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, 2010





o  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 GessnerHouston, 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 30, 2010 was $0.34 * 4,957,366 = $1,685,504.





The number of shares outstanding of each of the issuer’s classes of common stock as of July 31, 2010:


61,497,713 shares of common stock, par value $0.0001.







DOCUMENTS INCORPORATED BY REFERENCE




None.















ZURVITA HOLDINGS, INC.





FORM 10-K


For the Year Ended July 31, 2010





TABLE OF CONTENTS





PART I

PAGE NO.ITEM 1.
DESCRIPTION OF BUSINESS.
1ITEM 1A.
RISK FACTORS.
6ITEM 1B.
UNRESOLVED STAFF COMMENTS.
11ITEM 2.
PROPERTIES.
11ITEM 3.
LEGAL PROCEEDINGS.
11ITEM 4.
RESERVED.
11PART IIITEM 5.
MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
12ITEM 6.
SELECTED FINANCIAL DATA.
12ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
13ITEM 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.
57ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
58SIGNATURES
61








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PART I







Forward-Looking Statements




This Transition 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 direct sales 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.





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 (as defined below), 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, 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.


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As a result of the Share Exchange 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.





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 opportunity 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.





Strategically, Zurvita utilizes service and technology platforms whereby Consultants market high demand products and services that target consumers and small businesses at many levels.  This creates a Consultant sales organization that in turn sponsors other motivated Consultants.  Under the Company’s business model, each independent sales Consultant has an opportunity to make a living on a full-time basis and to obtain long-term financial security by marketing products that have growing demand in the market place and create long-term residual income.





Zurvita has developed business processes to dramatically increase performance success:





Create Leads





Zurvita entered into an Advertising and Marketing Agreement with OmniReliant Holdings, Inc., (“OmniReliant”), pursuant to which Zurvita agreed to provide placement of advertising for OmniReliant on its website and OmniReliant agreed to provide the Company with certain marketing services.  The marketing services to be provided by OmniReliant include the production of infomercials, video production services, management of call centers, and buying and fulfillment services.





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 don’t 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, best-in-class 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.





The Company entered into the growing online advertising market with the launch of a proprietary local advertising search directory service called ZLinked.  This is a proprietary local search and advertising software program owned by Zurvita.  The platform connects consumers who visit high-volume websites with thousands of national and local advertisers, thereby increasing brand identity and exposure, and ultimately customer revenue, by geo-targeting advertising placements in local markets, where they make the most impact.  Additionally, a customer can perform additional searches for local businesses and services across a complete selection of categories and get the information they require.





When a business owner purchases one of the three advertising programs, the local business receives a suite of easy-to-use tools that allows it to fully manage its business listing and advertisements on its own website.  Depending on the service level selected, a business owner can add and manage all of the information it wishes to display, including contact information, such as name, address, phone number and directions. The advertising program also provides business owners with the ability to easily create discount coupons and add multiple photos to an image gallery and upload videos.  All of the management tools have been designed to be intuitive, enabling business owners with little or no technology experience to effectively manage their business listings.





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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.





Media





The agreement with OmniReliant brings strength and uniqueness to Zurvita’s overall marketing strategy.  The synergistic relationship brings the strength of television production and national media placement to drive prospects to Zurvita and to fuel interest in Zurvita programs that are distributed as leads to thousands of Consultants.  OmniReliant offers a host of products that create additional product options for Zurvita.





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 and non-membership products and services. Our products are sold directly to consumers through our network of independent Consultants.





Our principal products include the following:


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Product
Description
Key FeaturesZurvita 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.ZurTel
ZurTel offers its customers several products and services in the ever expanding telecommunications industry.
Program offers Voice over Internet Protocol as one of the most rapidly growing segments within the telecommunications industry. Additionally, Virtual Office services are designed to meet even the most demanding communications needs. ZurTel offers members access to all the major wireless companies for cellular service.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.ZLinked, Powered by Zurvita
Online Search directory that actively pushes ads to an internal local advertising network as well as popular 3rd party search engines.
Premiere placement on national search directory LocalAdLink.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 leader in Online Advertising.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.





Employees





As of July 31, 2010, Zurvita Holdings had 17 full-time employees.





4





Customers





The Company’s products are sold to consumers through a high-quality network of independent sales consultants. Zurvita consultants pay the Company a fee to become marketing representatives as independent business owners. In exchange, the consultants receive access, on an annual basis, to various marketing and promotional materials and tools as well as access to customized management tools and reports via a back office technological platform.   The strength of the Company’s product line and its unique compensation plan offers consultants the opportunity to earn a living from recurring compensation gained from marketing mainstream products and building their own network of distributors.




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 consumer 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


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





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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.





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, 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 $21.3 million, from inception through July 31, 2010.  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 34% 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.





6





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





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





We currently generate significant revenue through our independent marketing representatives.





We derive our revenue through product sales of our independent marketing representatives.  In the event we are unable to attract, motivate and retain our independent marketing representative 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 marketing representative base.





We may be unable to fund future growth.





Our business strategy calls for expansion through an increase in our independent marketing representative base and increase breadth of product offering.  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.





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





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.





7





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:





·
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.  Replacing existing third-party vendors with more expensive or less quality third-party vendors could decrease our profitability and harm our reputation.





We are dependent on Amacore to provide credit card processing and payment collection.  If Amacore’s credit card processing is interrupted in any way it could result in delays in collecting payments and our ability to generate sales.





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





8





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.





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.




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.





9





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





·
variations in our operating results;


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


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


·
additions or departures of key personnel; and


·
future sales of our common stock.





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





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.





10





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, 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





The Company is not involved in any lawsuits, claims or disputes arising in the normal course of business.





ITEM 4.  RESERVED


11








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 Bulletin Board (the “OTCBB”) under the symbol “ZRVT”.   Set forth below are the quarterly high and low bid prices for our common stock on the OTCBB for the year ended July 31, 2010.  There is no established public trading market for our common stock prior to September 3, 2009.





2010
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, 2010, there were 81 holders of record of the Company’s common stock.





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.





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
5,795,526
$0.27
204,474Equity compensation plans not approved by security holders
-
-
-Total
5,795,526
$0.27
204,474








ITEM 6. SELECT FINANCIAL DATA





Not applicable.





12





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, 2010 to the seven months ended July 31, 2009.





·
Liquidity and capital resources– This section provides an analysis of our cash flows for the year ended July 31, 2010 and the seven months ended July 31, 2009 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 2010 Annual Report on Form 10K.





Overview





Description of Business





Zurvita Holdings is a direct sales 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.










13


Results of Operations


For the Year Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009


Increase

(Decrease)Revenues

$
6,306,020


$
2,814,449


$
3,491,571Cost of Sales


4,620,780



2,117,007



2,503,773Gross Profit


1,685,240



697,442



987,798Operating Expenses


8,768,439



4,256,324



4,512,115Operating Loss


(7,083,199
)


(3,558,882
)


(3,524,317
)Other (Loss) Income


(4,448,345
)


35,686



(4,484,031
)Loss Before Income Taxes


(11,531,544
)


(3,523,196
)


(8,008,348
)Income Taxes


(19,629
)


19,144



(38,773
)Net Loss

$
(11,511,915
)

$
(3,542,340
)

$
(7,969,575
)Basic and Diluted Loss Per Share

$
(0.20
)

$
(0.07
)


Revenue:





For the year ended July 31, 2010, revenue was approximately $6.3 million, as compared to approximately $2.8 million for the seven months ended July 31, 2009 an increase of approximately $3.5 million.  The increase in total revenue is primarily a result of new advertising and energy revenue streams and a result of comparing the year ended July 31, 2010 to the seven months ended July 31, 2009.





Administrative websites sales and marketing fees were approximately $2.1 million and $1.9 million for the year ended July 31, 2010, respectively, as compared to approximately $514 thousand and $1.3 million, respectively, for the seven months ended July 31, 2009.  The aggregate increase in administrative website sales and marketing fees was approximately $1.5 million and $642 thousand, respectively.  The increase in administrative website sales and marketing fees is a direct result of growth in the total sales representative base which was approximately 5.1 thousand as of July 31, 2010 from approximately 2.6 thousand as of July 31, 2009.  The Company was able to attract and retain more representatives as a result of greater product offering as of July 31, 2010 as compared to July 30, 2009.




The Company’s advertising sales and commissions relating to energy sales were new revenue streams between the periods which both contributed to an aggregate increase of $1.4 million of new revenue for the year ended July 31, 2010 as compared to the seven months ended July 31, 2009.  The Company is focusing its efforts and resources on these new products and is recruiting consultants based upon the availabilityof these new products.  The Company’s membership fees were approximately $924 thousand for the year ended July 31, 2010 as compared to approximately $965 thousand for the seven months ended July 31, 2009.  The decrease in membership revenue is a result of the Company’s efforts toward focusing on recruiting, advertising and energy sales.




Cost of Sales:





For the year ended July 31, 2010, cost of sales was approximately $4.6 million an increase of approximately $2.5 million from the seven months ended July 31, 2009. Cost of sales includes the benefit and service costs associated with the products and services sold and sales commissions paid to consultants.  The increase in cost of sales for the year ended July 31, 2010 is a direct result of increased revenues.




Gross Profit Percentage:





For the year ended July 31, 2010, gross profit was approximately $1.7 million, respectively, as compared to a gross profit of approximately $697 thousand for the seven months ended July 31, 2009.  For the year ended July 31, 2010 and the seven months ended July 31, 2009, the gross profit percentage increased to 27% from 25%.  The increase in gross profit is due to the fact that the Company’s product offering and consultant base were further developed between the periods.  The growth in product offerings, including but not limited to ad sales and energy commissions,  has reduced the need of utilizing non-traditional sales incentives to attract and retain consultants, which historically had resulted in commissions either being paid in excess of revenue recognized or resulting in minimal gross profit.


14





Operating Expenses:





Our operating expenses for the year ended July 31, 2010 and for the seven months ended July 31, 2009 were approximately $8.8 million and $4.3 million, respectively.





The table below sets forth components of our operating expenses for year ended July 31, 2010 and for the seven months ended July 31, 2009:





For the Year Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009


Increase

(Decrease)Depreciation

$
35,555


$
19,722


$
15,833Impairment loss on marketing agreement


2,000,000



-



2,000,000Office related expenses


412,587



124,239



288,348Payroll and benefits


1,887,185



758,164



1,129,021Professional fees


1,276,437



1,409,565



(133,128
)Selling and marketing


2,949,708



1,878,349



1,071,359Travel


206,967



66,285



140,682Total operating expenses

$
8,768,439


$
4,256,324


$
4,512,115





Depreciation expense for the year ended July 31, 2010, was approximately $36 thousand, an increase of approximately $16 thousand over the seven months ended July 31, 2009.  The increase is related to the purchase of computer hardware and other office equipment needed to accommodate the Company’s personnel growth.





Impairment indicators existed at July 31, 2010 which led management to remeasure the Company’s indefinite-lived marketing agreement, an intangible asset. Consequently, management determined the intangible asset was completely impaired and recognized an impairment charge of $2 million at July 31, 2010.





Office related costs include rent, insurance, utilities and office maintenance. For the year ended July 31, 2010 these costs were approximately $111 thousand, $30 thousand, $56 thousand, and $216 thousand, respectively, as compared to $75 thousand, $0, $27 thousand and $22 thousand for the seven months ended July 31, 2009.  The overall increases of approximately $288 thousand for the year ended July31, 2010 is due to comparing the year ended July 31, 2010 to the seven month period ended July 31, 2009.





Payroll and related expenses for the year ended July 31, 2010 were approximately $1.9 million an increase of approximately $1.1 thousand over the seven months ended July31, 2009.  Of the increase approximately $265 thousand is related to share-based compensation, approximately $92 thousand relates to specific personnel added to support and operate the Company’s ZLinked product, and approximately $743 thousand relates to comparing the year ended July 31, 2010 to the seven month period ended July 31, 2009.





Professional fees consist of consulting, accounting fees, contract labor and legal costs. For the year ended July31, 2010, these costs were approximately $719 thousand, $322 thousand, $35 thousand and $200 thousand, respectively, as compared to $165 thousand, $76 thousand, $0, and $1.2 million for the seven months ended July 31, 2009.  During the seven months ended July 31, 2009, legal expense represented approximately $1.2 million of the professional fees incurred and was related to litigation in which the Company was involved. The Company’s legal costs have been materially reduced due to a legal settlement entered into on July 7, 2009, which was the primary reason for the overall decrease in professional fees of $133 thousand for the year ended July 31, 2010 as compared to the seven months ended July 31, 2009.





Selling and marketing expenses for the year ended July 31, 2010 were $2.9 million as compared to $1.9 million for the seven months ended July 31, 2009, a increase of approximately $1.1 million over the prior reporting period.  The significant increase is due to the various marketing initiatives undertaken to create awareness of the Zurvita brand as well as attract and recruit representative to the Zurvita business opportunity.





15





Business travel expenses for the year ended July 31, 2010 were approximately $207 thousand, an increase of approximately $141 thousand as compared to the seven months ended July 31, 2009.  The increase was attributable to several national conferences held during March and July 2010 as well as comparing the year ended July 31, 2010 to the seven month period ended July 31, 2009.





Other Income (Expense):





Gain on change in fair value of embedded share conversion feature





An embedded share conversion feature exists within a convertible note payable.  The Company has determined the conversion feature to be a derivative instrument and has valued it at 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, 2010 of approximately $131 thousand.  No embedded share conversion feature existed during the seven months ended July 31, 2009.  This gain is a non-cash item not impacting operating cash flows or results of operations. See Note 13 – Assets and Liabilities Measured at Fair Value, to financial statements contained within Item 8 of Part II of this Form 10Kfor additional information with respect to the calculation of change in fair value of this conversion feature.





Interest expense





Interest expense for the year ended July 31, 2010 was approximately $271 thousand, as compared to $3 thousand for the seven months ended July 31, 2009.  The increase in interest expense is a result of the $2 million interest bearing convertible note issued subsequent to July 31, 2009 and the timing of a $600 thousand interest bearing promissory note that was entered into on July 9, 2009.  Included within interest expense is accretion of approximately $241 thousand  relating to a discount on the $2 million note.





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 $290 thousand for the year ended July 31, 2010.  No marketable securities existed during the seven months ended July 31, 2009.  This gain and loss is a non-cash item not impacting operating cash flows or results of operations. See Note 13 – Assets and Liabilities Measured at Fair Value, to financial statements contained within Item 8 of Part II of this Form 10K for additional information with respect to the determination of fair value.





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, 2010, the change in fair value of these warrants was approximately a loss of $4.0 million.  The loss in fair value is a result of several significant factors: (1) 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) the increase in share price from $0.17 to $0.24 used in valuing the warrants.  The loss is a non-cash item not impacting operating cash flows or results of operations.  See Note 13 – Assets and Liabilities Measure at Fair Valueto the financial statements contained within Item 8 of Part II of this Form 10K for additional information with respect to the calculation of change in fair value of warrants for the year ended July 31, 2010.





Income Taxes:





At July 31, 2010, the Company changed 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.  This change in estimate resulted in a tax benefit of approximately $20 thousand as compared to tax expense of approximately $19 thousand for the seven months ended July 31, 2009.   The Company realized no tax benefit from the deferred tax asset resulting from net operating losses carryforward as the deferred tax asset is fully reserved.





Net Loss:





The Company had a net loss of approximately $11.5 million for the year ended July 31, 2010, as compared to a net loss of approximately $3.5 million for the seven months ended July 31, 2009.  Although the Company experienced an increase in revenues and improvement in gross margin, the increase in net loss is attributable to non-cash amortization and impairment of the Company’s advertising and marketing agreements, respectively, in the amounts of approximately $657 thousand and $2 million, respectively, as well as  non-cash unrealized losses recognized on the Company’s marketable securities and outstanding liability warrants in the amounts of $290 thousand and approximately $4.0 million, respectively.





Loss per Common Share:





Loss per common share amounted to $0.20 for the year ended July 31, 2010, as compared to $0.07 for the seven months ended July 31, 2009.  The aforementioned factors contributing to the increased net loss also contribute to the increase loss per share.





16





Off Balance Sheet Arrangements





As of July 31, 2010 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, 2010 and for the seven months ended July 31, 2009.





For the Year Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Net cash used in operating activities

$
(3,132,041
)

$
(3,185,815
)Net cash used in investing activities


(2,490,484
)


182Net cash provided by financing activities


4,521,014



4,576,586Net (decrease) increase in cash

$
(1,101,511
)

$
1,390,953





Since its inception, the Company has met its capital needs principally through sale of its equity securities and the issuance of debt.  These costs and expenses included operating expenses, such as salary expenses, professional fees, rent expenses and other general and administrative expenses discussed above.  At July 31, 2010, the Company had positive working capital of approximately $1.3 million, an accumulated deficit of approximately $21.3 million and negative cash flows from operating activities of approximately $3.1 million. Over the past nineteen months, the Company has used approximately $6.3 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 has raised from a shareholder $5.3 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 $2.0 million of outstanding notes payable as of July 31, 2010.  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.  This 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.  This 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





Marketing Fees and Materials





The Company markets certain of its products through a multi-level sales organization whereby independent distributors establish their own network of associates.  The independent distributors pay the Company an annual fee to become marketing representatives on behalf of the Company.  In exchange, the representatives receive access, on an annual basis, to various marketing and promotional materials and tools as well as access to 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 third parties.  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.





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 $390 thousand and $66 thousand for the year ended July 31, 2010 and for the seven months ended July 31, 2009, 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 $14 thousand and $10 thousand and is included in accrued expenses in the accompanying condensed consolidated balance sheets as of July 31, 2010 and July 31, 2009, respectively.





Use of Estimates





The preparation of the Company’s condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The accounting estimates requiring a high degree of management’s subjective judgments include the allowance for sales refunds and chargebacks, capitalization of certain assets, depreciable/amortizable lives, impairment of long-lived assets, 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.  Due to the uncertainty inherent in such estimates, actual results may differ from these estimates.





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.





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.





Marketing Agreements





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





Indefinite-Lived Intangible Assets





The Company’s indefinite-lived intangible asset is a perpetual marketing agreement.  Management assesses indefinate-lived intangible assets for impairment annually as of October 1 or more frequently if an event occurs or circumstances indicate that the asset might be impaired.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.





18





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 fair value of share-based compensation awarded by the majority stockholder to management personnel is reflected as share-based compensation expense and as a capital contribution in the Company’s financial statements over the requisite service period.





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.





Other convertible instruments that are not derivative financial instruments are accounted for by recording the intrinsic value of the embedded conversion feature as a discount from the initial value of the instrument and accreting it back to face value over the period to the earliest conversion date using the effective interest rate method.





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.





19





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.





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, 2010 and July 31, 2009, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the year ended July 31, 2010 and the seven months ended July 31, 2009.  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, 2010 and July 31, 2009, and the results of its operations and its cash flows for the year ended July 31, 2010 and the seven months ended July 31, 2009, in conformity with U.S. generally accepted accounting principles.
  We were not engaged to examine management's assessment of the effectiveness of Zurvita Holdings, Inc.'s internal control over financial reporting as of July 31, 2010, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting and, accordingly, we do not express an opinion thereon.
  The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has 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
  December 7, 2010







21





ZURVITA HOLDINGS, INC.CONSOLIDATED BALANCE SHEETSJuly 31, 2010


July 31, 2009ASSETSCurrent assetsCash

$
289,442


$
1,390,953Marketable securities (at fair value)


480,000



-Note recievable - related party


1,702,000



-Accounts receivable


137,123



47,732Agent advanced compensation


448,553



927,002Deferred expenses


127,351



-Deferred marketing costs


-



657,400Other assets


41,173Total current assets


3,225,642



3,023,087Property, plant and equipment (net)


94,965



112,036Agent advanced compensation


-



271,344Merchant account deposit


115,333



115,333Other assets


-



24,126Total assets

$
3,435,940


$
3,545,926LIABILITIES AND STOCKHOLDERS' DEFICITCurrent liabilitiesAccounts payable

$
249,762


$
471,081Accounts payable - related party


127,733



-Notes payable - current


284,967



787,237Accrued expenses


332,217



148,001Deferred revenue


808,957



934,321Deferred compensation - related party


110,238



-Income tax payable


2,628



35,276Total current liabilities


1,916,502



2,375,916Notes payable - long term


1,639,268



284,967Fair value of share conversion feature


462,013



-Fair value of warrants


6,370,000



549,780Total liabilities


10,387,783



3,210,663Redeemable preferred stock


4,550,747



1,211,000Stockholders' deficitCommon stock ($.0001 par value, 300,000,000 sharesauthorized; 69,497,713 and 64,440,000 shares issued and61,497,713 and 56,440,000 shares outstanding as ofJuly 31, 2010  and July 31, 2009, respectively)


6,950



6,444Treasury stock


(210,000
)


(210,000
)Additional paid-in capital


9,978,738



9,094,182Accumulated deficit


(21,278,278
)


(9,766,363
)Total stockholders' deficit


(11,502,590
)


(875,737
)Total liabilities and stockholders' deficit

$
3,435,940


$
3,545,926The accompanying notes are an integral part of these consolidated financial statements.


22








ZURVITA HOLDINGS, INC.CONSOLIDATED STATEMENTS OF OPERATIONSFor the Year

Ended


For the Seven

Months EndedJuly 31, 2010


July 31, 2009REVENUESAdministrative websites

$
2,055,060


$
513,908Advertising sales


936,230



-Commissions


479,225



65,876Marketing fees and materials


1,911,851



1,269,768Membership fees


923,654



964,897Total revenues


6,306,020



2,814,449COST OF SALESBenefit and service cost


1,577,858



412,676Sales commissions


3,042,922



1,704,331Total cost of sales


4,620,780



2,117,007GROSS PROFIT


1,685,240



697,442OPERATING EXPENSESDepreciation


35,555



19,722Impairment loss on marketing agreement


2,000,000



-Office related expenses


412,587



124,239Payroll and employee benefits


1,887,185



758,164Professional fees


1,276,437



1,409,565Selling and marketing


2,949,708



1,878,349Travel


206,967



66,285Total operating expenses


8,768,439



4,256,324Loss from operations before other income (expense)


(7,083,199
)


(3,558,882
)OTHER (EXPENSE) INCOMEGain on change in fair value of share conversion feature


131,413



-Gain on settlement of liability


-



38,700Interest expense


(270,919
)


(3,014
)Interest income


11,741



-Loss on change in fair value of marketable securities


(290,000
)


-Loss on change in fair value of warrants


(3,980,580
)


-Loss on debt restructure


(50,000
)


-Total other (expense) income


(4,448,345
)


35,686Loss before income taxes


(11,531,544
)


(3,523,196
)Income taxes


(19,629
)


19,144Net loss


(11,511,915
)


(3,542,340
)Basic and diluted loss per share

$
( 0.20
)

$
( 0.07
)Basic and diluted weighted average number of common shares outstanding


56,711,644



49,307,924The accompanying notes are an integral part of these consolidated financial statements.








23


ZURVITA HOLDINGS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICITShares

Common Stock


Common Stock


Treasury

Stock


Additional Paid-

In Capital


Accumulated

Deficit


Total

Stockholder's

DeficitBalance, December 31, 2008


49,240,000


$
4,924


$
-


$
5,693,981


$
( 6,224,023
)

$
( 525,118
)Contributions of capital


-



-



-



2,564,382



-



2,564,382Share based compensation (non-cash capital contribution)


-



-



-



179,757



-



179,757Issuance of common stock for marketing agreement


15,200,000



1,520



-



655,880



-



657,400Treasury stock purchase


( 8,000,000
)






( 210,000
)


-



-



( 210,000
)Net assets acquired of Red Sun










-



182







182Net loss


-



-



-



-



(3,542,340
)


(3,542,340
)Balance, July 31, 2009


56,440,000


$
6,444


$
(210,000
)

$
9,094,182


$
(9,766,363
)

$
(875,737
)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


$
( 21,278,278
)

$
( 11,502,590
)The accompanying notes are an integral part of these consolidated financial statements.




24


ZURVITA HOLDINGS, INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the Year

Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Cash flows from operating activitiesNet loss

$
(11,511,915
)

$
(3,542,340
)Adjustments to reconcile net loss to net cash used in operating activities:Amortization of note payable discount


140,307



-Amortization of deferred marketing costs


657,400



-Depreciation


35,555



19,722Share-based compensation


682,138



190,537Gain on change in fair value of share conversion feature


(131,413
)


-Gain on extinguishment of liabilities


-



38,700Loss on change in fair value of marketable securities


290,000



-Loss on change in fair value of warrants


3,980,580



-Loss on debt restructure


50,000



-Loss on impairment on marketing agreement


2,000,000Loss on legal settlement


-



600,000Changes in operating assets and liabilitiesIncrease in accounts receivable


(89,391
)


(36,771
)Decrease (increase) in agent advanced compensation


749,793



(68,841
)Increase in legal retainer


-



50,000Increase in deferred expenses


(127,351
)


-Increase in other assets


(17,047
)


(15,909
)Increase (decrease) in accounts payable and accrued expenses


174,429



(269,558
)Decrease in deferred revenue


(125,364
)


(151,355
)Increase in deferred compensation related party


110,238



-Net cash used in operating activities


(3,132,041
)


(3,185,815
)Cash flows from investing activitiesPurchase of promissory note


(1,702,000
)


-Purchase of property and equipment


( 18,484
)


-Purchase of marketable securities


(770,000
)


-Funds obtained from reverse merger


-



182Net cash provided by (used in) investing activities


(2,490,484
)


182Cash flows from financing activitiesContributions of capital from The Amacore Group, Inc.


-



2,564,382Net proceeds from borrowings


-



523,190Proceeds from exercise of warrants


30,282



-Proceeds from sale of preferred stock


5,300,000



1,750,000Proceeds from repurchase of common stock


-



(210,000
)Principal payments made on notes payable


(809,268
)


(50,986
)Net cash provided by financing activities


4,521,014



4,576,586Net change in cash balance


(1,101,511
)


1,390,953Beginning cash


1,390,953



-Ending cash

$
289,442


$
1,390,953Supplemental disclosure of cash flow informationCash paid for interest

$
33,435


$
3,014Cash paid for taxes

$
-


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




25





ZURVITA HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


FOR THE YEAR ENDED JULY 31, 2010


AND


FOR THE SEVEN MONTHS ENDED JULY 31, 2009












NOTE 1 – NATURE OF OPERATIONS





Our condensed 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 direct sales 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.





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 $5.3 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, 2010, the Company had positive working capital of approximately $1.3 million, an accumulated deficit of approximately $21.3 million and negative cash flows from operating activities of approximately $3.1 million. Over the past nineteen months, the Company has used approximately $6.3 million in operations.





The Company believes that its cash resources, together with increasing revenue and gross margin and assuming the continued support of its related party stockholders, will be sufficient to sustain current planned operations for the next 12 months. The Company raised $7.05 million from the sale of preferred stock in four tranches completed in July 2009, October 2009, January 2010 and June 2010.   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.  This revenue is recognized ratably over the website subscription period.





26





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.  This 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.





Marketing Fees and Materials





The Company markets certain of its products through a multi-level sales organization whereby independent distributors establish their own network of associates.  The independent distributors pay the Company an annual fee to become marketing representatives on behalf of the Company.  In exchange, the representatives receive access, on an annual basis, to various marketing and promotional materials and tools as well as access to 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 third parties.  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.





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 $390 thousand and $66 thousand for the year ended July 31, 2010 and for the seven months ended July 31, 2009, 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 $14 thousand and $10 thousand is included in accrued expenses in the accompanying condensed consolidated balance sheets as of July 31, 2010 and July 31, 2009, 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 the Company’s consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The accounting estimates requiring a high degree of management’s subjective judgments include the allowance for sales refunds and chargebacks, capitalization of certain assets, depreciable/amortizable lives, impairment of long-lived assets, 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.  Due to the uncertainty inherent in such estimates, actual results may differ from these estimates.





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.





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, 2010 and July 31, 2009, no allowance was recorded.





Notes Receivable





The Company’s note receivable consists of an on-demand promissory note issued on August 11, 2010 between the Company and a related party, The Amacore Group, Inc. (“Amacore”).  The note receivable is recorded at its estimated net realizable value and is classified as a current asset as the funds are available on demand to meet the current operating needs of the Company.  Based upon the loan’s terms and conditions and the party to whom the loan was made, management determined that no loan allowance was needed at July 31, 2010.





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.





Indefinite-Lived Intangible Assets





The Company’s indefinite-lived intangible asset is a perpetual marketing agreement.  Management assesses indefinite-lived intangible assets for impairment annually as of October 1 or more frequently if an event occurs or circumstances indicate that the asset might be impaired.  If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset.





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 fair value of share-based compensation awarded by the majority stockholder to management personnel is reflected as share-based compensation expense and as a capital contribution in the Company’s financial statements over the requisite service period.





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.





28





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.





Other convertible instruments that are not derivative financial instruments are accounted for by recording the intrinsic value of the embedded conversion feature as a discount from the initial value of the instrument and accreting it back to face value over the period to the earliest conversion date using the effective interest rate method.





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.





29





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.





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.  For the year ended July 30, 2010 and for the seven months ended July 30, 2009, 2010 and 2009, securities that could potentially dilute earnings per share in the future were not included within the Company’s earnings (loss) per share calculation as their effect would be anti-dilutive.





Reclassifications





Certain amounts within the marketing fees and materials category on the statement of operations for the prior period have been reclassified to administrative websites to conform to the current period presentation.





Subsequent Events





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








NOTE 3 – 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 year ended July 31, 2010 and for the seven months ended July 31, 2009.


30








For the Year Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Amortization on note payable discount

$
140,307


$
-Cashless exercise of warrants


122,580Common stock issuance for consulting services


134,790



-Common stock issuance for debt restructure


50,000



-Deferred marketing agreement


-



657,400Embedded conversion feature on note payable issued


593,426



-Financed insurance agreement


22,031



-Interest converted to principal


92,387



-Note payable issued for marketing agreement


1,406,574



-Reclassification of warrants liability to equity


186,353



-








NOTE 4 – 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 $1.2 million and $472 thousand of expense was recognized for year ended July 31, 2010 and for the seven months ended July 31, 2009, respectively.  As of July 31, 2010 and 2009, the balance of the loans was approximately $449 thousand and $1.2 million, respectively.




NOTE 5 – DEFERRED EXPENSES





Subsequent to July 31, 2009, the Company has begun selling online advertising subscriptions. For sales of subscriptions for which the terms cross reporting periods, the associated commissions paid to the Company’s sales representatives are deferred and amortized over the subscription period.  As of July 31, 2010, the balance of the deferred commissions was approximately $127 thousand and is classified as a current asset.




NOTE 6 – DEFERRED MARKETING COSTS





Deferred marketing costs represent a Advertising and Marketing Agreement entered into on July 30, 2009 between the Company and OmniReliant Holdings, Inc. (“OmniReliant”), a related party. The marketing agreement was capitalized at the fair value of the stock consideration given and amortized over the life of the agreement which has a one-year contract term, see Note 13 – Assets and Liabilities Measured at Fair Value.Approximately $657 thousand of amortization was taken during the year ended July 31, 2010 and no expense was recognized during the seven months ended July 31, 2009.


31








NOTE 7 – PROPERTY, PLANT AND EQUIPMENT, NET





Property, Plant and Equipment, net of accumulated depreciation, consist of the following at July 31, 2010 and 2009:





July 31, 2010


July 31, 2009Computer hardware

$
26,558


$
18,943Furniture and fixtures


54,838



43,969Equipment and machinery


25,168



25,168Leasehold improvements


55,560



55,560162,124



143,640Less accumulated depreciation


(67,159
)


(31,604
)Total

$
94,965


$
112,036





Depreciation expense for the year ended July 31, 2010 and for the seven months ended July 31, 2009 was approximately $36 thousand and approximately $20 thousand, respectively.





NOTE 8 – MARKETING AGREEMENT





On October 9, 2009, the Company entered into a marketing agreement with OmniReliant 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.





This marketing agreement during the year ended July 31, 2010 was classified as an intangible asset with an indefinite life.  Impairment indicators existed at July 31, 2010 which led management to remeasure the marketing agreement’s fair value as of July 31, 2010.  Consequently, management determined the marketing agreement was completely impaired and recognized a $2 million impairment loss which has been recorded within the Company’s statements of operations under the caption “Impairment loss on marketing agreement.”  The Company recorded non-cash, pre-tax total impairment charge of $2 million as of July 31, 2010.  See Note 13 – Assets and Liabilities Measured at Fair Valuefor discussion on the original determination of fair value and subsequent impairment charge.





The following table reflects the intangible asset as of July 31, 2010:





October 9, 2009








July 31, 2010Gross Carrying

Amount

Accumulated

Amortization

Impairment

Loss

Carrying

ValueMarketing Agreement

$
2,000,000


$
-


$
2,000,000


$
-





32





NOTE 9 – NOTES PAYABLE





Notes payable consist of the following:





July 31, 2010


July 31, 2009Convertible note payable; face amount $2 million; bearing interest of 6% per annum;unsecured; prinicpal payment due on October 9, 2012

$
1,639,268


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


284,967



549,014Promissory note payable to related parties (on demand; noninterest bearing; unsecured)


-



523,190Total notes payable

$
1,924,235


$
1,072,204Less current portion


(284,967
)


(787,237
)Total long-term debt

$
1,639,268


$
284,967





The convertible note’s principal balance 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.  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 year ended July 31, 2010, total interest expense related to the convertible note payable was approximately $241 thousand.   Of the interest expense recognized, approximately $92 thousand was elected by the Company to be deferred and added to the principal of the note.





At July 31, 2010, the said note was convertible into approximately 8.4 million shares of common stock worth approximately $2.9 million as of July 31, 2010.





Of the notes payable presented in the preceding table, approximately $285 thousand is classified as current maturities as of July 31, 2010.





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





As of July 31, 20102011

$
284,9672012


2,092,3872,377,354Net of discount on convertible note payable


(453,119
)$
1,924,235





33





NOTE 10 – ACCRUED EXPENSES





Accrued expenses consist of the following at July 31, 2010 and 2009:





July 31, 2010


July 31, 2009Commissions

$
173,314


$
97,023Interest


7,672



-Marketing materials


37,830



-Payroll


41,549



29,252Professional fees


2,500



3,118Refund reserve


14,192



10,000Rent


8,340



-Sales tax payble


19,004



8,608Unclaimed property


27,816



-Total

$
332,217


$
148,001





NOTE 11- DEFERRED REVENUE





Deferred revenue consists of the following at July 31, 2010 and July 31, 2009:





July 31, 2010


July 31, 2009Advertising

$
80,563


$
-Direct response media


29,674



-Marketing fees


582,955



787,603Member fees


115,765



146,718Total

$
808,957


$
934,321





NOTE 12 – 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, 2010, the balance of deferred compensation was approximately $110 thousand.  There was no deferred compensation as of July 31, 2009.





NOTE 13 – 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, non-compensatory warrants and an embedded share conversion feature.  The fair value of the marketable securities was determined by the market price as quoted on the OTC.  The fair value of these warrants and share conversion feature was determined by an independent expert valuation specialist using the Black-Scholes Option Pricing Model.





Financial instruments that are only measured at estimated fair value at the time of issuance are considered non-recurring and are included in the consolidated financial statements as deferred marketing costs and marketing agreement.  The fair value of the deferred marketing costs was determined at the date of issuance by an independent expert valuation specialist who estimated the fair value of the Company’s common stock that was issued as consideration.  With respect to the marketing agreement, the fair value of the note payable given as consideration was determined to be more clearly determinable and was the basis for estimating the fair market value of the agreement.





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


34






July 31, 2010Fair Value Measurements at Reporting Date Using


Quoted Prices in

SignificantActive Markets for

UnobservableIdentical Assets

Inputs


Total(Level 1)


(Level 3)

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


$
6,832,013July 31, 2009Fair Value Measurements at Reporting Date UsingQuoted Prices in

SignificantActive Markets for

UnobservableIdentical Assets

Inputs


Total(Level 1)


(Level 3)

Fair ValueDeferred marketing costs

$
-


$
657,400


$
657,400Total assets

$
-


$
657,400


$
657,400Warrants


-



549,780



549,780Total liabilities

$
-


$
549,780


$
549,780










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.  Assets included in the level 3 of the fair value include deferred marketing costs associated with a marketing agreement which is not required to be fair valued on a recurring basis.  Liabilities included within level 3 of the fair value hierarchy presented in the preceding table include certain warrants and a share conversion feature.  The valuation methodology for assets and liabilities within level 3 uses a combination of observable and unobservable inputs in calculating fair value.





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





The changes in level 3 liabilities measured at fair value on a recurring basis during the year ended July 31, 2010 and for the seven months ended July 31, 2009 are summarized as follows:





35





Fair Value MeasurementsUsing Significant Unobservable Inputs(Level 3)WarrantsBalance

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


$
6,370,000Balance

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 Seven Months Ended July 31, 2009Warrants

$
-


$
-


$
549,780


$
-


$
549,780




For the year ended July 31, 2010, total unrealized gain of approximately $131 thousand is included in earnings in the Statement of Operations caption “Gain on change in fair value of share conversion feature.”  For the year ended July 31, 2010, unrealized loss of $4.0 million is included in earnings in the Statement of Operations caption “Loss on change in fair value of warrants.”  This loss is as a result of two major factors (1) 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) the increase in share price used in valuing the warrants from $0.17 to $0.24.





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.





Nonrecurring Fair Value Measurements





The following table presents an intangible asset that is not subject to recurring fair value measurements.





Fair Value

July 31, 2010


Significant

Unobservable

Inputs

(Level 3)


Total Gains

(Losses)Marketing agreement

$
-


$
-


$
(2,000,000
)





Impairment indicators existed at July 31, 2010 which led management to remeasure the marketing agreement’s fair value as of July 31, 2010.  Consequently, management determined the marketing agreement was completely impaired and recognized a $2 million impairment loss which has been recorded within the Company’s statements of operations under the caption “Impairment loss on marketing agreement.”








36





NOTE 14—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, 2010

July 31, 2009Series A

July 30, 2009

1,750,000

1,750,000Series B

October 6, 2009

2,000,000

-Series C

January 29, 2010

1,000,000

-Series C

June 3, 2010

2,300,000

-7,050,000

1,750,000





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.


37








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 $3.3 million, respectively, as of July 31, 2010.





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, 2010, Series A, Series B and Series C Convertible Preferred Stock is convertible into 28 million, 8 million and 13.2 million common shares, respectively.  If the Convertible Preferred Stock had been converted as of July 31, 2010, the aggregate market price of the common shares for Series A, Series B and Series C would have been approximately $9.5 million, $2.7 million, and $4.5 million, 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:


38








·
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.





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:






Preferred



Total


Value


Preferred

StockStock

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


$
1,702,000




NOTE 15 - 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.





During the year ended July 31, 2010, the Company issued approximately 662 thousand shares of common stock in exchange for consulting services.





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 year ended July 31, 2010, approximately $229 thousand of stock-based compensation expense was recognized, as a result of various share issuances.  For the year ended July 31, 2009, no stock-based compensated expense was recognized.





NOTE 16 –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, 2010, approximately 5.8 million total options were issued under the 2009 Plan.





39





During the year ended July 31, 2010, the Company issued approximately 27.2 million warrants to purchase common stock.





The following table summarizes the status of all warrants outstanding and exercisable at July 31, 2010.





Outstanding WarrantsRange of Exercise Prices



Number of

Warrants




Weighted

Average

Exercise Price




Weighted Average

Remaining

Contractual Life

in Years$0.01 to $0.49



53,725,000



$
0.15




6.11$0.50 to $0.99



1,270,526



$
0.52




0.7154,995,526



$
0.16




5.99






Exercisable WarrantsRange of Exercise Prices



Number of

Warrants




Weighted

Average

Exercise Price




Weighted Average

Remaining

Contractual Life

in Years$0.01 to $0.49



51,204,533



$
0.15




6.17$0.50 to $0.99



1,170,526



$
0.52




0.3952,375,059



$
0.15




6.04


Compensatory Equity Warrants





During the year ended July 31, 2010, the Company issued compensatory equity warrants to purchase an aggregate of approximately 5.3 million shares of common stock.





Assumptions used to determine the fair value of the compensatory warrants granted during the year ended July 31, 2010 are as follows.  There were no compensatory warrants granted during the seven months ended July 31, 2009.





July 31, 2010Expected dividends
0%Expected volatility
65%Risk free interest rate
0.22% - 1.65%Expected life

6 months to 5 years





The following table summarizes the activity for compensatory warrants classified as equity for the year ended July 31, 2010.





Compensatory

Equity

Warrants


Weighted

Average

Exercise Price


Weighted

Average

Remaining

Contractual

Term


Aggregate

Intrinsic

ValueOutstanding at July 31, 2009


-


$
-



-


$
-Reclass from liability to equity


700,000



0.25



4.29



54,000Issued


5,256,191



0.28



3.90



539,250Exercised


(160,665
)


0.34



-



-Cancelled or Expired


-



-



-



-Outstanding at July 31, 2010


5,795,526


$
0.28



3.94


$
593,250Exercisable at July 31, 2010


3,175,059


$
0.33



3.12


$
240,385




There were approximately 161 thousand warrants exercised during the year ended July 31, 2010 with an associated intrinsic value of approximately $32 thousand and a $30 thousand tax benefit at the date of exercise.  There were no warrants exercised during the year ended July 31, 2009 and therefore no intrinsic value realized.  The total fair value of vested warrants at July 31, 2010 was approximately $274 thousand.  The weighted average grant date fair value of warrants granted during the year ended July 31, 2010 was $0.12.





40





A summary of the status of the Company's non-vested compensatory equity warrants of July 31, 2010, and the changes during the year ended July 31, 2010, is presented below.




Compensatory

Warrants


Weighted

Average

Grant-Date

Fair ValueNon-vested at July 31, 2009


-


$
-Reclass from liability to equity


700,000



0.09Issued


5,256,191



0.12Exercised


(160,665
)


0.06Expired


-



-Vested


(3,175,059
)


0.09Non-vested at July  31, 2010


2,620,467


$
0.16




There were approximately 5.3 million unvested warrants issued during the year ended July 31, 2010.  The total fair value of unvested warrants at July 31, 2010 was approximately $606 thousand.  The weighted average grant date fair value of unvested warrants granted during the year ended July 31, 2010 was $0.16.  The total compensation expense to be recognized in future periods for non-vested awards is $381 thousand.





Non-compensatory Liability Warrants





During the year ended July 31, 2010, Zurvita issued in conjunction with preferred stock non-compensatory warrants to purchase an aggregate of approximately 21.2 million shares of common stock.  There were approximately 49.2 million non-compensatory warrants outstanding as of July 31, 2010, 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 year ended July 31, 2010 and the seven months ended July 31, 2009 are as follows:




July 31, 2010

July 31, 2009Expected dividends
0%

0%Expected volatility
65%

65%Risk free interest rate
2.01% - 2.29%

3.22%Expected life
5 -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.


41


Non-

Compensatory

Warrants


Weighted

Average

Exercise

Price


Weighted

Average

Remaining

Contractual

TermOutstanding at July 31, 2009


28,560,000


$
0.06



6.96Issued


21,200,000



0.25



6.53Exercised


(560,000
)


-



-Cancelled or Expired


-



-



-Outstanding and Exercisable at July 31, 2010


49,200,000


$
0.14



6.23







As of July 31, 2010, there was no unrecognized compensation cost related to non-compensatory liability warrants as all were immediately vested upon issuance.  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.  There were no warrants exercised during the year ended July 31, 2009 and therefore no intrinsic value realized.  The total fair value of vested warrants at July 31, 2010 was approximately $2.0 million.  The weighted average grant date fair value of warrants granted during the year ended July 31, 2010 was $0.09.





A summary of the status of the Company's non-vested non-compensatory liability warrants as of July 31, 2010, and the changes during the year ended July 31, 2010, is presented below.




Non-

Compensatory

Warrants


Weighted

Average

Grant-Date

Fair ValueNon-vested at July 31, 2009


-


$
-Issued


21,200,000



0.09Exercised


-



-Vested


(21,200,000
)


-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, 2010 there were 800 thousand warrants outstanding and exercisable.  No warrants expired, nor were any warrants exercised or forfeited during the year ended July 31, 2010 and, therefore, no intrinsic value of warrants exercised.  As of July 31, 2010 the weighted average exercise price of warrants granted was $0.60.  The grant date fair value of the warrants granted was $0.43.




For the year ended July 31, 2010, no stock-based compensation expense was recognized.  For the seven months ended July 31, 2009, approximately $180 thousand of stock-based compensation expense was recognized.




Stock-Based Compensation Expense




For the year ended July 31, 2010 and for the seven months ended July 31, 2009, 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:




42







For the Year

Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Payroll and employee benefits

$
521,033


$
112,871Selling and marketing fees


28,343



-Total

$
549,376


$
112,871




NOTE 17 - 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.





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





For the Year Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Current:Federal income tax

$
-


$
-State income tax


(19,629
)


19,144Deferred:Federal income tax


-



-State income tax


-



-Total (benefit) provision for income taxes

$
(19,629
)

$
19,144





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





For the Year Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Deferred tax assets:Deferred compensation

$
45,933


$
-Employee warrant compensation


98,409



-Fixed assets


10,934



7,632Marketing agreement intangible asset


680,000



-Membership reserve


7,661



-Other


-



10,062Unrealied loss on change infair market value of warrants


1,353,397



-Unrealized loss on marketable securities


98,600



-Net operating loss carryforward


4,714,591



3,032,861Gross deferred tax asset


7,009,525



3,050,555Less deferred tax asset


(6,964,845
)


(3,050,555
)Deferred tax asset - net


44,680



-Deferred tax liabilities:Gain on share conversion


(44,680
)


-Gross deferred tax liability


(44,680
)


-Net deferred tax asset

$
-


$
-





43





As of July 31, 2010, realization of the Company’s net deferred tax assets of $7.0 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, 2010 was approximately $3.9 million.





The Company has a total of $13.9 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, 2010 and 2009, 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, 2010 and for the seven months ended July 31, 2009.





For the Year Ended

July 31, 2010

For the Seven

Months Ended

July 31, 2009Tax provision at U.S. federal income tax rate

$
(3,920,725
)


-34.00
%

$
(1,197,887
)


-34.00
%State income tax provision net of federal


(19,629
)


-0.17
%


19,144



0.54
%Meals and entertainment


6,436



0.06
%


2,684



0.08
%Prior year true up valuation allowance


-



0.00
%


255,330



7.25
%Change in Valuation Allowance


3,914,289



33.94
%


939,873



26.68
%Provision for income taxes

$
(19,629
)


-0.17
%

$
19,144



0.54
%





NOTE 18 - 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, 2010 and for the seven months ended July 31, 2009:


For the Year

Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Numerator:Net loss

$
(11,511,915
)

$
(3,542,340
)Denominator:Weighted average basic and fully diluted shares outstanding


56,711,644



49,307,924Net loss per common share - basic and diluted

$
(0.20
)

$
(0.07
)





During the year ended July 31, 2010 and for the seven months ended July 31, 2009, 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 their effect would be anti-dilutive.





44





Securities that could potentially dilute earnings per share in the future, but which were not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive for the periods presented, are as follows:





For the Year

Ended J

uly 31, 2010


For the Seven

Months Ended

July 31, 2009Potentially dilutive securities outstanding at end of period:Common stock warrants


54,995,526



28,560,000Convertible note payable


8,400,237



-Convertible preferred stock:Series A


28,000,000



28,000,000Series B


8,000,000



-Series C


13,200,000



-Total Preferred Stock


49,200,000



28,000,000Total potentially dilutive securities


112,595,763



56,560,000





NOTE 19 - COMMITMENTS AND CONTINGENCIES





The Company is committed under a lease of office space through July 31, 2012.  For the year ended July 31, 2010 and for the seven months ended July 31, 2009, rent expense was approximately $99 thousand and $75 thousand, respectively.





The following is a schedule of future minimum lease payments required under the Company leased office.





As of July 31, 2010:2011

$
106,8082012


106,808Thereafter


-213,616


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 net income.  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.








45





NOTE 20 - LEGAL PROCEEDINGS





On February 19, 2010, a Third Party Complaint was filed in the District of Nevada, in Case No.: 2:09-cv-01564-RCJ-LRL,Local Ad Link, Inc, et al. vs. Adzzoo LLC, et al vs. Zurvita Holdings, Inc.Defendant Adzzoo LLC., filed a complaint against the Company to establish the rights and liabilities of Adzzoo Counter-Plaintiffs under sales representative agreements that have been assigned to the Company. Adzzoo alleges that on or about October 9, 2009, Beyond Commerce entered into a securities purchase agreement with the Company and that certain disputes arose as a result of an assignment of rights relating to that alleged purchase agreement. In response to the Third Party Complaint, on April 16, 2010, the Company filed a special appearance and motion to dismiss the complaint for lack of personal jurisdiction and was recently granted on September 9, 2010.




As of July 31, 2010, 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.




NOTE 21 - RELATED PARTY TRANSACTIONS





Equity Contributions





During the year ended July 31, 2010 and for the seven months ended July 31, 2009, the Company received approximately $0 and $2.6 million of equity contributions from its majority stockholder, Amacore, respectively.





Commissions Paid





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  $37 thousand and $10 thousand, respectively, for the year ended July 31, 2010 and approximately $37 thousand and $37 thousand, respectively, for the seven months ended July 31, 2009.   These payments were for work they performed on behalf of the Company.





Interest on Note Payable to OmniReliant Holdings, Inc.





The Company recognized approximately $241 thousand of interest expense for the year ended July 31, 2010 with respect to the note payable due OmniReliant, who is a significant shareholder of the Company.  Of the interest expense recognized, approximately $140 thousand relates to the amortization of the discount and approximately $92 thousand was added to the principal of the note.  No such related party interest expense was incurred during the seven months ended July 31, 2009.





Note Receivable with Amacore





As of July 31, 2010, the Company is owed $1.7 million from Amacore in the form of an on-demand promissory note payable.  This note has a 6% per annum interest rate.   No such related party note receivable existed during the seven months ended July 31, 2009.





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 Holdings.  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.  Zurvita shall pay Amacore $13 thousand monthly for these services.





46








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





On August 17, 2010, the board of directors of the Company approved the dismissal of McGladrey & Pullen, LLP (“McGladrey”) as the Company’s independent registered public accounting firm.  McGladrey’s dismissal was effective immediately. On August 17, 2010, the Company engaged Meeks International, LLC (“Meeks”) as its independent registered public accounting firm for the Company’s fiscal year ended July 31, 2010. The change in the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors on August 17, 2010.





During the seven months ended July 31, 2009 and for the period from January 25, 2008 (date of inception) through December 31, 2008 and the subsequent period through August 17, 2010, (i) there were no disagreements between the Company and McGladrey on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of McGladrey, would have caused McGladrey to make reference to the matter in its reports on the Company's financial statements; and (ii) there were no reportable events as the term described in Item 304 of Regulation S-K, except for the material weakness in the Company’s internal control over financial reporting as previously reported in the Company’s transition report on Form 10-KT for the seven months ended July 31, 2009, and as previously reported in the Company’s quarterly reports on Form 10-Q for the quarterly period ended October 31, 2009, January 31, 2010 and April 30, 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.





47





Our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of July 31, 2010 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, 2010 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.





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

49

Co-Chief Executive Officer and DirectorMark Jarvis

50

Co-Chief Executive Officer and DirectorJason Post

35

Chief Financial OfficerRichard Diamond

45

DirectorShad Stastney

39

DirectorKeith Hughes

53

DirectorGuy Norberg

50

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 the 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 October 2004, Mr. Diamond has served as the Senior Vice President 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 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.





50





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.





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, 2009, the Company did not have an audit committee.  However, Chris Phillips 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 OTCBB, 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





Other than the following legal proceedings listed below, 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.





On February 19, 2010, a Third Party Complaint was filed in the District of Nevada, in Case No.: 2:09-cv-01564-RCJ-LRL,Local Ad Link, Inc, et al. vs. Adzzoo LLC, et al vs. Zurvita Holdings, Inc.Defendant Adzzoo LLC., filed a complaint against the Company to establish the rights and liabilities of Adzzoo Counter-Plaintiffs under sales representative agreements that have been assigned to the Company. Adzzoo alleges that on or about October 9, 2009, Beyond Commerce entered into a securities purchase agreement with the Company and that certain disputes arose as a result of an assignment of rights relating to that alleged purchase agreement. In response to the Third Party Complaint, on April 16, 2010, the Company filed a special appearance and motion to dismiss the complaint for lack of personal jurisdiction and was recently granted on September 9, 2010.




51








Director Independence





Our common stock is quoted on the OTC bulletin board interdealer quotation system, 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.





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 year ended July 31, 2010 and for the seven months ended July 31, 2009.





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
2009
-

-
-
-
-
-
-
-Co-Chief Executive Officer and Director
2010
-

-
-
72,791
-
-
-
72,791Mark Jarvis
2009
295,385
(2)
-
168,557
-
-
-
-
463,942Co-Chief Executive Officer and Director
2010
480,000

-
229,606
9,400
-
-
-
719,006Jason Post
2009
-

-
-
-
-
-
-
-Chief Financial Officer
2010
-

-
-
44,085
-
-
-
44,085






(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.(2)  Represents the compensation dollar amount paid  from January 1, 2009 through July 31, 2009.


52





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 net income.  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.





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.





53





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, 2010.




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


343,750



656,250



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


176,563



373,437



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 year ended July 31, 2010 and for the seven months ended July 31, 2009.





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

2009


-



-



-



-



-



-



-



-Director

2010


-



-



-



9,400



-



-



-



9,400Paul Morrison

2009


-



-



-



-



-



-



-



-Former Director

2010


-



-



-



9,400



-



-



-



9,400Guy Norberg

2009


-



-



-



-



-



-



-



-Director

2010


-



-



-



72,791



-



-



-



72,791Chris Phillips

2009


-



-



-



-



-



-



-



-Former Director

2010


-



-



-



9,400



-



-



-



9,400




(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 Omni Reliant 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
)


0
%Mark Jarvis


3,702,500
(4
)


2
%Jay Shafer (12)


443,750
(5
)


0
%Keith Hughes (10)


-




-Shad Stastney (10)


-




-Guy Norberg (12)


443,750
(5
)


0
%Jason Post (12)


279,063
(6
)


0
%All officers and directors as a group (7 persons) (13)


4,969,063




3
%Other Beneficial Owners:The Amacore Group, Inc.


37,210,000
(8
)


21
%Vicis Capital Master Fund


98,400,000
(7
)


57
%OmniReliant Holdings, Inc.


23,600,327
(9
)


14
%






(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, 57,895,213 shares of our common stock outstanding as of July 31, 2010  together with securities exercisable or convertible into shares of our Common Stock within 60 days of July 31, 2010 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, 2010, 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 shares shall vest on July 30, 2011.  The 3,600,000 shares were excluded from this table as they were neither vested as of July 31, 2010 nor will they be vested within 60 days of July 31, 2010.  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 443,750 shares of Common Stock issuable upon exercise of outstanding warrants.
 (6)
Mr. Post's beneficial ownership includes 279,063 shares of Common Stock issuable upon exercise of outstanding warrants and 2,500 shares of Common Stock.
 (7)
Includes 49,200,000 shares of Common Stock issuable upon exercise of outstanding convertible preferred stock and 49,200,000 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 8,400,237 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.





During the seven months ended July 31, 2009, the Company received approximately $2.6 million of equity contributions from its majority stockholder, Amacore.  The Company received no equity contributions from Amacore during the year ended July 31, 2010.





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  $37 thousand and $10 thousand, respectively, for the year ended July 31, 2010 and approximately $37 thousand and $37 thousand, respectively, for the seven months ended July 31, 2009.   These payments were for work they performed on behalf of the Company.





Repurchase Agreement





On July 31, 2009, the Company also entered into the Repurchase Agreement with Mr. Taylor, pursuant to which the Company repurchased from Mr. Taylor an aggregate of 2 million shares of Common Stock, which represented 66.7 percent of the Company’s shares of Common Stock then issued and outstanding, for an aggregate purchase price of $210 thousand.





Agreement with OmniReliant Holdings, Inc.





On July 31, 2009, the Company entered into an Advertising and Marketing Agreement with OmniReliant Holdings, Inc., pursuant to which the Company agreed to provide placement of advertising for OmniReliant on its website and OmniReliant agreed to provide the Company with certain marketing services.  The marketing services to be provided by OmniReliant include the production of infomercials, video production services, management of call centers, buying and fulfillment services.  In consideration for such services, OmniReliant received an aggregate of 3.8 million shares of the Company’s common stock which was valued at approximately $657 thousand.





Agreement with OmniReliant Holdings, Inc





On October 9, 2009, the Company entered into a marketing agreement with OmniReliant 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, 2010, the said note was convertible into approximately 8.4 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, 2010, total interest expense related to the convertible note payable was approximately $241 thousand.   Of the interest expense recognized, approximately $92 thousand was elected by the Company to be deferred and added to the principal of the note.





Agreement with Amacore Group, Inc.





On July 31, 2009, the Company entered into a Marketing and Sales Agreement with its majority stockholder, Amacore, pursuant to which Amacore agreed to provide certain services to Zurvita Holdings.  In addition, pursuant to the Amacore Agreement, Zurvita shall continue to have the right to benefit from certain agreements which Amacore maintains with product and service providers.  As of July 31, 2010, approximately $156 thousand of expense was recognized and no expense was recognized during the seven months ended July 31, 2009.





56





Loan to Amacore Group, Inc.





On August 6, 2010, the Company entered into a Demand Promissory Note with its majority stockholder, Amacore in the amount of $1.8 million.  This note has a 6% per annum interest rate.   As of July 31, 2010, the balance of this note was $1.7 million.





Director Independence





Our common stock is quoted on the OTC bulletin board interdealer quotation system, 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.





ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





The following table presents fees for professional audit services performed by our principal accountant, McGladrey & Pullen, LLP for the audit of our annual financial statements and review of financial statements for the year ended July 31, 2010 and for the seven months ended July 31, 2009, respectively, and fees billed for other services rendered by McGladrey & Pullen, LLP during such years.





For the Year Ended

July 31, 2010


For the Seven

Months Ended

July 31, 2009Audit Fees

$
154,661



62,925Tax Fees


-



-Other


-



-Total

$
154,661


$
62,925





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.











57





Item 15. Exhibits





(a) Exhibits:





2.1
Share Exchange Agreement by and among Red Sun Mining, Inc., Zurvita, Inc. and the shareholders of Zurvita, Inc. dated July 30, 2009 (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission August 5, 2009)3.1
Certificate of Amendment, dated June 26, 2009 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).3.2
Certificate of Amendment to the Certificate of Incorporation, dated August 19, 2009 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 25, 2009).3.3
Certificate of Amendment to the Certificate of Incorporation, dated February 3, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010).4.1
Series A Convertible Preferred Stock Certificate of Designation, dated July 30, 2009 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009)4.2
Form of Series A Common Stock Purchase Warrant Certificate I between Red Sun Mining, Inc. and Vicis Capital Master fund, dated July 30, 2009 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).4.3
Form of Series A Common Stock Purchase Warrant Certificate II between Red Sun Mining, Inc. and Midtown Partners & Co. LLC, dated July 30, 2009 (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).4.4
Securities Purchase Agreement by and between Red Sun Mining, Inc. and Vicis Capital Master Fund dated July 30, 2009 (incorporated by reference to Exhibit 4.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).4.5
Amended and Restated Series C Convertible Preferred Stock Certificate of Designation (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 8, 2010)5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (incorporated by reference to Exhibit 5.02 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 26, 2010)5.03
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (incorporated by reference to Exhibit 5.02 to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 8, 2010)5.04
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (incorporated by reference to Exhibit 5.02 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 28, 2010)5.1
Opinion of Sichenzia Ross Friedman Ference LLP dated February 1, 2010 (incorporated by reference to Exhibit 5.1 to the Company’s Form S-8 filed with the Securities and Exchange Commission on February 1, 2010)5.2
Opinion of Sichenzia Ross Friedman Ference LLP dated August 17, 2010 (incorporated by reference to Exhibit 5.1 to the Company’s Form S-8 filed with the Securities and Exchange Commission on August 17, 2010)10.1
Advertising and Marketing Agreement by and between the Company and OmniReliant Holdings, Inc., dated July 30, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).10.2
Marketing and Sales Agreement by and between The Amacore Group, Inc. and the Company, dated July 30, 2009 (incorporated by reference to Exhibit10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).


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10.3
Employment Agreement with Mark Jarvis dated July 30, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).10.4
Commission Agreement with Tracy Jarvis dated July 30, 2009 (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).10.5
Securities Purchase Agreement by and between the Company and Midtown Partners & Co., LLC. dated October 6, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 13, 2009).10.6
Series B Convertible Preferred Stock Certificate of Designation Marketing and Sales Agreement dated October 6, 2009 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 13, 2009)10.7
Form of Series B Common Stock Purchase Warrant Certificate between the Company and Midtown Partners & Co. LLC, dated October 6, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 13, 2009).10.8
Securities Purchase Agreement by and between the Company and Beyond Commerce, Inc. dated October 9, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 16, 2009).10.9
License and Marketing Agreement between the Company and OmniReliant Holdings, Inc. dated October 9, 2009  (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 16, 2009).10.10
6% Promissory Note dated October 9, 2009 due October 9, 2012 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 16, 2009).10.11
Securities Purchase Agreement by and between the Company and Vicis Captial Master Fund dated January 29, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010).10.12
Form of Series C Common Stock Purchase Warrant Certificate between the Company and Vicis Captial Master Fund, dated January 29, 2010 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010).10.13
Series C Convertible Preferred Stock Certificate of Designation, dated January 29, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010)10.14
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form S-8 filed with the Securities and Exchange Commission on February 1, 2010)10.15
Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 8, 2010)10.16
Series C Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 8, 2010)16.1
Change in registrants certifying accountant – Letter from George Stewart, CPA dated November 3, 2009 (incorporated by reference to Exhibit 16.1 to the Company’s Form 8-K with the Securities and Exchange Commission on November 9, 2009)16.2
Change in registrants certifying accountant – Letter from McGladrey & Pullen, LLP dated August 23, 2010 (incorporated by reference to Exhibit 16.1 to the Company’s Post Effective Amendment No. 1 with the Securities and Exchange Commission on August 23, 2010)


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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).











60














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:December 7, 2010
/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 7th day of December, 2010 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





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Exhibit Index





2.1
Share Exchange Agreement by and among Red Sun Mining, Inc., Zurvita, Inc. and the shareholders of Zurvita, Inc. dated July 30, 2009 (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission August 5, 2009)3.1
Certificate of Amendment, dated June 26, 2009 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).3.2
Certificate of Amendment to the Certificate of Incorporation, dated August 19, 2009 (incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 25, 2009).3.3
Certificate of Amendment to the Certificate of Incorporation, dated February 3, 2010 (incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010).4.1
Series A Convertible Preferred Stock Certificate of Designation, dated July 30, 2009 (incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009)4.2
Form of Series A Common Stock Purchase Warrant Certificate I between Red Sun Mining, Inc. and Vicis Capital Master fund, dated July 30, 2009 (incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).4.3
Form of Series A Common Stock Purchase Warrant Certificate II between Red Sun Mining, Inc. and Midtown Partners & Co. LLC, dated July 30, 2009 (incorporated by reference to Exhibit 4.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).4.4
Securities Purchase Agreement by and between Red Sun Mining, Inc. and Vicis Capital Master Fund dated July 30, 2009 (incorporated by reference to Exhibit 4.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).4.5
Amended and Restated Series C Convertible Preferred Stock Certificate of Designation (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 8, 2010)5.02
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (incorporated by reference to Exhibit 5.02 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 26, 2010)5.03
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (incorporated by reference to Exhibit 5.02 to the Company’s Form 8-K filed with the Securities and Exchange Commission on March 8, 2010)5.04
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers (incorporated by reference to Exhibit 5.02 to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 28, 2010)5.1
Opinion of Sichenzia Ross Friedman Ference LLP dated February 1, 2010 (incorporated by reference to Exhibit 5.1 to the Company’s Form S-8 filed with the Securities and Exchange Commission on February 1, 2010)5.2
Opinion of Sichenzia Ross Friedman Ference LLP dated August 17, 2010 (incorporated by reference to Exhibit 5.1 to the Company’s Form S-8 filed with the Securities and Exchange Commission on August 17, 2010)10.1
Advertising and Marketing Agreement by and between the Company and OmniReliant Holdings, Inc., dated July 30, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).10.2
Marketing and Sales Agreement by and between The Amacore Group, Inc. and the Company, dated July 30, 2009 (incorporated by reference to Exhibit10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).10.3
Employment Agreement with Mark Jarvis dated July 30, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).


62







10.4
Commission Agreement with Tracy Jarvis dated July 30, 2009 (incorporated by reference to Exhibit 10.4 to the Company’s Form 8-K filed with the Securities and Exchange Commission on August 5, 2009).10.5
Securities Purchase Agreement by and between the Company and Midtown Partners & Co., LLC. dated October 6, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 13, 2009).10.6
Series B Convertible Preferred Stock Certificate of Designation Marketing and Sales Agreement dated October 6, 2009 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 13, 2009)10.7
Form of Series B Common Stock Purchase Warrant Certificate between the Company and Midtown Partners & Co. LLC, dated October 6, 2009 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 13, 2009).10.8
Securities Purchase Agreement by and between the Company and Beyond Commerce, Inc. dated October 9, 2009 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 16, 2009).10.9
License and Marketing Agreement between the Company and OmniReliant Holdings, Inc. dated October 9, 2009  (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 16, 2009).10.10
6% Promissory Note dated October 9, 2009 due October 9, 2012 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on October 16, 2009).10.11
Securities Purchase Agreement by and between the Company and Vicis Captial Master Fund dated January 29, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010).10.12
Form of Series C Common Stock Purchase Warrant Certificate between the Company and Vicis Captial Master Fund, dated January 29, 2010 (incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010).10.13
Series C Convertible Preferred Stock Certificate of Designation, dated January 29, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the Securities and Exchange Commission on February 3, 2010)10.14
2009 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company’s Form S-8 filed with the Securities and Exchange Commission on February 1, 2010)10.15
Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 8, 2010)10.16
Series C Common Stock Purchase Warrant (incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the Securities and Exchange Commission on June 8, 2010)16.1
Change in registrants certifying accountant – Letter from George Stewart, CPA dated November 3, 2009 (incorporated by reference to Exhibit 16.1 to the Company’s Form 8-K with the Securities and Exchange Commission on November 9, 2009)16.2
Change in registrants certifying accountant – Letter from McGladrey & Pullen, LLP dated August 23, 2010 (incorporated by reference to Exhibit 16.1 to the Company’s Post Effective Amendment No. 1 with the Securities and Exchange Commission on August 23, 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).