SOURCE: Zurvita Holdings, Inc.

Zurvita Holdings, Inc.

March 18, 2011 14:55 ET

Zurvita Holdings, Inc. Reports Fiscal 2011 Second Quarter Results

Financial Results Include Narrower Loss From Operations on Lower Operating Expenses

HOUSTON, TX--(Marketwire - March 18, 2011) - Zurvita Holdings, Inc. (OTCBB: ZRVT) ("Zurvita" or the "Company"), a dynamic direct-to-consumer network marketing company offering turn-key solutions for high-quality consumer and business products and services, today announced its financial results for the second quarter of the 2011 fiscal year ended January 31, 2011.

Second Quarter 2011 Highlights

  • Revenues totaled $1.1 million versus $1.7 million one year ago.
  • Gross profit totaled $405 thousand versus $581 thousand one year ago.
  • Gross margin increased slightly to 35.7%, versus 35.1% one year ago.
  • Loss from operations before other income and expenses decreased to $910 thousand from $1.3 million one year ago.
  • Net income was $2.1 million, versus a net loss of $1.7 million one year ago.
  • Completed technology transfer agreement with Infusion Brands International, Inc. f/k/a OmniReliant Holdings, Inc. for "ZLinked" search engine software. 

"During the second quarter, we continued to position Zurvita for strong future growth as we steered the Company in a vibrant new direction and streamlined our product offerings and sales system," stated Jay Shafer, Zurvita Co-Chief Executive Officer. "With the launch of our new Health & Wellness division, Zurvita has now introduced new products and strategies designed to create financial independence for our representatives based on projected increases in spending for healthcare, nutritional supplements and managing disease. The Company experienced declines in revenues for the three and six month periods due to a highly varied product portfolio resulting in an overly burdened network marketing sales channel. We have taken the steps necessary to improve our business by adding our new Health & Wellness division, which gives us access to a trillion dollar healthcare and nutrition industry with consumer friendly products, streamlining our sales, compensation, and administrative processes, and by strategically placing our business-to-business services in a separate division."

Second Quarter 2011 Results

Revenue for the fiscal 2011 second quarter ended January 31, 2011, declined 31% or approximately $517 thousand to $1.1 million from $1.7 million in the same quarter of fiscal 2010. The decrease in total revenue was primarily a result of a decline in administrative website sales and marketing fees paid to the Company due to a decline in recruitment, the number of active consultants, and consultant enrollment fees. The decline in recruiting and active consultant base was a result of overly burdensome processes and procedures and a highly varied product portfolio. 

Administrative websites sales and marketing fees were approximately $390 thousand and $236 thousand respectively for the three months ended January 31, 2011, as compared to approximately $514 thousand and $555 thousand, respectively, for the three months ended January 31, 2010. The aggregate decrease in administrative website sales and marketing fees was approximately $444 thousand for the three months ended January 31, 2011, and is a result of less recruiting for the period as compared to the three months ended January 31, 2010.

The Company's advertising sales and commissions relating to energy sales were approximately $213 thousand and $165 thousand respectively for the three months ended January 31, 2011, as compared to approximately $251 thousand and $96 thousand, respectively. The Company had been focusing its efforts and resources on these new products and had been recruiting consultants based upon the availability of these products. The Company's membership fees were approximately $132 thousand for the three months ended January 31, 2011 as compared to approximately $237 thousand for the three months ended January 31, 2010. The decrease in membership revenue is a result of the Company's efforts to re-focus recruiting, advertising and energy sales. 

Gross profit for the three months ended January 31, 2011, was approximately $405 thousand as compared to a gross profit of approximately $581 thousand for the three months ended January 31, 2010. The decrease in gross profit was due to the decrease in revenue for the quarter. Gross profit margin increased slightly to 35.7% versus 35.1% one year ago.

Zurvita's operating expenses for the fiscal second quarter were approximately $1.3 million, compared to $1.9 million one year earlier. The decrease in operating expenses was primarily attributable to lower professional fees through extensive cost containment efforts, lower selling and marketing expenses related to amortization of the marketing agreement between the Company and Infusion Brands International, Inc., and lower business and travel expenses. Loss from operations before other income and expenses for the second quarter of 2011 decreased to $910 thousand from $1.3 million for the three months ended January 31, 2010.

For the second quarter of fiscal 2011, the company recorded net income of approximately $2.1 million, or $0.03 per diluted share, versus a net loss of approximately $1.7 million, or $0.03 per diluted share for the same period last year. Diluted earnings per share were calculated using a weighted average share count of 61.5 million in the second fiscal quarter of 2011, compared to 56.7 million one year ago. Although the Company experienced improvement in gross margin, the increase in net income is attributable to non-cash unrealized gains, including a $2.8 million gain resulting from fair valuing the Company's outstanding liability warrants.

Six Month Results

Revenues for the first six months of the 2011 fiscal year were $2.4 million, down 15.6% from $2.9 million in the same period one year ago. Gross profit increased 31% to $836 thousand, or 34% of sales, versus gross profit of $640 thousand, or 22% of sales, in the first six months of fiscal 2010. The increase in gross profit is due to the focus on selling higher margin products and reducing non-traditional sales compensation practices. Operating expenses for the six months ended January 31, 2011, declined 11% to $2.9 million, versus operating expenses of $3.3 million for the same prior year period. Operating loss improved to $2.1 million versus $2.7 million for the six months ended January 31, 2010. The Company reported net income of $3.9 million, or $0.6 per diluted share, versus a net loss of $7.3 million, or $0.13 per diluted share, for the same prior year period. The increase in net income is attributable to non-cash unrealized gains, including a $5.9 million gain resulting from the fair valuing of the Company's outstanding liability warrants.

Financial Condition

As of January 31, 2011, the Company had cash and cash equivalents of $16 thousand. Net cash used in operating activities for the six three months of fiscal 2011 was approximately $1.8 million, down from $1.9 million for the same period last year. Total liabilities, redeemable preferred stock and stockholders' deficit was $911 thousand as of January 31, 2011 versus total liabilities, redeemable preferred stock and stockholders' deficit of $3.4 million for the year ended July 31, 2010. 

On March 15, 2011, the Company entered into an oral agreement with Vicis Capital Master Fund ("Vicis") to sell Vicis 1 million shares of its Series C Convertible Preferred Stock (the "Series C Preferred Stock") and Series C Warrants to purchase an aggregate of 4 million shares of the Company's common stock (the "Series C Warrants" and, together with the Series C Preferred Stock, the "Private Placement Securities"). The purchase price of the Private Placement Securities is $1 million, and the funds were received from Vicis on March 16, 2011. However, a Preferred Stock purchase agreement and other related transaction documents (the "Transaction Documents") are in the process of being negotiated with Vicis and, accordingly, have not been executed at this time. The Private Placement Securities will be issued to Vicis upon the execution of the Transaction Documents.

Business Outlook

"We're very excited about the launch of our new Health & Wellness division and the tremendous opportunity we see for health care products, nutritional supplements and disease prevention solutions," commented Mark Jarvis, Zurvita Co-Chief Executive Officer. "Economics and history are the dictating forces behind our new streamlined focus, with rising health care costs and government programs focusing us all on these core needs, and generating natural opportunities for the type of targeted and value-driven solutions represented best by the network marketing sales model." Mr. Jarvis added, "The growing demand for health and wellness products being driven by baby boomers, who control half of the country's spending power, creates a powerful opportunity for our industry. With the launch of 'Zeal,' our proprietary new wellness formula, and 'Zurvita Health Plus,' which helps to manage health care costs through affordable health services, we believe we have created a unique value proposition in our industry and for Zurvita independent representatives. By providing our consultants with innovative and essential products such as these, we believe that Zurvita has a solid base for future growth."

About Zurvita Holdings, Inc.

Zurvita is a dynamic direct-to-consumer network marketing company offering high-quality health and wellness products and services targeting individuals and families. The company's highly differentiated services feature best in class health & wellness consumer products as well as small business solutions offered through a growing network of independent and professional sales consultants. Zurvita has rapid growth potential due to its experienced sales management team with a proven track record in the health & wellness network and direct marketing and a unique business-to-business commercial division offering turnkey solutions for commercial energy and Internet advertising. For more information, please visit http://www.zurvita.com.

Follow Zurvita on Twitter at: http://twitter.com/Zurvita and on Zurvita's Facebook Fan Page at: www.facebook.com/Zurvita.

Safe Harbor Statement

Matters discussed in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this press release, the words "anticipate," "believe," "estimate," "may," "intend," "expect" and similar expressions identify such forward-looking statements. Actual results, performance or achievements could differ materially from those contemplated, expressed or implied by the forward-looking statements contained herein. These forward-looking statements are based largely on the expectations of the Company and are subject to a number of risks and uncertainties. These include, but are not limited to, risks and uncertainties associated with: the impact of economic, competitive and other factors affecting the Company and its operations, markets, product, and distributor performance, the impact on the national and local economies resulting from terrorist actions, and U.S. actions subsequently; and other factors detailed in reports filed by the Company.

- FINANCIAL TABLES FOLLOW - 

   
   
ZURVITA HOLDINGS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
(Unaudited)  
                         
    For the Three Months Ended     For the Six Months Ended  
    January 31,     January 31,  
    2011     2010     2011     2010  
REVENUES                                
  Administrative websites   $ 389,633     $ 513,770     $ 851,362     $ 998,135  
  Advertising sales     212,882       251,819       454,156       255,591  
  Commissions     165,535       95,521       276,626       156,841  
  Marketing fees and materials     235,704       555,105       584,931       951,227  
  Membership fees     131,912       236,696       281,378       539,751  
    Total revenues     1,135,666       1,652,910       2,448,453       2,901,545  
                                 
COST OF SALES                                
  Benefit and service cost     309,477       352,952       622,401       630,246  
  Sales commissions     420,869       719,028       990,226       1,630,876  
    Total cost of sales     730,346       1,071,980       1,612,627       2,261,122  
                                 
GROSS PROFIT     405,320       580,930       835,826       640,423  
                                 
OPERATING EXPENSES                                
  Depreciation     9,531       8,824       19,317       17,276  
  Office related expenses     134,825       85,575       261,524       168,888  
  Payroll and employee benefits     507,091       442,390       1,113,943       762,970  
  Professional fees     202,082       442,723       494,968       748,897  
  Selling and marketing     424,444       838,693       932,830       1,490,807  
  Travel     37,476       52,285       117,227       106,033  
    Total operating expenses     1,315,449       1,870,490       2,939,809       3,294,871  
                                 
Loss from operations before other income (expense)     (910,129 )     (1,289,560 )     (2,103,983 )     (2,654,448 )
                                 
OTHER INCOME (EXPENSE)                                
  Gain on change in fair value of share conversion feature     138,764       28,103       462,013       32,295  
  Gain (loss) on change in fair value of marketable securities     160,000       (400,000 )     (160,000 )     (530,000 )
  Gain (loss) on change in fair value of warrants     2,784,000       2,162       5,908,000       (4,039,665 )
  Interest expense     (84,222 )     (79,667 )     (167,849 )     (108,096 )
  Interest income     -       -       4,756       -  
    Total other income (expense)     2,998,542       (449,402 )     6,046,920       (4,645,466 )
                                 
Income (loss) before income taxes     2,088,413       (1,738,962 )     3,942,937       (7,299,914 )
                                 
Income taxes     1,371       10,357       2,673       20,142  
                                 
Net income (loss)   $ 2,087,042     $ (1,749,319 )   $ 3,940,264     $ (7,320,056 )
                                 
Basic and diluted earnings (loss) per share   $ 0.03     $ ( 0.03 )   $ 0.06     $ ( 0.13 )
                                 
Basic and diluted weighted average number of common shares outstanding     61,498,713       56,653,792       61,498,713       56,546,896  
                                 
                                 
The accompanying notes are an integral part of these condensed consolidated financial statements.  
   
   
   
   
ZURVITA HOLDINGS, INC.  
CONDENSED CONSOLIDATED BALANCE SHEETS  
     
  (Unaudited)        
  January 31, 2011     July 31, 2010  
ASSETS              
  Current assets              
    Cash $ 16,305     $ 289,442  
    Marketable securities (at fair value)   320,000       480,000  
    Note receivable - related party   -       1,702,000  
    Accounts receivable   154,245       137,123  
    Agent advanced compensation   -       448,553  
    Deferred expenses   33,073       127,351  
    Other assets   191,983       41,173  
      Total current assets   715,606       3,225,642  
               
  Property, plant and equipment (net)   80,455       94,965  
               
  Merchant account deposit   115,333       115,333  
      Total assets $ 911,394     $ 3,435,940  
               
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT      
  Current liabilities              
    Accounts payable $ 346,973     $ 249,762  
    Accounts payable - related party   140,139       127,733  
    Notes payable - current   181,305       284,967  
    Accrued expenses   254,572       332,217  
    Deferred revenue   375,123       808,957  
    Deferred compensation - related party   97,546       110,238  
    Income tax payable   5,300       2,628  
      Total current liabilities   1,400,958       1,916,502  
                   
    Notes payable - long term   1,797,295       1,639,268  
    Fair value of share conversion feature   -       462,013  
    Fair value of warrants   462,000       6,370,000  
      Total liabilities   3,660,253       10,387,783  
               
  Redeemable preferred stock   4,550,747       4,550,747  
               
  Stockholders' deficit              
    Common stock ($.0001 par value, 300,000,000 shares authorized; 69,498,713 and 69,497,713 shares issued and 61,498,713 and 61,497,713 shares outstanding as of January 31, 2011 and July 31, 2010, respectively)   6,950       6,950  
    Treasury stock   (210,000 )     (210,000 )
    Additional paid-in capital   10,241,459       9,978,738  
    Accumulated deficit   (17,338,015 )     (21,278,278 )
      Total stockholders' deficit   (7,299,606 )     (11,502,590 )
                 
      Total liabilities, redeemable preferred stock and stockholders' deficit $ 911,394     $ 3,435,940  
               
               
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 Six Months Ended  
    January 31, 2011     January 31, 2010  
Cash flows from operating activities                
Net income (loss)   $ 3,940,264     $ (7,320,056 )
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
    Amortization of note payable discount     93,368       52,254  
    Amortization of deferred marketing costs     -       328,700  
    Depreciation     19,317       17,276  
    Share-based compensation     262,220       243,583  
    Gain on change in fair value of share conversion feature     (462,013 )     (32,295 )
    (Gain) loss on change in fair value of warrants     (5,908,000 )     4,039,665  
    Loss on change in fair value of marketable securities     160,000       530,000  
  Changes in operating assets and liabilities                
    Increase in accounts receivable     (17,122 )     (56,280 )
    Decrease in agent advanced compensation     448,553       252,729  
    Decrease (increase) in deferred expenses     94,279       (294,620 )
    Increase in other assets     (131,180 )     (15,541 )
    Increase in accounts payable and accrued expenses     99,307       84,234  
    (Decrease) increase in deferred revenue     (433,834 )     270,678  
    Decrease in deferred compensation related party     (12,692 )     -  
Net cash used in operating activities     (1,847,533 )     (1,899,673 )
                 
Cash flows from investing activities                
    Net proceeds from promissory note recievable     1,702,000       -  
    Purchase of property and equipment     ( 4,815 )     (6,698 )
    Purchase of marketable securities     -       (770,000 )
Net cash provided by (used in) investing activities     1,697,185       (776,698 )
                 
Cash flows from financing activities                
    Proceeds from borrowings     10,000       -  
    Proceeds from exercise of warrants     500       -  
    Proceeds from sale of preferred stock     -       2,000,000  
    Principal payments made on notes payable     (133,289 )     (647,967 )
Net cash (used in) provided by financing activities     (122,789 )     1,352,033  
                 
Net change in cash balance     (273,137 )     (1,324,338 )
                 
Beginning cash     289,442       1,390,953  
                 
Ending cash   $ 16,305     $ 66,615  
                 
Supplemental disclosure of cash flow information                
    Cash paid for interest   $ 8,410     $ 17,727  
                 
    Cash paid for taxes   $ -     $ -  
                 
The accompanying notes are an integral part of these condensed consolidated financial statements.  
   
   

Contact Information

  • Company Contact:
    Zurvita Holdings, Inc.
    Jason Post
    Chief Financial Officer
    Phone: 407.805.8900
    jason.post@amacoregroup.com

    Investor Relations Contact:
    Hampton Growth Resources, LLC
    Andrew W. Haag
    Managing Partner
    Phone: 877.368.3566
    zrvt@hamptongrowth.com