Zurvita Holdings, Inc. - FORM 10-Q

Attached files

file	filename
EX-31.2 - CERTIFICATION - Zurvita Holdings, Inc.	zurvita_10q-ex3102.htm
EX-32.1 - CERTIFICATION - Zurvita Holdings, Inc.	zurvita_10q-ex3201.htm
EX-31.1 - CERTIFICATION - Zurvita Holdings, Inc.	zurvita_10q-ex3101.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended April 30, 2010

o Transition report pursuant 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. Employer
incorporation or organization)		Identification No.)

800 Gessner

Houston, Texas 77024

(Address of principal executive offices) (zip code)

(713) 464-5002

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of June 14, 2010:

57,022,714 shares of common stock, par value $0.0001

ZURVITA HOLDINGS, INC.

FORM 10-Q

PART I - FINANCIAL INFORMATION

	Page No.
Item 1. Financial Statements (Unaudited).

Condensed Consolidated Balance Sheets – April 30, 2010 and July 31, 2009	3

Condensed Consolidated Statements of Operations – For the Three and Nine Months Ended April 30, 2010 and 2009	4

Condensed Consolidated Statements of Cash Flows – For the Nine Months Ended April 30, 2010 and 2009	5

Condensed Consolidated Statement of Stockholders’ Deficit – For the Nine Months Ended April 30, 2010	6

Notes to Interim Condensed Consolidated Financial Statements	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	23

Item 3. Quantitative and Qualitative Disclosures about Market Risk.	28

Item 4. Controls and Procedures.	28

PART II - OTHER INFORMATION

	Page No.


Item 1. Legal Proceedings.	29

Item 1a. Risk Factors.	29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	29

Item 3. Defaults Upon Senior Securities.	29

Item 4. Removed and Reserved.	29

Item 5. Other Information.	29

Item 6. Exhibits.	30

Signatures	32

ZURVITA HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS


	(Unaudited)
	April 30, 2010			July 31, 2009
ASSETS
Current assets
Cash	$	561,778		$	1,390,953
Marketable securities (at fair value)		640,000			-
Accounts receivable		117,212			47,732
Agent advanced compensation		721,784			927,002
Deferred expenses		148,768			-
Deferred marketing costs		164,350			657,400
Total current assets		2,353,892			3,023,087

Property, plant and equipment (net)		93,366			112,036

Agent advanced compensation		-			271,344
Marketing agreement		2,000,000			-
Merchant account deposit		115,333			115,333
Other assets		92,263			24,126
Total assets	$	4,654,854		$	3,545,926

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable	$	211,348		$	471,081
Accounts payable - related party		107,367			-
Notes payable - current		385,484			787,237
Accrued expenses		230,718			148,001
Deferred revenue		1,097,270			934,321
Income tax payable		54,686			35,276
Total current liabilities		2,086,873			2,375,916

Deferred compensation - related party		64,736			-
Notes payable - long term		1,616,776			284,967
Fair value of share conversion feature		421,941			-
Fair value of warrants		5,005,290			549,780
Total liabilities		9,195,616			3,210,663

Redeemable preferred stock		2,848,747			1,211,000

Stockholders' deficit
Common stock ($.0001 par value, 300,000,000 shares authorized; 65,022,714 and 64,440,000 shares issued and 57,022,714 and 56,440,000 shares outstanding as of April 30, 2010 and July 31, 2009, respectively)		6,502			6,444
Treasury stock		(210,000	)		(210,000	)
Additional paid-in capital		9,530,451			9,094,182
Accumulated deficit		(16,716,462	)		(9,766,363	)
Total stockholders' deficit		(7,389,509	)		(875,737	)

Total liabilities and stockholders' deficit	$	4,654,854		$	3,545,926


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

ZURVITA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	For the Three Months Ended						For the Nine Months Ended
	April 30,						April 30,
	2010			2009			2010			2009
REVENUES
Administrative websites	$	519,514		$	207,023		$	1,517,649		$	621,766
Advertising sales		342,145			-			597,736			-
Commissions		127,123			22,079			283,964			22,693
Marketing fees and materials		501,538			499,905			1,452,765			1,297,506
Membership fees		216,596			433,865			756,347			1,279,278
Total revenues		1,706,916			1,162,872			4,608,461			3,221,243

COST OF SALES
Benefit and service cost		409,333			160,269			1,039,579			493,659
Sales commissions		711,061			636,248			2,341,937			2,381,047
Total cost of sales		1,120,394			796,517			3,381,516			2,874,706

GROSS PROFIT		586,522			366,355			1,226,945			346,537

OPERATING EXPENSES
Depreciation		9,011			8,452			26,287			19,693
Office related expenses		115,872			56,679			284,760			183,326
Payroll and employee benefits		435,568			261,941			1,198,538			861,738
Professional fees		253,413			341,472			1,002,310			1,418,606
Selling and marketing		711,010			876,583			2,201,817			2,204,003
Travel		34,624			23,831			140,657			245,247
Total operating expenses		1,559,498			1,568,958			4,854,369			4,932,613

Loss from operations before other income (expense)		(972,976	)		(1,202,603	)		(3,627,424	)		(4,586,076	)

OTHER INCOME (EXPENSE)
Gain on change in fair value of share conversion feature		139,190			-			171,485			-
Interest expense		(82,405	)		-			(190,501	)		-
Gain (loss) on change in fair value of marketable securities		400,000			-			(130,000	)		-
Gain (loss) on change in fair value of warrants		948,435			-			(3,091,230	)		-
Loss on debt restructure		(50,000	)		-			(50,000	)		-
Total other income (expense)		1,355,220			-			(3,290,246	)		-

Income (loss) before income taxes		382,244			(1,202,603	)		(6,917,670	)		(4,586,076	)

Income taxes		12,287			8,140			32,429			22,549

Net income (loss)	$	369,957		$	(1,210,743	)	$	(6,950,099	)	$	(4,608,625	)

Basic earnings (loss) per share	$	0.01		$	( 0.02	)	$	( 0.12	)	$	( 0.09	)

Basic weighted average number of common shares outstanding		56,964,734			49,240,000			56,683,117			49,240,000

Diluted earnings (loss) per share	$	0.00		$	( 0.02	)	$	( 0.12	)	$	( 0.09	)

Diluted weighted average number of common shares outstanding		104,950,540			49,240,000			56,683,117			49,240,000


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

ZURVITA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	For the Nine Months Ended
	April 30, 2010			April 30, 2009
Cash flows from operating activities
Net loss	$	(6,950,099	)	$	(4,608,625	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization on note payable discount		95,635			-
Amortization on deferred marketing costs		493,050			-
Depreciation		26,287			19,693
Share-based compensation		386,327			112,870
Gain on change in fair value of share conversion liability		(171,485	)		-
Loss on change in fair value of marketable securities		130,000			-
Loss on change in fair value of warrants		3,091,230			-
Loss on debt restructure		50,000			-
Changes in operating assets and liabilities
Increase in accounts receivable		(69,480	)		(7,664	)
Decrease (increase) in agent advanced compensation		476,562			(51,676	)
Increase in deferred expenses		(148,768	)		(491,784	)
Increase in merchant account deposits		-			(115,333	)
Increase in other assets		(46,106	)		(8,216	)
Increase in accounts payable and accrued expenses		12,914			141,593
Increase in deferred revenue		162,949			390,347
Increase in deferred compensation related party		64,736			-
Net cash used in operating activities		(2,396,248	)		(4,618,795	)

Cash flows from investing activities
Purchase of property and equipment		( 7,617	)		(126,101	)
Purchase of marketable securities		(770,000	)		-
Net cash used in investing activities		(777,617	)		(126,101	)

Cash flows from financing activities
Contributions of capital from The Amacore Group, Inc.		-			4,575,375
Proceeds from sale of preferred stock		3,000,000			-
Principal payments made on notes payable		(655,310	)		-
Net cash provided by financing activities		2,344,690			4,575,375

Net change in cash balance		(829,175	)		(169,521	)

Beginning cash		1,390,953			174,585

Ending cash	$	561,778		$	5,064

Supplemental disclosure of cash flow information
Cash paid for interest	$	17,890		$	-


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

ZURVITA HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(UNAUDITED)

	Shares Common Stock		Common Stock		Treasury Stock			Additional Paid-In Capital		Accumulated Deficit			Total Stockholder's Deficit
Balance, July 31, 2009		56,440,000	$	6,444	$	( 210,000	)	$	9,094,182	$	( 9,766,363	)	$	( 875,737	)

Share-based compensation		382,714		38		-			322,576		-			322,614

Reclass liability warrants to equity		-		-		-			63,713		-			63,713

Loss on debt restructure		200,000		20		-			49,980		-			50,000

Net loss		-		-		-			-		( 6,950,099	)		(6,950,099	)

Balance, April 30, 2010		57,022,714	$	6,502	$	( 210,000	)	$	9,530,451	$	( 16,716,462	)	$	( 7,389,509	)


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

ZURVITA HOLDINGS, INC.

NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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.

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.

At April 30, 2010, the Company had positive working capital of approximately $267 thousand and an accumulated deficit of approximately $16.7 million. For the three and nine months ended April 30, 2010, the Company had a net income of $370 thousand and a net loss of $7 million, respectively.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying condensed consolidated balance sheet as of July 31, 2009, which was derived from audited financial statements, and the unaudited condensed consolidated financial statements as of April 30, 2010 and 2009 have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary in order to make the financial statements not misleading have been included. Results for the three and nine month periods ended April 30, 2010 are not necessarily indicative of the results that may be expected for the year ending July 31, 2010. For further information, refer to the financial statements and footnotes thereto included in the Company’s Transition Report on Form 10-K for the seven months ended July 31, 2009.

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. On the effective date of Codification, substantially all existing non-SEC accounting and reporting standards are superseded and, therefore, are no longer referenced by title in the accompanying interim condensed consolidated financial statements.

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.

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 $144 thousand and $29 thousand for the three months ended April 30, 2010 and 2009, respectively, and $316 thousand and $79 thousand for the nine months ended April 30, 2010 and 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 $20 thousand and $10 thousand is included in accrued expenses in the accompanying condensed consolidated balance sheets as of April 30, 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 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.

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 April 30, 2010 and July 31, 2009, no allowance was recorded.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. The cost of additions and improvements are capitalized, while maintenance and repairs are charged to expense as incurred. The Company provides for depreciation and amortization using the straight-line method over the estimated useful lives of the property as follows: computer hardware, 3 years; furniture and fixtures, 7 years; equipment and machinery, 5 years; and leasehold improvements, the shorter of the term of the lease or the life of the asset. When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are eliminated from the accounts and the resulting gain or loss is reflected in the results of operations.

Share-Based Compensation

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

The 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.

Fair Value Measurements

U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability to a third party with the same credit standing (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. In many cases, the exit price and the transaction (or entry) price will be the same at initial recognition. However, in certain cases, the transaction price may not represent fair value. Fair value is a market-based measurement determined based on a hypothetical transaction at the measurement date, considered from the perspective of a market participant, not based solely upon the perspective of the reporting entity. When quoted prices are not used to determine fair value, consideration is given to three broad valuation techniques: (i) the market approach, (ii) the income approach, and (iii) the cost approach. Entities are required to determine the most appropriate valuation technique to use, given what is being measured and the availability of sufficient inputs. Inputs to fair valuation techniques are prioritized, allowing for the use of unobservable inputs to the extent that observable inputs are not available. The applicable guidance establishes a three-level hierarchy, based on the priority of the inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as follows:

Level 1

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

Level 2

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

Level 3

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

Earnings 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 nine months ended April 30, 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.

NOTE 3 – NON CASH INVESTING AND FINANCING ACTIVITIES

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

	April 30, 2010		April 30, 2009


Accounts payable paid directly by majority stockholder	$	-	$	1,278,441

Amortization on note payable discount		95,635		-

Common stock issuance for consulting services		105,290		-

Common stock issuance for debt restructure		50,000		-

Embedded conversion feature on note payable issued		593,426		-

Financed insurance agreement		22,031		-

Interest converted to principal		61,127		-

Note payable issued for marketing agreement		1,406,574		-

Reclassification of warrants from liability to equity		63,713		-

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 $306 thousand and $193 thousand of expense was recognized for the three months ended April 30, 2010 and 2009, respectively, and approximately $837 thousand and $463 thousand for nine months ended April 30, 2010 and 2009, respectively. As of April 30, 2010, the balance of the loans was approximately $722 thousand and is classified as a current asset as the remaining carrying amount will be fully amortized by December 31, 2010.

NOTE 5 – DEFERRED EXPENSES

Subsequent to July 31, 2009, the Company has begun selling 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 April 30, 2010, the balance of the deferred commissions was approximately $148 thousand and is classified as a current asset.

NOTE 6– DEFERRED MARKETING COSTS

Deferred marketing costs represent an Advertising and Marketing Agreement 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. Approximately $164 thousand and $493 thousand of amortization were taken for the three and nine months ended April 30, 2010. The agreement was entered into during fiscal year 2010, thus no expense was recognized during the three and nine months ended April 30, 2009.

NOTE 7 –MARKETING AGREEMENT

This marketing agreement represents an agreement between the Company and 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 representatives.

The carrying value of the marketing agreement is the total value of consideration given, which was a $2 million note payable. The marketing agreement is classified as an intangible asset with an indefinite life and subject to annual impairment analysis or more frequently if events and circumstances change.

NOTE 8 – NOTES PAYABLE

Notes payable consist of the following:

	April 30, 2010		July 31, 2009


Convertible note payable; face amount $2 million; bearing interest of 6% per annum; unsecured; principal payment due on October 9, 2012	$	1,563,335	$	-

Financing agreement; bearing interest at 5.25% per annum; payable in monthly installments of approximately $2.5 thousand; due through July 2010		7,440		-

Promissory note payable; bearing interest of 7.5% per annum; unsecured; principal payments due monthly approximately $27 thousand through July 2011		431,485		549,014

Promissory note payable to majority shareholder (on demand; noninterest bearing; unsecured)		-		523,190


Total notes payable	$	2,002,260	$	1,072,204

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. At April 30, 2010, the said note was convertible into approximately 8.3 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 liability is subject to recurring fair value adjustments each reporting period (see Note 11 - 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 three and nine months ended April 30, 2010, total interest expense related to the convertible note payable was approximately $74 thousand and $164 thousand, respectively. Of the interest expense recognized, approximately $61 thousand was deferred and added to the principal of the note. The remaining interest due was accrued and will either be paid or deferred at the Company’s election based upon contractual terms of the note payable.

Of the notes payable presented in the preceding table, approximately $385 thousand is classified as current maturities as of April 30, 2010.

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

Current	$	385,484
2011		53,441
2012		2,061,127
		2,500,052
Net of discount on convertible note payable		(497,792	)
	$	2,002,260

NOTE 9 - ACCRUED EXPENSES

Accrued expenses consist of the following at April 30, 2010 and July 31, 2009:

	April 30, 2010		July 31, 2009
Commissions	$	124,712	$	97,023
Interest		15,716		-
Professional fees		-		3,118
Marketing materials		7,204		-
Payroll		38,601		29,252
Refund reserve		20,113		10,000
Rent		9,928		-
Sales tax payable		14,444		8,608
Total	$	230,718	$	148,001

NOTE 10 - DEFERRED REVENUE

Deferred revenue consists of the following at April 30, 2010 and July 31, 2009:


	April 30, 2010		July 31, 2009
Advertising sales	$	160,061	$	-
Conferences and training		31,941		-
Direct response media		62,992		-
Marketing fees		727,852		787,603
Member fees		114,424		146,718
Total	$	1,097,270	$	934,321

NOTE 11– ASSETS AND LIABILITIES MEASURED AT FAIR VALUE

Financial instruments which are measured at estimated fair value on a recurring basis in the condensed consolidated financial statements include marketable securities, certain non-compensatory warrants and an embedded share conversion feature. 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 which are measured at estimated fair value at the time of issuance are considered non-recurring and are included in the condensed consolidated financial statements as deferred marketing costs. The fair value of this deferred marketing agreement was determined at the date of issuance by an independent expert valuation specialist using the Black-Scholes Option Pricing Model.

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

	April 30, 2010 Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Unobservable Inputs (Level 3)		Total Fair Value
Marketable securities	$	640,000	$	-	$	640,000
Total Assets	$	640,000	$	-	$	640,000

Share conversion feature	$	-	$	421,941	$	421,941
Warrants	$	-	$	5,005,290	$	5,005,290
Total liabilities	$	-	$	5,427,231	$	5,427,231

	July 31, 2009 Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Unobservable Inputs (Level 3)		Total Fair Value
Deferred marketing costs	$	-	$	657,400	$	657,400
Total Assets	$	-	$	657,400	$	657,400

Warrants	$	-	$	549,780	$	549,780
Total 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 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 uses a combination of observable and unobservable inputs in calculating fair value.

The Company recorded an unrealized gain of approximately $400 thousand and an unrealized loss of $130 thousand on its marketable securities for the three and nine months ended April 30, 2010. The gain and loss have been included in the Statement of Operations caption “Gain (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 three and nine months ended April 30, 2010 are summarized as follows:

Fair Value Measurements
Using Significant Unobservable Inputs
(Level 3)

	Balance Beginning of Period		Reclassification of Liability Warrants to Equity			Issuance		(Gain) or Loss Recognized in Earnings from Change in Fair Value			Balance End of Period
For the three months ended,
April 30, 2010
Share conversion feature	$	561,131	$	-		$	-	$	(139,190	)	$	421,941
Warrants	$	6,017,438	$	(63,713	)	$	-	$	(948,435	)	$	5,005,290

For the nine months ended,
April 30, 2010
Share conversion feature	$	-	$	-		$	593,426	$	(171,485	)	$	421,941
Warrants	$	549,780	$	(63,713	)	$	1,427,993	$	3,091,230		$	5,005,290

For the three and nine months ended April 30, 2010, total unrealized gains of approximately $139 thousand and $171 thousand are included in earnings in the Statement of Operations caption “Gain on change in fair value of share conversion feature.” For the three and nine months ended April 30, 2010, total unrealized gain of approximately $948 thousand and an unrealized loss of $3.1 million are included in earnings in the Statement of Operations caption “Gain (loss) on change in fair value of warrants.” The $3.1 million unrealized loss for the nine months ended April 30, 2010 is a result of the 4-to-1 forward share split that occurred on August 11, 2009 that had the effect of increasing the number of outstanding warrants by 21.42 million and the increase in share price used in valuing the warrants from $0.17 to $0.25.

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 at April 30, 2010			Significant Unobservable Inputs (Level 3)			Total Gains (Losses)
Marketing agreement		$	2,000,000		$	2,000,000		$	-

With respect to the marketing agreement, the fair value of the note payable consideration given on October 9, 2009 was determined to approximate the fair market value of the agreement. Subsequently, there have been no impairment indicators to require the remeasuring of the intangible asset’s fair value as of April 30, 2010; consequently, no gain or loss has been recorded within the Statement of Operations.

NOTE 12—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 at
Preferred Stock	Date of
Issuance	Issuance	April 30, 2010	July 31, 2009
Series A	July 30, 2009	1,750,000	1,750,000
Series B	October 6, 2009	2,000,000	-
Series C	January 29, 2010	1,000,000	-
		4,750,000	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.

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 $1 million, respectively, as of April 30, 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 originally for 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 April 30, 2010, Series A, Series B and Series C Convertible Preferred Stock is convertible into 28 million, 8 million and 4 million common shares, respectively.

Beneficial Ownership Limitations

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

Redemption Rights of the Company

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

Redemption Rights of Holder

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

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

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

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


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

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

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

	Total		Value		Preferred Stock
Preferred Stock	Proceeds		Allocated to		Carrying
Issuance	Received		Warrants		Amount
Series A	$	1,750,000	$	539,000	$	1,211,000
Series B	$	2,000,000	$	930,838	$	1,069,162
Series C	$	1,000,000	$	431,415	$	568,585

NOTE 13 - 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 quarter ended April 30, 2010, the Company issued approximately 331 thousand shares of restricted 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 and pursuant to the Company’s 2009 Incentive Stock Plan. 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 were 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 with the remainder vesting on July 30, 2011. The grant date fair value was $180. For the three and nine months ended April 30, 2010, approximately $57 thousand and $172 thousand of stock-based compensation expense was recognized, respectively. For the three and nine months ended April 30, 2009 no stock-based compensation expense was recognized.

NOTE 14–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 proposed 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 will be administered by our Board of Directors until such time as such authority has been delegated to a committee of the Board of Directors. As of April 30, 2010, 2.2 million total options were issued under the 2009 Plan.

During the three and nine months ended April 30, 2010, Zurvita issued warrants to purchase common stock.

The following table summarizes the status of all warrants outstanding and exercisable at April 30, 2010.

Outstanding Warrants
Range of Exercise Prices	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
$0.01 to $0.49		41,260,000	$	0.12		6.28
$0.50 to $0.99		1,502,638	$	0.52		1.47
		42,762,638	$	0.13		6.11

Exercisable Warrants
Range of Exercise Prices	Number of Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years
$0.01 to $0.49		41,260,000	$	0.12		6.28
$0.50 to $0.99		1,197,638	$	0.52		0.63
		42,457,638	$	0.13		6.12

Compensatory Equity Warrants

During the nine month period ended April 30, 2010, the Company issued compensatory equity warrants to purchase an aggregate of approximately 1.5 million shares of common stock.

Assumptions used to determine the fair value of the compensatory warrants granted during the nine months ended April 30, 2010 are as follows. There were no compensatory warrants granted during the seven months ended July 31, 2009.

		April 30, 2010

Expected dividends		0%
Expected volatility		65%
Risk free interest rate		0.22% - 2.41%
Expected life		6 months - 5 years

The following table summarizes the activity for compensatory warrants classified as equity for the nine months ended April 30, 2010.

	Compensatory Equity Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at July 31, 2009		-		$	-		-	$	-
Reclass from liability to equity		700,000			0.25		4.54
Issued		1,536,191			0.52		-		-
Exercised		(33,553	)		0.50		-		-
Cancelled or Expired		-			-		-		-
Outstanding at April 30, 2010		2,202,638		$	0.43		2.45	$	-
Exercisable at April 30, 2010		1,897,638		$	0.42		2.07	$	-

There were approximately 34 thousand warrants exercised during the nine months ended April 30, 2010 with an associated intrinsic value of approximately $8.4 thousand at the date of exercise. There were no warrants exercised during the nine months ended April 30, 2009 and therefore no intrinsic value associated. The total fair value of warrants vested during the nine months ended April 30, 2010 was approximately $74 thousand. The weighted average grant date fair value of warrants granted during the nine months ended April 30, 2010 was $0.04.

A summary of the status of the Company's non-vested compensatory equity warrants of April 30, 2010, and the changes during the nine months ended April 30, 2010, is presented below.

	Compensatory Warrants			Weighted Average Grant-Date Fair Value
Non-vested at July 31, 2009		-		$	-
Reclass from liability to equity		700,000			0.09
Issued		1,536,191			0.02
Exercised		(33,553	)		0.00
Vested		(1,897,638	)		0.04
Non-vested at April 30, 2010		305,000		$	0.07

Non-compensatory Liability Warrants

During the nine month period ended April 30, 2010, Zurvita issued in conjunction with preferred stock non-compensatory warrants to purchase an aggregate of approximately 12 million shares of common stock. There were approximately 40.6 million non-compensatory warrants outstanding as of April 30, 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 nine months ended April 30, 2010 and the seven months ended July 31, 2009 are as follows.

	April 30, 2010	July 31, 2009

Expected dividends	0%	0%
Expected volatility	65%	65%
Risk free interest rate	2.15% - 3.13%	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 nine months ended April 30, 2010 is presented below.

	Non- Compensatory Warrants		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Outstanding at July 31, 2009		28,560,000	$	0.06		6.96
Issued		12,000,000		0.25		6.54
Exercised		-		-		-
Cancelled or Expired		-		-		-
Outstanding and Exercisable at April 30, 2010		40,560,000	$	0.12		6.31

As of April 30, 2010, there was no unrecognized compensation cost related to warrants as all non-compensatory liability warrants outstanding are vested. There were no warrants exercised during the nine months ended April 30, 2010 and 2009 and therefore no intrinsic value associated. The total fair value of warrants vested during the nine months ended January 31, 2010 was approximately $1.4 million. The weighted average grant date fair value of warrants granted during the nine months ended April 30, 2010 was $0.11.

A summary of the status of the Company's non-vested non-compensatory liability warrants as of April 30, 2010, and the changes during the nine months ended April 30, 2010, is presented below.

	Non- Compensatory Warrants			Weighted Average Grant-Date Fair Value
Non-vested at July 31, 2009		-		$	-
Issued		12,000,000			0.11
Exercised		-			-
Vested		(12,000,000	)		-
Non-vested at April 30, 2010		-		$	-

Amacore Stock Warrants Issued

During 2008, 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 April 30, 2010 there were 800 thousand warrants outstanding and exercisable. No warrants expired, nor were any warrants exercised or forfeited during the three and nine months ended April 30, 2010 and therefore, no intrinsic value of warrants exercised. As of April 30, 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 three and nine months ended April 30, 2010 no stock-based compensation expense was recognized. For the three and nine months ended April 30, 2009, approximately $28 thousand and $113 thousand of stock-based compensation expense was recognized, respectively.

Stock-Based Compensation Expense

For the three and nine months ended April 30, 2010 and 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:

	For the Three Months Ended				For the Nine Months Ended
	April 30,				April 30,
	2010		2009		2010		2009
Stock-based compensation:
Payroll and employee benefits	$	57,402	$	28,068	$	237,945	$	112,871
Selling and marketing fees		28,343		-		28,343		-
Total	$	85,745	$	28,068	$	266,288	$	112,871

NOTE 15 - RELATED PARTY TRANSACTIONS

Equity Contributions

During the nine months ended April 30, 2010 and 2009, the Company received approximately $0 and $4.6 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 amounted to approximately $9 thousand and $19 thousand and approximately $32 thousand and $92 thousand, respectively, for the three and nine months ended April 30, 2010, these amounts were for work in which they performed on behalf of the Company.

Interest on Note Payable to OmniReliant Holdings, Inc.

The Company recognized approximately $74 thousand and $164 thousand of interest expense for the three and nine months ended April 30, 2010, respectively, with respect to the note payable due OmniReliant, who is a significant shareholder of the Company. Of the interest expense recognized, approximately $61 thousand was deferred and added to the principal of the note. The remaining interest due OmniReliant was accrued and will either be paid or deferred at the Company’s election based upon the contractual terms of the note payable. No such related party interest expense was incurred during the nine months ended April 30, 2009.

Related Party Receivable

As of April 30, 2010, the Company is owed $10 thousand from OmniReliant for certain costs paid for on OmniReliant’s behalf.

NOTE 16- SUBSEQUENT EVENTS

Security Issuances

On June 4, 2010, the Company sold to Vicis Capital Master Fund 2.3 million shares Series C Convertible Preferred Stock along with 9.2 million warrants to purchase common stock at an exercise price of $0.25.

On June 4, 2010, the Company issued approximately 100 thousand shares of common stock as consideration for legal services in connection to the aforementioned preferred security issuance.

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

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information contained in this discussion, other than historical information, is considered “forward-looking statements” that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives including, without limitation, statements about the Company’s ability to continue operations through April 30, 2011, the liability of the Company for claims made in pending litigation, plans for future products, strengthening our relationship with our various sales organizations, our marketing intentions, our anticipated products, efforts to expand distribution channels, Zurvita Holding’s anticipated growth in sales and margins, and our ability to achieve profitability. In some cases, you may identify forward-looking statements by words such as “may,” “should,” “plan,” “intend,” “potential,” “continue,” “believe,” “expect,” “predict,” “anticipate” and “estimate,” the negative of these words or other comparable words. These statements are only predictions. One should not place undue reliance on these forward-looking statements. The forward-looking statements are qualified by their terms and/or important factors, many of which are outside the Company’s control, involve a number of risks, uncertainties and other factors that could cause actual results and events to differ materially from the statements made. The forward-looking statements are based on the Company’s beliefs, assumptions and expectations of our future performance, taking into account information currently available to the Company. These beliefs, assumptions and expectations can change as a result of many possible events or factors, including those events and factors described in “Risk Factors” in the Company’s Transition Report on Form 10-KT for the seven months ended July 31, 2009 filed with the Securities and Exchange Commission on November 12, 2009 (the “2009 Transition Report”), not all of which are known to the Company. If a change occurs, the Company’s business, financial condition, liquidity and results of operations may vary materially from those expressed in the aforementioned forward-looking statements. The Company will update this forward-looking information only to the extent required under applicable securities laws. Neither the Company nor any other person assumes responsibility for the accuracy or completeness of these forward-looking statements.

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and notes thereto, and other financial information included elsewhere in this Form 10-Q.

Introduction

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

Overview – This section provides a general description of our business.

Results of operations – This section provides an analysis of our results of operations comparing the three and nine months ended April 30, 2010 and 2009. This analysis is provided on a consolidated basis.

Liquidity and capital resources – This section provides an analysis of our cash flows for the nine months ended April 30, 2010 and 2009 as well as a discussion of our liquidity and capital resources.

Overview

Description of Business

Zurvita Holdings Inc. (“Zurvita”) 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 offers a unique business-to-business strategy with turnkey solutions for commercial and residential energy, advertising, telecommunications and healthcare services. Zurvita also markets numerous low-cost ancillary products, such as legal assistance and restoration services for identity theft and consumer credit.

Business Strategy

The Zurvita business strategy embraces a direct sales approach exemplified through the strength of network marketing. The business strategy is designed to create a marketing sales force by compensating independent business owners (“Consultants”) of Company products and services not only for sales 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 relationship referrals and word-of-mouth marketing.

Consultants become associated with the Company in an independent contractor relationship and receive remuneration for selling products and services and for expanding their network of people doing the same by promoting the Zurvita business opportunity.

Strategically, the Zurvita business opportunity is built on service and technology platforms whereby Consultants market high demand products and services that target consumers and small businesses at many levels. The business opportunity creates a Consultant sales organization that in turn sponsors other motivated Consultants. At the core of this business opportunity is the Company’s vision to create a business model where each independent sales Consultant has an opportunity to make a living on a full-time basis and to obtain long-term financial security through means of marketing products that have demand in the market place and that create long-term residual income.

Zurvita has developed processes to dramatically increase performance success:

Focus on Lead Generation

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 are building relationally. Zurvita not only invests resources promoting the 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 anticipated by consumers. 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 second quarter launch of a proprietary local advertising search directory service. The Local Search Engine Directory service is a proprietary local search and advertising software program owned by OmniReliant. The Local Search Engine Directory 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 offered, the local business receives a suite of easy-to-use tools that allows it to completely 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.

Marketing

Zurvita 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 product 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 Zurvitas’ overall marketing strategy. The synergistic relationship brings the strength of television production and national media placement to drive prospects to the Zurvita business opportunity 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 opens new population of prospects continuously. 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 the business opportunity. National conferences and regional events further support Zurvita’s training and development efforts of its national sales force.

RESULTS OF OPERATIONS

Results of Operations

	For the three months ended April 30,									For the nine months ended April 30,
	2010			2009			Increase (Decrease)			2010			2009			Increase (Decrease)

Revenues	$	1,706,916		$	1,162,872		$	544,044		$	4,608,461		$	3,221,243		$	1,387,218
Cost of Sales		1,120,394			796,517			323,877			3,381,516			2,874,706			506,810
Gross Profit		586,522			366,355			220,167			1,226,945			346,537			880,408

Operating Expenses		1,559,498			1,568,958			(9,460	)		4,854,369			4,932,613			(78,244	)
Operating Loss		(972,976	)		(1,202,603	)		(229,627	)		(3,627,424	)		(4,586,076	)		(958,652	)

Other Income (Expense)		1,355,220			-			(1,355,220	)		(3,290,246	)		-			3,290,246

Net Income (Loss) Before Income Taxes		382,244			(1,202,603	)		1,584,847			(6,917,670	)		(4,586,076	)		(2,331,594	)
Income Taxes		12,287			8,140			4,147			32,429			22,549			9,880

Net Income (Loss)	$	369,957		$	(1,210,743	)	$	(1,580,700	)	$	(6,950,099	)	$	(4,608,625	)	$	2,341,474

Basic Earnings (Loss) Per Share	$	0.01		$	(0.02	)				$	(0.12	)	$	(0.09	)

Diluted Earnings (Loss) Per Share	$	0.00		$	(0.02	)				$	(0.12	)	$	(0.09	)

Revenue:

For the three and nine months ended April 30, 2010, revenue was approximately $1.7 million and $4.6 million, respectively, as compared to approximately $1.2 million and $3.2 million for the three and nine months ended April 30, 2009, respectively, an increase of approximately $544 thousand and $1.4 million, respectively.

Administrative websites sales and marketing fees were approximately $520 thousand and $502 thousand for the three months ended April 30, 2010, respectively, as compared to approximately $207 thousand and $500 thousand, respectively, for the three months ended April 30, 2009. For the nine months ended April 30, 2010, administrative websites and marketing fees were approximately $1.5 million and $1.5 million, respectively, as compared to $622 thousand and $1.3 million, respectively, for the nine months ended April 30, 2009. The aggregate increase in administrative website sales and marketing fees was approximately $314 thousand and $1.1 million for the three and nine months ended April 30, 2010, 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 6.3 thousand as of April 30, 2010 from approximately 3.1 thousand as of April 30, 2009. The Company was able to attract and retain more representatives as a result of greater product offering as of April 30, 2010 as compared to April 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 $447 thousand and $859 thousand of new revenue for the three and nine months ended April 30, 2010, respectively, as compared to 2009 comparable periods. The Company is focusing its efforts and resources on these new products and is recruiting consultants based upon the availability these new products. The Company’s membership fees were approximately $217 thousand and approximately $756 for the three and nine months ended April 30, 2010, respectively, as compared to approximately $434 thousand and approximately $1.3 million for three and nine months ended April 30, 2009, respectively. The decrease in membership revenue is a result of the Company’s efforts focusing on recruiting, advertising and energy sales.

Cost of Sales:

For the three and nine months ended April 30, 2010, cost of sales was approximately $1.1 million and $3.4 million, respectively, an increase of approximately $324 thousand and $507 thousand, respectively, from the respective period in 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 three and nine month periods is a direct result of increased revenues.

Gross Profit:

For the three and nine months ended April 30, 2010, gross profit was approximately $587 thousand and $1.2 million, respectively, as compared to a gross profit of approximately $366 thousand and $347 thousand for the three and nine months ended April 30, 2009, respectively. For the three and nine months ended April 30, 2010 and 2009, the gross profit percentage increased from 32% to 34% and from 11% to 27%, respectively. The increase in gross profit is due to the fact that the Company’s product offering and consultant base were further developed between the three 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.

Operating Expenses:

Our operating expenses for the three and nine months ended April 30, 2010 were approximately $1.6 million and $4.9 million, respectively, as compared to $1.6 million and $4.9 million for the three and nine months ended April 30, 2009.

The table below sets forth components of our operating expenses for the three and nine months ended April 30, 2010 compared to the corresponding prior year period:

	Three Months Ended April 30,							Nine Months Ended April 30,
	2010		2009		Increase (Decrease)			2010		2009		Increase (Decrease)

Depreciation	$	9,011	$	8,452		559		$	26,287	$	19,693		6,594
Office Related Expenses		115,872		56,679		59,193			284,760		183,326		101,434
Payroll and Benefits		435,568		261,941		173,627			1,198,538		861,738		336,800
Professional Fees		253,413		341,472		(88,059	)		1,002,310		1,418,606		(416,296	)
Selling and Marketing		711,010		876,583		(165,573	)		2,201,817		2,204,003		(2,186	)
Travel		34,624		23,831		10,793			140,657		245,247		(104,590	)

Total operating expenses	$	1,559,498	$	1,568,958	$	(9,460	)	$	4,854,369	$	4,932,613	$	(78,244	)

Depreciation expense for the three and nine months ended April 30, 2010, was approximately $9 thousand and $26 thousand, respectively, an increase of approximately $1 thousand and $7 thousand over the same prior year periods. The increase is directly related to the purchase of property, plant and equipment as the growth of the business has required additional capital assets.

Office related costs include rent, insurance, utilities and office maintenance. For the three month period ended April 30, 2010 these costs were approximately $27 thousand, $28 thousand, $24 thousand, and $37 thousand, respectively. For the nine months ended April 30, 2010 these costs were approximately $74 thousand, $68 thousand, $47 thousand and $96 thousand, respectively. The overall increases of approximately $59 thousand and $101 thousand for the three and nine months, respectively, from the prior year period is due to the increased operations of the Company.

Payroll and related expenses for the three and nine months ended April 30, 2010 were approximately $436 thousand and $1.2 million, respectively, a increase of approximately $174 thousand and $337 thousand over the same prior year periods. Of the increase for the three and nine months, $58 thousand and $153 thousand, respectively, are related to share-based compensation, which is a non-cash expense. Excluding those amounts, the remaining increase of $116 thousand and $184 thousand for the three and nine months, respectively, is due to the Company’s operational growth. Additional employees were specifically hired to operate the Company’s online advertising program.

Professional fees consist of consulting, accounting fees, contract labor and legal costs. For the three month period ended April 30, 2010, these costs were approximately $138 thousand, $71 thousand, $11 thousand and $33 thousand, respectively. For the nine month period ended April 30, 2010, these costs were approximately $588 thousand, $262 thousand, $17 thousand and $135 thousand, respectively. During the three and nine months ended April 30, 2009, legal expense represented approximately $309 thousand and $1.3 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 post April 30, 2009, which was the primary reason for the overall decrease in professional fees of $88 thousand and $416 thousand for the three and nine months ended April 30, 2010 as compared to the same prior year periods.

Selling and marketing expenses for the three and nine months ended April 30, 2010 was $711 thousand and $2.2 million, respectively, a decrease of approximately $166 thousand and $2 thousand as compared to the same prior year periods. The reduction in selling and marketing expense for the three months was due to a reduction in conference costs as a result of reducing the number of conferences held during the quarter from two to one.

Business travel expenses for the three and nine months ended April 30, 2010 were approximately $35 thousand and $141 thousand, respectively, an increase of approximately $11 thousand and decrease of approximately $105 thousand as compared to the same prior year periods. The increase for the three months was attributable to the national conference held in March 2010, and the decrease for nine months from was a result of the Company’s efforts to reduce expenses.

Other Income (Expense):

Interest expense

Interest expense for the three and nine months ended April 30, 2010 was approximately $82 thousand and $191 thousand, respectively, compared to $0 for the same prior year periods. The increase in interest expense is attributable to the issuance of notes payables subsequent to April 30, 2009.

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. We recorded an unrealized gain on the conversion feature for the three and nine months ended April 30, 2010 of approximately $139 thousand and $171 thousand, respectively. No embedded share conversion feature existed during the three and nine months ended April 30, 2009. This gain is a non-cash item not impacting operating cash flows or results of operations. See Note 11 – Assets and Liabilities Measured at Fair Value, to financial statements contained within Item 1 of Part 1 of this Form 10Q for additional information with respect to the calculation of change in fair value of this conversion feature for the three and nine months ended April 30, 2010.

Gain (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 gain of $400 thousand and an unrealized loss of $130 thousand for the three and nine months ended April 30, 2010, respectively. No marketable securities existed during the three and nine months ended April 30, 2009. This gain and loss is a non-cash item not impacting operating cash flows or results of operations. See Note 11– Assets and Liabilities Measured at Fair Value, to financial statements contained within Item 1 of Part 1 of this Form 10Q for additional information with respect to the determination of fair value.

Gain (loss) on change in fair value of warrants

The Company’s liability warrants are recorded at fair value. For the three and nine months ended April 30, 2010, change in fair value of warrants was approximately a gain of $948 thousand and a loss of $3.1 million, respectively. The $3.1 million unrealized loss for the nine months ended April 30, 2010 is a result of the 4-to-1 forward share split that occurred on August 11, 2009 that had the effect of increasing the number of outstanding warrants by 21.42 million and the increase in share price used in valuing the warrants from $0.17 to $0.25. Gains and losses resulting from valuation of these liability warrants are a non-cash item not impacting operating cash flows or results of operations. See Note 11 – Assets and Liabilities Measure at Fair Value to the financial statements contained within Item 1 of Part 1 of this Form 10Q for additional information with respect to the calculation of change in fair value of warrants for the three and nine months ended April 30, 2010.

Income Taxes:

For the three and nine months ended April 30, 2010, the Company estimated approximately $12 thousand and $32 thousand in Texas gross margin tax, an increase of $4 thousand and $10 thousand as compared to the same prior year periods. The increase is directly related to the Company’s increased revenue and profitability between the three periods.

Net Income (Loss):

The Company had net income of approximately $370 for the three months ended April 30, 2010 and a net loss of approximately $7 million for the nine months ended April 30, 2010, as compared to a net loss of approximately $1.2 million and $4.6 million for the three and nine months ended April 30, 2009. The net income experienced for the three months ended was a result of gains recognized on marketable securities and warrants, as noted above. Although the Company experienced an increase in revenues and improvement in gross margin, the increase in net loss for the nine months is attributable to non-cash amortization of the Company’s advertising and marketing agreement as well as significant non-cash unrealized losses recognized on the Company’s outstanding liability warrants.

Earnings (Loss) per Common Share:

Earnings and loss per common share amounted to $0.01 and $0.12 for the three months and nine months ended April 30, 2010, respectively, as compared to a loss per common share of $0.02 and $0.09 for the three and nine months ended April 30, 2009, respectively. While the unrealized gains on the marketable securities and warrants mainly contributed to the increase in earnings per share for the three month period. The overall unrealized losses on said items mainly contributed to the increase in loss per share for the nine month period.

OFF BALANCE SHEET ARRANGEMENTS

We do not have any off balance sheet arrangements as of April 30, 2010.

LIQUIDITY AND CAPITAL RESOURCES

The following table compares our cash flows for the nine month period ended April 30, 2010 to the corresponding prior period:

	April 30, 2010			April 30, 2009

Net cash used in operating activities	$	(2,396,248	)	$	(4,618,795	)
Net cash used in investing activities		(777,617	)		(126,101	)
Net cash provided by financing activities		2,344,690			4,575,375

Net change in cash	$	(829,175	)	$	(169,521	)

Future minimum rental payments required under the Company’s operating leases that have initial or remaining non-cancelable lease terms in excess of one year on a fiscal year basis are as follows:

As of April 30, 2010

2010	$	26,702
2011		106,808
2012		106,808
Thereafter		-
	$	240,318

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

Since its inception, the Company has met its capital needs principally through sales of its equity and debt securities. These costs and expenses included operating expenses, such as salary expenses, professional fees, rent expenses and other general and administrative expenses discussed above.

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 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 April 30, 2010.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive and principal financial officer concluded that our disclosure controls and procedures are ineffective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Presently, our disclosure controls and procedures are not designed adequately to provide reasonable assurance that such information is accumulated and communicated to our management. This conclusion was based on the material weaknesses identified with regard to internal controls over financial reporting, as described in the Company’s Transition Report for the seven months ended July 31, 2009.

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

As of April 30, 2010, there were no material changes in the Company’s legal proceedings as previously disclosed in the Company’s 2009 Transition Report.

Item 1a. Risk Factors

Not applicable.

Item 2. Unregistered Sales of Equity and Use of Proceeds

Not applicable

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Removed and Reserved

Item 5. Other Information.

None

Item 6. 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)

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).

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)

23.1	Consent of McGladrey & Pullen LLP dated January 29, 2010 (incorporated by reference to Exhibit 23.1 to the Company’s Form S-8 with the Securities and Exchange Commission on February 1, 2010)

23.2	Consent of Sichenzia Ross Friedman Ference LLP dated February 1, 2010 January 29, 2010 (incorporated by reference to Exhibit 23.2 included in Exhibit 5.1 to the Company’s Form S-8 with the Securities and Exchange Commission on February 1, 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 2002

31.2	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 2002

32.1	Certification pursuant to Section 906 Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

SIGNATURES

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

Dated: June 14, 2010	/s/ Jay Shafer
	Jay Shafer
	Co-Chief Executive Officer


Dated: June 14, 2010	/s/ Mark Jarvis
	Mark Jarvis
	Co-Chief Executive Officer


Dated: June 14, 2010	/s/ Jason Post
	Jason Post
	Chief Financial Officer

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 January 28, 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 March 8, 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)

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).

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)

23.1	Consent of McGladrey & Pullen LLP dated January 29, 2010 (incorporated by reference to Exhibit 23.1 to the Company’s Form S-8 with the Securities and Exchange Commission on February 1, 2010)

23.2	Consent of Sichenzia Ross Friedman Ference LLP dated February 1, 2010 January 29, 2010 (incorporated by reference to Exhibit 23.2 included in Exhibit 5.1 to the Company’s Form S-8 with the Securities and Exchange Commission on February 1, 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 2002

31.2	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 2002

32.1	Certification pursuant to Section 906 Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

Attached files

Zurvita Holdings, Inc. Reports

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