) each of our directors and named executive officers, and (iii) all of our executive officers and directors as a group.  Except as otherwise listed below, the address of each person is 800 Gessner, Houston, Texas 77024.
 
 With respect to the dispositive control over shares, the control rests with the board of directors for both Infusion Brands and Amacore, while for Vicis the control rests with executive management.
  54
  Name and Address of Beneficial Owner (1)

Amount and Nature Of

Beneficial Ownership

(2)

Percentage of

Class

(2)Executive Officers and Directors:Richard Diamond (11)

100,000
(3)
*Mark Jarvis

7,302,500
(4)
11%Jay Shafer (12)

818,750
(5)
1%Keith Hughes (10)

-

0%Shad Stastney (10)

-

0%Guy Norberg (12)

818,750
(5)
1%Jason Post (12)

497,815
(6)
*All officers and directors as a group (7 persons) (13)
9,537,815

13%Other Beneficial Owners:The Amacore Group, Inc.

37,210,000
(8)
38%Vicis Capital Master Fund

110,400,000
(7)
63%Infusion Brands International, Inc. f/k/a OmniReliant Holdings, Inc.
24,123,027
(9)
28%* Less than 1%
 (1) Unless otherwise indicated, the address for each individual listed in this column is c/o Zurvita Holdings, Inc., 800 Gessner, Houston, TX 77024.(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, 61,498,713 shares of our common stock outstanding as of October 28, 2011 together with securities exercisable or convertible into shares of our Common Stock within 60 days of July 31, 2011 for each stockholder. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of Common Stock that are currently exercisable or exercisable within 60 days of July 31, 2011, are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.(3)  Mr. Diamond's beneficial ownership includes 100,000 shares of Common stock issuable upon exercise of outstanding warrants.(4) Pursuant to the terms of Mr. Jarvis’ employment agreement, the Company granted 7,202,500 shares of the Company’s common stock to Mr. Jarvis (the “Initial Jarvis Shares”).  The Initial Jarvis Shares are subject to a vesting period pursuant to which (i) 3,602,500 shares shall vest on July 30, 2010, and (ii) 3,600,000 sharesvested on July 30, 2011.  In addition, this includes 100,000 shares of Common Stock issuable upon exercise of outstanding warrants.(5) Mr. Shafer's and Mr. Norberg's beneficial ownership includes 818,750 shares of Common Stock issuable upon exercise of outstanding warrants.(6) Mr. Post's beneficial ownership includes 495,315 shares of Common Stock issuable upon exercise of outstanding warrants and 2,500 shares of Common Stock.(7) Includes 55,200,000 shares of Common Stock issuable upon exercise of outstanding convertible preferred stock and 55,200,000 shares of Common Stock issuable upon exercise of outstanding warrants.(8) Includes 37,210,000 shares of Common Stock .(9) Includes 15,200,000 shares of Common Stock and 8,923,027 of Common Stock issuable upon exercise of outstanding convertible note payable .(10) Mr. Hughes and Mr. Stastney are Directors of the Company and hold no beneficial interest in the Company.(11) Beneficial owners address:  14375 Myerlake Circle, Clearwater, Florida 33760(12) Beneficial owners address:  485 N. Keller Rd., Maitland, Florida 32751(13) 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.
   55
  
 ITEM 13. 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 our date of incorporation, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction 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.
 
 
 There are immediate family members of Mr. Jarvis, who operate as Independent Business Owners (“IBO”) who were paid agent advances and commission compensation which approximated  $11 thousand and $91 thousand, respectively, for the year ended July 31, 2011, and approximately $37 thousand and $10 thousand, respectively, for the year ended July 31, 2010.   These payments were for work they performed on behalf of the Company.
 
 Agreement with Infusion Brands International, Inc. f/k/a OmniReliant Holdings, Inc.
 
 On October 9, 2009, the Company entered into a marketing agreement with Infusion Brands International, Inc. f/k/a OmniReliant Holdings, Inc., whereby the Company was granted a perpetual right, under all intellectual property rights applicable to the LocalAdLink Software, to market and sell the product through its independent sales representative.  As consideration for such agreement, a $2 million convertible note payable was issued and is due three years from the date of issuance and convertible at any time at the option the holder at a conversion price of $0.25 per share.  At July 31, 2011, the said note was convertible into approximately 8.9 million shares of common stock.  The Company has accounted for the conversion feature as an embedded derivative instrument requiring it to be separated from the note payable and reported at fair value.  The fair value of the conversion feature at issuance date was approximately $593 thousand.  The separation of the conversion feature from the note payable resulted in a discount on the note payable and a share conversion liability in the amount of approximately $593 thousand.  The share conversion liability is subject to recurring fair value adjustments each reporting period.  The discount is amortized over the life of the note payable using the effective interest method and recorded as interest expense in the statement of operations.  During the year ended July 31, 2011, total interest expense related to the convertible note payable was approximately $323 thousand.   Of the interest expense recognized, approximately $130 thousand was elected by the Company to be deferred and added to the principal of the note.
 
 Agreement with Amacore
 
 The Company entered into a Marketing and Sales Agreement on July 31, 2009, pursuant to which Amacore agreed to provide certain services to Zurvita.  In addition, pursuant to the Agreement, Zurvita shall continue to have the right to benefit from certain agreements which Amacore maintains with product and service providers.  For the year ended July 31, 2011, Zurvita paid Amacore $461 thousand, for these services, as compared to $478 thousand for the prior year.
 
 On August 10, 2010, Amacore issued to the Company an on-demand promissory note for $1.7 million.  The note accrued interest at 6% per annum.  As of July 31, 2011, Amacore had repaid the note plus accrued interest of $16 thousand on August 17, 2010.
 
 On January 14, 2011, the Company issued to Amacore an on-demand promissory note for $375 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had repaid the note plus accrued interest of $5 thousand.
 
 On April 29, 2011, the Company issued to Amacore an on-demand promissory note for $30 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had repaid the note plus accrued interest of $147.
 
 On June 30, 2011, the Company issued to Amacore an on-demand promissory note for $150 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had not repaid the note plus accrued interest of $2.5 thousand.
 
 On June 30, 2011, the Company issued to Amacore an on-demand promissory note for $295 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had not repaid the note plus accrued interest of $1.8 thousand.
 
 Note Payable to Mark Jarvis
 
 On July 19, 2011, the Company issued to Mark Jarvis an on-demand promissory note for $20 thousand.  The note accrued interest at 15% per annum.  As of July 31, 2011, the Company had not repaid the note plus accrued interest of $99.
 
  56
  
 ZurTel, LLC Promissory Note
 
 The Company was issued by ZurTel, LLC (“ZurTel”) on July 26, 2011, a promissory note (“the Note”) to memorialize $52 thousand of intercompany funding.  The promissory note requires 6% simple, non-compounding interest with the first required payment of $26 thousand to be paid on or before August 15, 2011.  Thereafter, on the fifteenth day of each calendar month starting September 15, 2011, ZurTel shall pay to the Company an amount equal to ZurTel’s cash flow for the immediately preceding calendar month (or the entire amount outstanding under the Note, if less) until such time as all principal and interest outstanding under the Note has been paid in full.
 
 Sale of ZurTel, LLC
 
 On July 26, 2011, the Company entered into a $10 purchase agreement with Mark Jarvis (Co-CEO) for the sale of ZurTel, a non-component entity of the Company.  At the time of disposition, ZurTel had assets of $73 and a $52 thousand intercompany liability payable to Zurvita Holdings. The sale resulted in a non-cash gain of $51,937.
  Securities Purchase Agreements
 
 On June 3, 2010 and June 9, 2011, the Company entered into Securities Purchase Agreements (the “Purchase Agreements”) with an accredited investor whose principals are represented on our Board of Directors.   Pursuant to the Purchase Agreements the Company issued and sold an aggregate of 3,800,000 shares of Series C Convertible Preferred Stock and Series C Common Stock Purchase Warrants to purchase an aggregate of 15,2000,000 shares of the Company’s Common Stock at an exercise price of $0.25 per share (the “Securities”).  The Company received an aggregate of $3,800,000 from said accredited investor as the purchase price for the Securities.
 Director Independence
 
 Our common stock is quoted on the OTC Markets Group (OTCQX), which does not have director independence requirements. None of our current board members are independent with respect to NASDAQ rule 4200(a)(15), which states a director is not considered to be independent if he or she also is an executive officer or employee of the corporation.
 
           
  57
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 The following table presents fees for professional audit services performed by our principal accountant, Meeks International, LLP for the audit of our annual financial statements and review of financial statements for the years ended July 31, 2011 and 2010, respectively, and fees billed for other services rendered by Meeks International, LLP during such years.
  For the Year Ended

July 31, 2011


For the Year

Ended July 31, 201Audit Fees

$
34,050


$
43,063Tax Fees


-



-Other


30,000



-Total

$
64,050


$
43,063
  
 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.
 
 
 
  58
  
 Item 15. Exhibits
 
 (a) Exhibits:
 
 
 10.1
Agreement of Conveyance, Transfer and Assignment of Assets and Assumptions of Obligations by and between the Company and OmniReliant Holdings, Inc., dated December 2, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 8, 2010).10.2
Security Agreement between the Company and OmniReliant Holdings, Inc. dated December 2, 2010 (incorporated by reference to Exhibit10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 8, 2010).10.3
Securities Purchase Agreement by and between the Company and Vicis Captial Master Fund dated June 9, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 10, 2011).10.4
Second Amended and Restated Series C Convertible Preferred Stock Certificate of Designation, dated Jume9, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 6, 2011)10.5
Form of Series C Common Stock Purchase Warrant Certificate between the Company and Vicis Captial Master Fund, dated June 9, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 10, 2010).31.2
Certification of the Co-Chief Executive Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
Certification of Chief Financial Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
Certification pursuant to Section 906 Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
 
  59
  
 
 
 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:October 28, 2011
/s/ Jay ShaferJay ShaferCo-Chief 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 28th day of October, 2011 in the capacities indicated.
 
 /s/Jay Shafer
 Jay Shafer
 Co-Chief Executive Officer and
 Director
 
 /s/ Mark Jarvis
 Mark Jarvis
 Co-Chief Executive Officer
 
 /s/  Jason Post
 Jason Post
 Chief Financial Officer
 
 /s/  Richard Diamond
 Richard Diamond
 Director
 
 /s/  Shad Stastney
 Shad Stastney
 Director
 
 /s/  Keith Hughes
 Keith Hughes
 Director
 
 /s/  Guy Norberg
 Guy Norberg
 Director
 
  60
  
 Exhibit Index
 
 10.1
Agreement of Conveyance, Transfer and Assignment of Assets and Assumptions of Obligations by and between the Company and OmniReliant Holdings, Inc., dated December 2, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 8, 2010).10.2
Security Agreement between the Company and OmniReliant Holdings, Inc. dated December 2, 2010 (incorporated by reference to Exhibit10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 8, 2010).10.3
Securities Purchase Agreement by and between the Company and Vicis Captial Master Fund dated June 9, 2011 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 10, 2011).10.4
Second Amended and Restated Series C Convertible Preferred Stock Certificate of Designation, dated Jume9, 2011 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 6, 2011)10.5
Form of Series C Common Stock Purchase Warrant Certificate between the Company and Vicis Captial Master Fund, dated June 9, 2011 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 10, 2010).31.2
Certification of the Co-Chief Executive Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200231.2
Certification of Chief Financial Officer pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 200232.1
Certification pursuant to Section 906 Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).