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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the fiscal year ended June 30, 2009
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
 For the transition period from           to
 Commission file number: 000-30489
 LIFEVANTAGE CORPORATION
  Colorado
(State or other jurisdiction of 
incorporation or organization)
    
    90-0224471
(IRS Employer
Identification No.)11545 W. Bernardo Court, Suite 301
San Diego, California
(Address of principal executive offices)
    
    92127
(Zip Code)
 (858) 312-8000
 None
 
 o þ
 o þ
 þ o
  o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   o(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    The deterioration of global economic conditions and the decline of consumer
confidence and spending;
    
    The potential failure or unintended negative consequences of the
implementation of our network marketing sales channel;
    
    Our lack of significant revenues from operations;
    
    Our ability to successfully expand our operations and manage our future
growth;
    
    The effect of current and future government regulations of the network
marketing and dietary supplement industries on our business;
    
    The effect of unfavorable publicity on our business;
    
    Competition in the dietary supplement market;
    
    Our ability to retain independent distributors or to hire new independent
distributors on an ongoing basis;
    
    The potential for product liability claims against the Company;
    
    Independent distributor activities that violate applicable laws or regulations
and the potential for resulting government or third party actions against the Company;
    
    The potential for third party and governmental actions involving our network
marketing sales channel;
    
    Our dependence on third party manufacturers to manufacture our product;
    
    The ability to obtain raw material for our product;
    
    Our dependence on a limited number of significant customers;
    
    Our ability to protect our intellectual property rights and the value of our
product;
    
    Our ability to continue to innovate and provide products that are useful to
consumers;
    
    The significant control that our management and significant shareholders
exercise over us;
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
    
    The illiquidity of our common stock;
    
    Our ability to access capital markets in light of the global credit crisis or
other adverse effects to our business and financial position;
    
    Our ability to generate sufficient cash from operations, raise financing to
satisfy our liquidity requirements, or reduce cash outflows without harm to our business,
financial condition or operating results; and
    
    Other factors not specifically described above, including the other risks,
uncertainties, and contingencies under Description of Business, Risk Factors and
Managements Discussion and Analysis of Financial Condition and Results of Operation in
Items 1 and 7 of our report.When considering these forward-looking statements, you should keep in mind the cautionary
statements in this report and the documents incorporated by reference. We have no
obligation and do not undertake to update or revise any such forward-looking statements to
reflect events or circumstances after the date of this report.
 3




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##### 



TABLE OF CONTENTS
 PagePART IItem 1. Business
    
    
    5Item 1A. Risk Factors
    
    
    29Item 1B. Unresolved Staff Comments
    
    
    40Item 2. Properties
    
    
    41Item 3. Legal Proceedings
    
    
    42Item 4. Submission of Matters to a Vote of Security Holders
    
    
    42PART IIItem 5. Market for Registrants Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    43Item 6. Selected Financial Data
    
    
    44Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    45Item 7A Quantitative and Qualitative Disclosures About Market Risk
    
    
    52Item 8 Financial Statements and Supplementary Data
    
    
    52Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    52Item 9A Controls and Procedures
    
    
    53Item 9B Other Information
    
    
    54PART IIIItem 10. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act
    
    
    55Item 11. Executive Compensation
    
    
    55Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    55Item 13. Certain Relationships and Related Transactions
    
    
    55Item 14. Principal Accountant Fees and Services
    
    
    55PART IVItem 15. Exhibits
    
    
    55EX-23.1EX-31.1EX-31.2EX-32.1EX-32.2
  4




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PART I
 
 ITEM 1  BUSINESS
 Overview
 ® ®
 General
 
 ®
    5




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Market
 Dietary Supplements Market
   2008 U.S. Nutrition Industry Consumer Sales
 6




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NBJ
 2008 U.S. Nutrition Industry Sales Growth by Channel
 
 Nutrition Business Journal
 7




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2008 $8.8 Billion U.S. Direct-to-Consumer Supplement Sales by Channel
 
 Nutrition Business Journal
 2008 U.S. Nutrition Industry Revenues by Channel
 2008 U.S. Nutrition Industry Revenues by Channel
 Natural & Specialty
    
    
    Mass Market
    
    
    Mail Order/DRTV,Category
    
    Retail
    
    
    Retail
    
    
    Radio
    
    
    MLM
    
    
    Practitioner
    
    
    Internet
    
    
    TotalSupplements
    
    
    9,300
    
    
    
    7,100
    
    
    
    1,390
    
    
    
    4,590
    
    
    
    1,940
    
    
    
    890
    
    
    
    25,210Natural & Organic
Food
    
    
    15,500
    
    
    
    14,120
    
    
    
    20
    
    
    
    30
    
    
    
    10
    
    
    
    30
    
    
    
    29,710Functional Food
    
    
    3,670
    
    
    
    32,630
    
    
    
    40
    
    
    
    260
    
    
    
    40
    
    
    
    170
    
    
    
    36,800N&OPC and
Household
    
    
    4,300
    
    
    
    2,980
    
    
    
    350
    
    
    
    1,770
    
    
    
    420
    
    
    
    280
    
    
    
    10,100Total
    
    
    32,770
    
    
    
    56,820
    
    
    
    1,800
    
    
    
    6,650
    
    
    
    2,400
    
    
    
    1,380
    
    
    
    101,820
 Source: (Smil, consumer sales). Primary research includes surveys of natural food, supplement and N&OPC manufacturers, distributors, MLM firms, mail
order, Internet and raw material companies and numerous interviews with major retailers,
manufacturers, suppliers and industry experts. Secondary sources include Information Resources Inc., SPINS, The Nielsen Company, company data and others. Note:
To avoid double counting, classifies soymilk and nutrition bars as functional rather than
natural & organic foods and beverages, although both are included in natural & organic totals cited
in elsewhere. Natural & Specialty represents natural, health food, supplement and specialty
retail outlets, including Whole Foods, GNC, sports nutrition stores, etc. Mass Market represents
FDMCC or food/grocery, drug, mass merchandise, club and convenience stores, including Wal-Mart,
Costco, etc. Mail order represents catalogs, direct mail and direct response TV and direct response
radio. Practitioners represent conventional and alternative health practitioners selling to their
patients, athletic trainers, beauticians, etc.
 Nutrition Business Journal
 Anticipated Industry Growth
  o
    
    consumers increasingly moving toward alternative solutions for general wellness
issues;o
    
    the changing lifestyles of consumers;o
    
    a growing elderly population;o
    
    aging Baby Boomers and their better off financial status;
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o
    
    the fact that nutritional supplements can complement or be used as an
alternative to traditional pharmaceutical treatments;o
    
    recently gained credibility of nutritional supplements as a result of the Food
and Drug Administrations (FDAs) insistence on stringent product quality and testing
procedures;o
    
    newly implemented federal Good Manufacturing Practices (GMP);o
    
    increasing research by federal agencies;o
    
    a steady stream of innovative new products that target an ever-expanding range
of increasingly specific conditions; and,o
    
    the increasing growth of the direct sales industry, with specific product
growth especially pronounced among products that are not available in retail stores.
 Skincare Industry and Anti-Aging Products Market
 The Anti-Aging Market
   o
    
    lifestyle changes effected by consumers to increase their chance of
longevity;o
    
    changing practices in personal grooming which have resulted in more time and
money being directed to external grooming efforts to minimize the visible effects of
aging;o
    
    increased demand for skin lotions, toners, wrinkle-removal creams, skin
whiteners, luxury topical skin care products, concealers and cover-ups;o
    
    increasing number of younger age anti-aging consumers becoming more proactive
about their skin maintenance routine; and,o
    
    the growing acceptance of vitamins and antioxidants as effective anti-aging
nutrients.
  9




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Marketing and Direct Selling Opportunity
     o
    
    the Anti-Aging Market;o
    
    the Baby Boomer market, interested in anti-aging through cosmetics, dietary
supplements, and supplemental business opportunities; ando
    
    the Market created by the current economic crisis, those seeking to supplement income
or replace lost income.
    10




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Background
 The Antioxidant Myth
   11




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Oxidative Stress
      12




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Product Overview
 Protandim®
   Methods for Enhancing Antioxidant Enzyme Activity and Reducing C-Reactive Protein
Levels,
  Clinical Studies
 Free Radical Biology and Medicine, vol. 40, pp. 341-7 (2006).
 Published and Independent Preclinical Studies
 PLoS ONE, Protandim, a Fundamentally New
Antioxidant Approach in Chemoprevention Using Mouse Two-Stage Skin Carcinogenesis as a Model
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th The effects of a novel antioxidant diet (Protandim) on cell
death during early skin carcinogenesis
  Free
Radical Biology and Medicine
  14




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LifeVantage TrueScience Anti-Aging Cream
 
   
    
    Hydration/Moisturizing:LifeVantage TrueScience features a Lamellar Phase
Emulsion System that forms a liquid emulsion barrier for superior moisturizing.
This is accomplished by delivering exotic fatty acids to retain the bodys natural
moisture and produce a high-end moisturizing effect. It also features sodium
hyaluronate, a superior moisture-binding agent that can balance moisture levels at
the surface of the skin.
    
    Toning/Brightening:The turmeric extract in LifeVantage TrueScience is
specially modified to remove the majority of yellow compounds without reducing the
effectiveness of its potent curcuminoids. Curcuminoids have been shown to produce a
gentle skin lightening that evens dispigmentation. Additionally, the leucojum
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aestivum bulb extract slows the spread of melanocytes, which contributes to uneven
skin coloring.
 
    
    Wrinkles/Fine Lines:The palm peptides and leucojum aestivum bulb extract in
TrueScience have been shown to visibly reduce signs of wrinkles and fine lines.
They also promote improved skin tone and texture.
    
    Lipid Rejuvenation:LifeVantage TrueScience delivers multiple ingredients
intended to mimic the naturally occurring lipid structure in the skin and retain
the bodys own moisturizing lipids.
 Our Business Strategy
 Network Marketing Model
      16




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o
    
    offering compelling and innovative products backed by science;o
    
    offering rewarding and motivating distributor incentives, training,
events, and loyalty / recognition programs;o
    
    continuing to conduct clinical studies to demonstrate the superiority
of our products; ando
    
    combining traditional public relations and marketing strategies with
the viral marketing power of network marketing.
 Distributor Network
      17




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Distributor Earnings
  Distributor Motivation and Training
   Competitive Advantages
  o
    
    our ability to offer our distributors a compelling business opportunity to
market and sell highly consumable products backed by facts and science;o
    
    our experienced executive and network distribution team, comprising some of the
most sought after and highest producing independent distributors in the industry;o
    
    providing a broad array of motivational, educational, and support services;o
    
    third-party substantiation and celebrity and scientific endorsement for our
company and products; ando
    
    our ability to motivate our distributors through a performance-based
compensation plan, individual recognition, reward programs and incentives, and
participation in local and national corporate events.
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Product Portfolio
  Compensation Plan
     Distributor Regulation
   19




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Manufacturing
       Marketing
  Sales of our Products
 20




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Research and Development
   21




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Target Market
   Competition
  Direct Antioxidants
  Oral SOD and CAT
  22




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Product Liability and Other Insurance
  Intellectual Property
        23




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Governmental Regulations
 FDA Regulations
      FTC Regulations
  24




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
 
 
 
 
  State Regulations
  25




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The Bioterrorism Act
      ®
 Potential FDA and Other Regulation
    26




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Results of Operations
        27




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Employees
    Available Information
 www.lifevantage.com
  28




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ITEM 1A   RISK FACTORS
 An investment in our common stock involves a high degree of risk, and should be considered
only by persons who can afford the loss of their entire investment. You should carefully consider
each of the following risk factors and all of the other information provided in this Report,
including our financial statements and the related notes, before purchasing our common stock. The
risks described below are those we currently believe could materially affect us. The future
development of Lifevantage and Protandim is and will continue to be dependent upon a number of
factors, many of which we cannot predict or anticipate. Accordingly, the following risk factors
are not necessarily all of the important factors that could cause actual results of operations to
differ materially from those expressed in the forward-looking statements in this Report. Other
unknown or unpredictable factors could also have material adverse effects on our business, future
results of operations or financial condition. We have no obligation and do not undertake to update
or revise the following risk factors to reflect events or circumstances after the date of this
Report.
 Risk Factors Relating to our Network Marketing Sales Channel
 Our recently initiated network marketing sales channel may not be successful.
  If we are unable to retain our existing independent distributors and recruit additional independent
distributors, our revenue will not increase and may even decline.
  29




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
    
    any adverse publicity regarding us, our products, our distribution channel, or our
competitors;
    
    lack of interest in existing or new products;
    
    lack of a story that generates interest for potential new independent distributors and
effectively draws them into the business;
    
    the publics perception of our products and their ingredients;
    
    the publics perception of our distributors and direct selling businesses in general;
    
    our actions to enforce our policies and procedures;
    
    any regulatory actions of charges against us or others in our industry;
    
    general economic and business conditions; and
    
    potential saturation in a given market that could negatively impact our ability to
attract and retain independent distributors in such market.
  Although our independent distributors are independent contractors, improper independent distributor
actions that violate laws or regulations could harm our business.
  Government inquiries, investigations, and actions regarding our network marketing system could harm
our business.
  30




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Challenges by private parties to the form of our network marketing system or other regulatory
compliance issues could harm our business.
  Adverse publicity concerning our business, marketing plan or products could harm our business and
reputation.
  
    
    suspicions about the legality and ethics of network marketing;
    
    the ingredients or safety of our or our competitors products;
    
    regulatory investigations of us, our competitors and our respective products;
    
    the actions of our current or former distributors; and
    
    public perceptions of network marketing generally.
 The loss of key high-level distributors could negatively impact the growth of our network marketing
sales channel.
  31




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Laws and regulations may prohibit or severely restrict our network marketing efforts and regulators
could adopt new regulations that harm our business.
  Risk Factors Relating to the Company, our Limited Operating History, our Management, and our
Financial Condition
 We have a limited operating history and lack of sufficient revenues from operations.
  There is no assurance that we will be successful in expanding our operations and, if successful,
managing our future growth.
  Government regulators and regulations could adversely affect our business.
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
    
    Initiating investigations;
    
    Issuing warning letters and cease and desist orders;
    
    Demanding recalls;
    
    Initiating adverse publicity;
    
    Requiring corrective labeling or advertising;
    
    Requiring consumer redress and/or disgorgement;
    
    Seeking injunctive relief or product seizures;
    
    Initiating judicial actions; and
    
    Imposing civil penalties or commencing criminal prosecution.
   Future laws or regulations may hinder or prohibit the production or sale of our existing product
and any future products.
  33




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
    
    The reformulation of products to meet new standards;
    
    Additional ingredient restrictions;
    
    Additional claim restrictions;
    
    The recall or discontinuance of products unable to be reformulated;
    
    Imposition of additional good manufacturing practices and/or record keeping requirements;
    
    Expanded documentation of the properties of products; and
    
    Expanded or different labeling or scientific substantiation.
  Unfavorable publicity could materially hurt our business and the value of your investment.
  We are and will continue to be subject to the risk of investigatory and enforcement action by the
FTC, which could have a negative impact upon the price of our stock.
  Our business is susceptible to product liability claims, which could adversely affect our results
of operations and financial condition.
  34




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Consumers of our products may not feel readily noticeable physiological differences after taking
Protandim.
  We have no manufacturing capabilities and we are dependent upon third parties to manufacture our
product.
  Raw material for our product may be difficult to obtain or expensive.
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Product returns may adversely affect our business.
    We primarily depend on a single product for our revenue.
  Deteriorating economic conditions globally, including the current financial crisis and declining
consumer confidence and spending, could harm our business.
  We may face risks related to health epidemics, which could negatively impact our business.
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Our efforts to defend against legal actions may be unsuccessful and may harm our business.
  The dietary supplement market is highly competitive.
  We may face limited availability of additional capital.
  We are subject to the lack of liquidity of our marketable securities investment portfolio.
  The requirements of the Sarbanes-Oxley act, including section 404, are burdensome, and our failure
to comply with them could have a material adverse affect on our business and stock price.
  37




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We could be exposed to certain environmental liabilities due to our past operations and property
ownership.
   Risks Related to Our Intellectual Property and Obsolescence
 Our intellectual property rights are valuable, and any inability to protect them could reduce the
value of our products and brand.
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If we do not continue to innovate and provide products that are useful to consumers, we may not
remain competitive, and our revenues and operating results could suffer.
  If we are unable to protect our proprietary information against unauthorized use by others, our
competitive position could be harmed.
  Other parties might claim that we infringe on their intellectual property rights.
  Risk Factors Relating to our Common Stock
 Our common stock could be classified as penny stock and is extremely illiquid, so investors may not
be able to sell as much stock as they want at prevailing market prices.
  39




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Our stock price may experience future volatility.
  Substantial sales of shares may impact the market price of our common stock.
  
 ITEM 1B   UNRESOLVED STAFF COMMENTS
  40




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ITEM 2   PROPERTIES
 Corporate Offices
     Warehouse Facilities
   41




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ITEM 3   LEGAL PROCEEDINGS
    
 ITEM 4   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  42




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PART II
 
 ITEM 5   MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
 Market Information and Holders
   2009
    
    2008High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    0.23
    
    
    $
    0.13
    
    
    $
    0.42
    
    
    $
    0.20Second Quarter
    
    $
    0.20
    
    
    $
    0.07
    
    
    $
    0.35
    
    
    $
    0.17Third Quarter
    
    $
    0.78
    
    
    $
    0.16
    
    
    $
    0.45
    
    
    $
    0.19Fourth Quarter
    
    $
    0.94
    
    
    $
    0.45
    
    
    $
    0.49
    
    
    $
    0.18
  Dividends
  Securities Authorized for Issuance under Equity Compensation Plans
 (c) Number of securities(b) Weighted-
    
    
    remaining available for(a) Number of
    
    
    average exercise
    
    
    future issuance undersecurities to be issued
    
    
    price of
    
    
    equity compensationupon exercise of
    
    
    outstanding
    
    
    plans (excludingoutstanding options,
    
    
    options, warrants
    
    
    securities reflected inPlan Category
    
    warrants and rights
    
    
    and rights
    
    
    column (a))Equity compensation
plans approved by
security holders
    
    
    6,000,000
    
    
    $
    0.45
    
    
    
    Equity compensation
plans not approved
by security holders
    
    
    5,099,947
    
    
    $
    0.64
    
    
    
    Total
    
    
    11,099,947
    
    
    $
    0.54
    
    
    
    
 43




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Consultant Warrants.
 Unregistered sale of securities.
  
 ITEM 6  SELECTED FINANCIAL DATA
  44




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ITEM 7   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 You should read the following discussion and analysis in connection with our financial statements
and related notes beginning on page F-1 following Part III of this report.
 Overview
   Our Products
 
  Revenue
Recognition, corrected copy
  45




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®
 Results of Operations
     46




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Comparison of Years Ended June 30, 2009 and 2008
 Sales.
 Gross Margin.
 Operating Expenses.
 Sales and Marketing Expenses.
 General and Administrative Expenses.
 Research and Development.
 Depreciation and Amortization Expense.
 Net Other Expense.
 47




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Net Loss.
 Liquidity and Capital Resources
        48




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49




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Critical Accounting Policies
   Allowances for Product Returns
   Inventory Valuation
  50




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Revenue Recognition
    ®
 Derivative Instruments
   Intangible Assets  Patent Costs
  51




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Stock-Based Compensation
  Research and Development Costs
  Commitments and Obligations
 Payments due by periodLess thanContractual Obligations
    
    Total
    
    1 year
    
    1-3 years
    
    3-5 yearsConvertible Debt Obligations
(subject to conversion to common
stock)
    
    
    1,145,000
    
    
    
    1,145,000Capital Lease Obligations
    
    
    43,522
    
    
    
    43,522Operating Lease Obligations
    
    
    1,038,492
    
    
    
    306,631
    
    
    
    623,767
    
    
    
    108,094Distributor Commitments
    
    
    1,195,000
    
    
    
    1,195,000Total
    
    
    3,422,014
    
    
    
    2,690,153
    
    
    
    623,767
    
    
    
    108,094
 Recently Issued Accounting Standards
 Determining Whether an Instrument (or Embedded Feature) Is Indexed to an
Entitys Own Stock
  
 ITEM 7A   QUANTITATIVE AND QUALITATIVE DISCLOURES ABOUT MARKET RISK
  
 ITEM 8   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  52




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ITEM 9A(T)   CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Internal Control over Financial Reporting
 Managements Report on Internal Control over Financial Reporting
    53




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Changes in Internal Control over Financial Reporting
  
 ITEM 9B   OTHER INFORMATION
  54




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PART III
  
 ITEM 10   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT
  
 ITEM 11   EXECUTIVE COMPENSATION
  
 ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
  
 ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
  
 ITEM 14   PRINCIPAL ACCOUNTANT FEES AND SERVICES
  
 PART IV
 
 ITEM 15   EXHIBITS
  Financial Statements
  Exhibits
  55




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SIGNATURES
  LifeVantage Corporation.
a Colorado corporationBy:
    
    /s/ David W. BrownDavid W. BrownIts: Chief Executive OfficerDate: September 28, 2009
  Signature
    
    Date
    
    Title/s/ David W. Brown

David W. Brown
    
    September 28, 2009
    
    Chief Executive Officer; Director
(Principal Executive Officer)/s/ Carrie E. Carlander

Carrie E. Carlander
    
    September 28, 2009
    
    Chief Financial Officer
(Principal Financial Officer)/s/ Jack R. Thompson

Jack R. Thompson
    
    September 28, 2009
    
    Chairman of the Board and
Chairman of the Audit Committee/s/ James D. Crapo

James D. Crapo
    
    September 28, 2009
    
    Director/s/ Joe M. McCord

Joe M. McCord
    
    September 28, 2009
    
    Director/s/ Richard D. Jones

Richard D. Jones
    
    September 28, 2009
    
    Director/s/ Garry Mauro

Garry Mauro
    
    September 28, 2009
    
    Director
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EXHIBIT INDEX
 ExhibitNumber
    
    Title2.1
    
    Agreement and Plan of Reorganization between Lifeline
Nutraceuticals Corporation and Yaak River Resources, Inc. dated
September 21, 2004 (1)2.2
    
    Settlement and Release Agreement and Plan of Reorganization dated
March 10, 2005, among Lifeline Therapeutics, Inc., Lifeline
Nutraceuticals Corporation and Michael Barber (2)3.1
    
    Amended and Restated Articles of Incorporation (9)3.2
    
    Amended and Restated Bylaws (9)4.01
    
    Form of Warrant (6)4.02
    
    Form of Convertible Debenture (6)4.03
    
    Form of 2009 Private Placement Warrant*4.04
    
    Form of 2009 Unit Subscription Agreement*10.1
    
    Form of Unit Warrant Certificate (3)10.2
    
    Form of Bridge Warrant Certificate (3)10.3
    
    Form of Placement Agent Warrant Certificate (3)10.4
    
    Form of Placement Agent Warrant Certificate (5)10.5
    
    Lifevantage Corporation 2007
Long-Term Incentive Plan (8)*10.19
    
    Lease dated July 1, 2008 between Bernardo Regency, L.L.C. and
LifeVantage Corporation
(10)10.20
    
    Sublease dated March 1, 2009 between Broadweave Networks Inc. and
LifeVantage Corporation *10.21
    
    Agreement between Cornerstone Research and Development and
LifeVantage Corporation *10.22
    
    Confidential Termination Agreement and General Release of Claims
dated February 14, 2007 between Gerald J. Houston and the Company
(7)10.23
    
    Letter Agreement dated June 1, 2007 between Aspenwood Capital and
Lifevantage Corporation (6)10.24
    
    Letter Agreement dated September 28, 2007 between Bolder Venture
Partners and Lifevantage Corporation (6)10.25
    
    Purchase Agreement between General Nutrition Distribution, LP and
Lifevantage Corporation, dated June 21, 2006 (3)10.26
    
    Employment Agreement, dated January 10, 2008, between Lifevantage
Corporation and David W. Brown
(11)*10.27
    
    Lifevantage compensation plan *21.1
    
    List of subsidiaries
(4)23.1
    
    Consent of Ehrhardt Keefe Steiner & Hottman PC *
 57




---



##### Table of Contents



ExhibitNumber
    
    Title31.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *31.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002 *32.1
    
    Certification of Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *32.2
    
    Certification of Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002 *
 
 (1)
    
    Filed as an exhibit to Yaak River Resources, Inc.s Current Report on Form 8-K (File
No. 000-30489), filed on September 28, 2004, and incorporated herein by reference.(2)
    
    Filed as an exhibit to LifeVantage Corporations Current Report on Form 8-K (File No. 000-30489), filed on March 14, 2005, and incorporated herein by reference.(3)
    
    Filed as an exhibit to LifeVantage Corporations Registration Statement on Form SB-2
(File No. 333-126288), filed on June 30, 2005, and incorporated herein by reference.(4)
    
    Filed as an exhibit to LifeVantage Corporations Annual
Report on Form 10-KSB (File No.
000-30489), filed on October 13, 2005, and incorporated herein by reference.(5)
    
    Filed as an exhibit to LifeVantage Corporations Registration Statement on Form SB-2/A
(File No. 333-126288), filed on February 6, 2006, and incorporated herein by reference.(6)
    
    Filed as an exhibit to Lifevantage Corporations Registration Statement on Form SB-2
(File No. 333-148119), filed December 17, 2007, and incorporated herein by reference.(7)
    
    Filed as an exhibit to Lifevantage Corporations Quarterly Report on Form 10-QSB (file
No. 000-30489), filed on May 14, 2007, and incorporated herein by reference.(8)
    
    Filed with the LifeVantage Proxy on Form 14-A (File No. 000-30489) dated October 20,
2006, and incorporated herein by reference.(9)
    
    Filed as an exhibit to LifeVantage Corporations Annual Report on Form 10-KSB (file No.
000-30489), filed on September 28, 2006, and incorporated herein by reference.(10)
    
    Filed as an exhibit to LifeVantage Corporations Annual Report
on Form 10-KSB (file No. 000-30489), filed on September 23, 2008, and incorporated herein by reference.(11)
    
    Filed as an exhibit to LifeVantage Corporations Current Report on Form 8-K (File No. 000-
 30489), filed on January 16, 2008, and incorporated herein by reference.#
    
    Indicates a management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 15(b) of this report.*
    
    Filed herewith. 58




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##### Table of Contents



LIFEVANTAGE CORPORATION
 Index to Consolidated Financial Statements
 Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Financial Statements:Consolidated Balance Sheets as of June 30, 2009 and 2008
    
    F-3Consolidated Statements of Operations for the years
ended June 30, 2009 and 2008
    
    F-4Consolidated Statements of Stockholders (Deficit)
Equity for the years ended June 30, 2009 and 2008
    
    F-5  F-6Consolidated Statements of Cash Flows for the years
ended June 30, 2009 and 2008
    
    F-7  F-8Notes to Consolidated Financial Statements
    
    F-9  F-33
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
      
 F-2




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##### Table of Contents



June 30, 2009
    
    June 30, 2008ASSETSCurrent assetsCash and cash equivalents
    
    $
    608,795
    
    
    $
    196,883Restricted Cash
    
    
    259,937
    
    
    
    Marketable securities, available for sale
    
    
    520,000
    
    
    
    1,100,000Accounts receivable, net
    
    
    648,116
    
    
    
    98,008Equity raise receivable
    
    
    119,750
    
    
    
    Inventory
    
    
    740,014
    
    
    
    104,415Deferred expenses
    
    
    10,000
    
    
    
    72,049Deposit with manufacturer
    
    
    6,482
    
    
    
    277,979Prepaid expenses
    
    
    72,738
    
    
    
    124,049Total current assets
    
    
    2,985,832
    
    
    
    1,973,383Long-term assetsMarketable securities, available for sale
    
    
    130,000
    
    
    
    Property and equipment, net
    
    
    274,741
    
    
    
    63,559Intangible assets, net
    
    
    2,175,281
    
    
    
    2,270,163Deferred debt offering costs, net
    
    
    83,023
    
    
    
    193,484Deposits
    
    
    66,795
    
    
    
    48,447TOTAL ASSETS
    
    $
    5,715,672
    
    
    $
    4,549,036LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYCurrent liabilitiesAccounts payable
    
    $
    2,029,290
    
    
    $
    139,803Accrued expenses
    
    
    822,024
    
    
    
    338,268Deferred revenue
    
    
    
    
    
    
    510,765Escrow for equity offering
    
    
    259,937
    
    
    
    Revolving line of credit and accrued interest
    
    
    581,444
    
    
    
    166,620Capital lease obligations, current portion
    
    
    41,490
    
    
    
    846Total current liabilities
    
    
    3,734,185
    
    
    
    1,156,302Long-term liabilitiesDeferred rent
    
    
    23,677
    
    
    
    Derivative warrant liability
    
    
    8,429,710
    
    
    
    Convertible debt, net of discount
    
    
    382,194
    
    
    
    223,484Total liabilities
    
    
    12,569,766
    
    
    
    1,379,786Commitments and contingenciesStockholders (deficit) equityPreferred stock  par value $.001, 50,000,000 shares
authorized, no shares issued or outstanding
    
    
    
    
    
    
    Common stock,  par value $.001,
250,000,000 shares authorized
and 53,968,628 and 24,766,117 issued and
outstanding
as of June 30, 2009 and
2008, respectively
    
    
    53,969
    
    
    
    24,766Additional paid-in capital
    
    
    16,964,927
    
    
    
    17,902,840Accumulated (deficit)
    
    
    (23,872,990
    )
    
    
    (14,758,356
    )Total stockholders (deficit) equity
    
    
    (6,854,094
    )
    
    
    3,169,250TOTAL LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITY
    
    $
    5,715,672
    
    
    $
    4,549,036
  F-3




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##### Table of Contents



For the years endedJune 30, 2009
    
    
    June 30, 2008Sales, net
    
    $
    4,141,304
    
    
    
    $
    3,200,174Cost of sales
    
    
    852,804
    
    
    
    
    695,386Gross profit
    
    
    3,288,500
    
    
    
    
    2,504,788Operating expenses:Sales and marketing
    
    
    4,107,768
    
    
    
    
    1,655,461General and administrative
    
    
    6,588,414
    
    
    
    
    2,108,338Research and development
    
    
    224,366
    
    
    
    
    324,106Depreciation and amortization
    
    
    173,030
    
    
    
    
    219,690Total operating expenses
    
    
    11,093,578
    
    
    
    
    4,307,595Operating (loss)
    
    
    (7,805,078
    )
    
    
    
    (1,802,807
    )Other income and (expense):Interest income
    
    
    20,474
    
    
    
    
    45,315Interest (expense)
    
    
    (1,330,030
    )
    
    
    
    (296,947
    )Total other (expense) income
    
    
    (1,309,556
    )
    
    
    
    (251,632
    )Net (loss)
    
    $
    (9,114,634
    )
    
    
    $
    (2,054,439
    )Net (loss) per share, basic and diluted
    
    $
    (0.23
    )
    
    
    $
    (0.09
    )Weighted average shares outstanding, basic and diluted
    
    
    40,360,592
    
    
    
    
    22,710,096
  F-4




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##### Table of Contents



Common Stock
    
    
    
    Additional
    
    
    
    AccumulatedShares
    
    
    Amount
    
    
    
    Paid In Capital
    
    
    
    Deficit
    
    
    
    TotalBalances, July 1, 2007
    
    
    22,268,034
    
    
    $
    22,268
    
    
    
    $
    15,395,037
    
    
    
    $
    (12,703,917
    )
    
    
    $
    2,713,388Options/Warrants issued for
services
    
    
    
    
    
    
    
    
    
    
    
    436,104
    
    
    
    
    
    
    
    
    
    436,104Exercise of options and
warrants
    
    
    1,548,083
    
    
    
    1,548
    
    
    
    
    452,023
    
    
    
    
    
    
    
    
    
    453,571Stock issued for services
    
    
    150,000
    
    
    
    150
    
    
    
    
    41,849
    
    
    
    
    
    
    
    
    
    41,999Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,054,439
    )
    
    
    
    (2,054,439
    )Warrants issued pursuant to
Private Placement
    
    
    
    
    
    
    
    
    
    
    
    681,067
    
    
    
    
    
    
    
    
    
    681,067Beneficial Conversion
Feature
    
    
    
    
    
    
    
    
    
    
    
    737,560
    
    
    
    
    
    
    
    
    
    737,560Conversion of debt to equity
    
    
    800,000
    
    
    
    800
    
    
    
    
    159,200
    
    
    
    
    
    
    
    
    
    160,000Balances, June 30, 2008
    
    
    24,766,117
    
    
    $
    24,766
    
    
    
    $
    17,902,840
    
    
    
    $
    (14,758,356
    )
    
    
    $
    3,169,250
 F-5




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##### Table of Contents



Common Stock
    
    
    
    Additional
    
    
    
    AccumulatedShares
    
    
    
    Amount
    
    
    
    Paid In Capital
    
    
    
    Deficit
    
    
    
    
    TotalBalances, July 1, 2008
    
    
    24,766,117
    
    
    
    $
    24,766
    
    
    
    $
    17,902,840
    
    
    
    $
    (14,758,356
    )
    
    
    
    $
    3,169,250Options/Warrants issued for
services
    
    
    
    
    
    
    
    
    
    
    
    
    1,454,249
    
    
    
    
    
    
    
    
    
    
    1,454,249Exercise of options and
warrants
    
    
    6,426,810
    
    
    
    
    6,427
    
    
    
    
    525,403
    
    
    
    
    
    
    
    
    
    
    531,830Net (loss)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,114,634
    )
    
    
    
    
    (9,114,634
    )Shares and warrants issued
pursuant to private
placement
    
    
    21,785,701
    
    
    
    
    21,786
    
    
    
    
    4,978,214
    
    
    
    
    
    
    
    
    
    
    5,000,000Private placement fees and
shares issued for services
    
    
    65,000
    
    
    
    
    65
    
    
    
    
    (402,815
    )
    
    
    
    
    
    
    
    
    
    (402,750
    )Reclassification of warrant
as derivative warrant
liability
    
    
    
    
    
    
    
    
    
    
    
    
    (7,652,023
    )
    
    
    
    
    
    
    
    
    
    (7,652,023
    )Conversion of debt to equity
    
    
    925,000
    
    
    
    
    925
    
    
    
    
    159,059
    
    
    
    
    
    
    
    
    
    
    159,984Balances, June 30, 2009
    
    
    53,968,628
    
    
    
    $
    53,969
    
    
    
    $
    16,964,927
    
    
    
    $
    (23,872,990
    )
    
    
    
    $
    (6,854,094
    )
  F-6




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##### Table of Contents



For the years endedJune 30, 2009
    
    
    June 30, 2008Cash Flows from Operating Activities:Net (loss)
    
    $
    (9,114,634
    )
    
    
    $
    (2,054,439
    )Adjustments to reconcile net (loss) to net cash (used) by
operating activities:Depreciation and amortization
    
    
    173,030
    
    
    
    
    219,690Loss on disposition of equipment
    
    
    6,652
    
    
    
    
    Stock based compensation to employees
    
    
    824,974
    
    
    
    
    322,150Stock based compensation to non-employees
    
    
    629,275
    
    
    
    
    155,953Non-cash interest expense from convertible debentures
    
    
    343,710
    
    
    
    
    209,230Non-cash interest expense from amortization of deferred
offering costs
    
    
    85,445
    
    
    
    
    Change in fair value of derivative warrant liability
    
    
    777,687
    
    
    
    
    Changes in operating assets and liabilities:(Increase)/decrease in accounts receivable, net
    
    
    (550,108
    )
    
    
    
    300,455(Increase) in inventory
    
    
    (635,599
    )
    
    
    
    (76,581
    )Decrease in deposits to manufacturer
    
    
    271,497
    
    
    
    
    110,812Decrease/(increase) in prepaid expenses
    
    
    51,311
    
    
    
    
    (63,874
    )(Increase)/decrease in deposits
    
    
    (18,348
    )
    
    
    
    291,993Increase/(decrease) in accounts payable
    
    
    1,889,487
    
    
    
    
    (8,896
    )Increase in accrued expenses
    
    
    483,756
    
    
    
    
    107,457Increase on deferred rent
    
    
    23,677
    
    
    
    
    (Decrease) in deferred revenue
    
    
    (510,765
    )
    
    
    
    (307,485
    )Decrease in deferred expenses
    
    
    62,049
    
    
    
    
    45,758Net Cash (Used) by Operating Activities
    
    
    (5,206,904
    )
    
    
    
    (747,777
    )Cash Flows Provided/(Used) by Investing Activities:(Purchase) of marketable securities
    
    
    
    
    
    
    
    (1,525,000
    )Redemption of marketable securities
    
    
    450,000
    
    
    
    
    425,000(Purchase) of equipment
    
    
    (226,701
    )
    
    
    
    (11,808
    )(Purchase) of intangible assets
    
    
    (18,807
    )
    
    
    
    (58,490
    )Net Cash Provided/(Used) by Investing Activities
    
    
    204,492
    
    
    
    
    (1,170,298
    )Cash Flows from Financing Activities:Net proceeds from revolving line of credit and accrued interest
    
    
    414,824
    
    
    
    
    166,620Principal payments under capital lease obligation
    
    
    (9,830
    )
    
    
    
    (2,301
    )Issuance of common stock
    
    
    5,531,830
    
    
    
    
    453,571Receivable from equity raise
    
    
    (119,750
    )
    
    
    
    Private placement fees
    
    
    (402,750
    )
    
    
    
    (153,692
    )Proceeds from issuance of private placement of convertible debentures & warrants
    
    
    
    
    
    
    
    1,490,000Net Cash Provided by Financing Activities
    
    
    5,414,324
    
    
    
    
    1,954,198Increase in cash and cash equivalents
    
    
    411,912
    
    
    
    
    36,123Cash and Cash Equivalents  beginning of period
    
    
    196,883
    
    
    
    
    160,760Cash and Cash Equivalents  end of period
    
    
    608,795
    
    
    
    $
    196,883
  F-7




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##### Table of Contents



For the years endedJune 30, 2009
    
    
    June 30, 2008Non Cash Investing and Financing Activities:Conversion of long-term debt to common stock
    
    $
    185,000
    
    
    
    $
    160,000Warrants issued for private placement fees
    
    $
    689,385
    
    
    
    $
    94,488Equipment acquired through a capital lease
    
    $
    51,319
    
    
    
    $
    Write down of deferred offering costs related to conversion of debt
    
    $
    25,016
    
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash paid for interest expense
    
    $
    104,222
    
    
    
    $
    87,718Cash paid for income taxes
    
    $
    
    
    
    
    $
    
  F-8




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##### Table of Contents



LIFEVANTAGE CORPORATION AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Organization and Basis of Presentation:
 ®
  Liquidity and managements plans for operations
     F-9




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##### Table of Contents



Note 2  Summary of Significant Accounting Policies
 Consolidation
  Use of Estimates
  Fair Value of Financial Instruments
 Disclosures about Fair Value of Financial
Instruments,
  Fair Value Measurements
  F-10




---



##### Table of Contents



Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and Equity Fair Value Measurements
  1.
    
    Level 1 inputs are quoted prices in active markets for identical assets and
liabilities, or derived there from. Our trading market values and the volatilities that
are calculated thereupon are level 1 inputs.
 2.
    
    Level 2 inputs are inputs other than quoted prices that are observable. We use
the current published yields for zero-coupon US Treasury Securities, with terms nearest
the remaining term of the warrants for our risk free rate.
 3.
    
    Level 3 inputs are unobservable inputs. Inputs for which any parts are level 3
inputs are classified as level 3 in their entirety. The remaining term used equals the
remaining contractual term as our best estimate of the expected term
  The Fair Value Option for Financial Assets
and Financial Liabilities
  Instrument
    
    Fair Value
    
    Carrying Value
    
    Footnote ReferenceShort-Term
Marketable
Securities
    
    $
    520,000
    
    
    $
    520,000
    
    
    Note 2Short-Term
Marketable
Securities
    
    $
    130,000
    
    
    $
    130,000
    
    
    Note 2Derivative Warrant
Liabilities
    
    $
    8,429,710
    
    
    $
    8,429,710
    
    
    Notes 2 and 8
 Cash and Cash Equivalents
  Restricted Cash
  F-11




---



##### Table of Contents



Marketable Securities
          F-12




---



##### Table of Contents



Unrealized
    
    
    Estimated Fair(Loss)
    
    
    ValueAs of June 30, 2009Available for sale securities
    
    $
    
    
    
    $
    520,000Long-term marketable securities
    
    $
    
    
    
    $
    130,000Total marketable securities
    
    $
    
    
    
    $
    650,000As of June 30, 2008Available for sale securities
    
    $
    
    
    
    $
    1,100,000
 Accounts Receivable
    F-13




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##### Table of Contents



Inventory
  June 30,2009
    
    
    2008Finished goods
    
    $
    522,599
    
    
    $
    87,393Raw materials
    
    
    217,415
    
    
    
    17,022Total inventory
    
    $
    740,014
    
    
    $
    104,415
 Deposit with Manufacturer
 ®
 Property and Equipment
  June 30,2009
    
    
    2008Equipment
    
    $
    357,135
    
    
    $
    159,490Software
    
    
    82,952
    
    
    
    60,925Accumulated depreciation
    
    
    (165,346
    )
    
    
    (156,856
    )Property and equipment, net
    
    $
    274,741
    
    
    $
    63,559
 F-14




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##### Table of Contents



Intangible Assets
 Goodwill and Other Intangible Assets
  June 30,2009
    
    2008Patent costs
    
    $
    2,255,696
    
    
    $
    2,246,074Trademark costs
    
    
    132,712
    
    
    
    123,526Amortization of patents & trademarks
    
    
    (213,127
    )
    
    
    (99,437
    )Intangible assets, net
    
    $
    2,175,281
    
    
    $
    2,270,163
 Patents
  Impairment of Long-Lived Assets
 Accounting for the Impairment or Disposal of Long-Lived Assets
  F-15




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##### Table of Contents



Concentration of Credit Risk
 Disclosure of Information About Financial
Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations
of Credit Ris
 Derivative Financial Instruments
 Accounting for Derivative Financial Instruments and Hedging Activities,
 Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Companys Own Stock, Meaning of Conventional Convertible Debt Instrument in Issue No. 00-19 Accounting for Derivative Instruments and Hedging Activities
 Warrants
  F-16




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##### Table of Contents



For the yearendedJune 30,2009Investor warrants issued March 16, 2009
    
    $
    120,497Investor warrants issued March 26, 2009
    
    
    270,716Investor warrants issued April 6, 2009
    
    
    1,436,566Day-one derivative loss:Investor warrants issued April 6, 2009
    
    
    (2,605,466
    )Total change in fair value of derivative liability
    
    $
    (777,687
    )
  1.
    
    The market price of our common stock, which significantly affects the fair value of our
derivative financial instruments, experienced material price fluctuations. To illustrate,
the closing price of our common stock decreased from $0.775 on March 31, 2009 to $0.67 on
June 30, 2009. The lower stock price had the effect of significantly decreasing the fair
value of our derivative liabilities and, accordingly, we were required to adjust the
derivatives to these lower values with charges to derivative income.
 2.
    
    In connection with our accounting for the April 6, 2009 financing, we encountered a
day-one derivative loss related to the recognition of derivative instruments arising from
the arrangement. That means that the fair value of the warrants exceeded the proceeds that
we received from the arrangement and we were required to record a loss to record the
derivative financial instruments at fair value. The loss that we recorded amounted to
$2,605,466. We did not enter into any other financing arrangements during the periods
reported that reflected day-one loss.
  Warrants issued March 16, 2009
    
    
    3,925,000Warrants issued March 26, 2009
    
    
    9,115,000Warrants issued April 6, 2009
    
    
    4,460,000Total warrants issued for the purchase of common stock
    
    
    17,500,000
 Convertible Debt Instruments:
 F-17




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##### Table of Contents



Accounting for Contingencies .
 Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios, Application of Issue No. 98-5 to Certain
Convertible Instruments
 Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants
 Revenue Recognition
  ®
 F-18




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##### Table of Contents



Shipping and Handling
  Research and Development Costs
  Advertising Costs
  Stock-Based Compensation
 Share-Based Payment
   Accounting for Equity Instruments That Are Issued to Other Than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services
 F-19




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##### Table of Contents



1.
    
    risk-free interest rate of between 1.15 and 3.86 percent in fiscal 2009
and between 2.31 and 4.26 in fiscal year 2008.
 2.
    
    dividend yield of -0- percent in fiscal 2009 and 2008;
 3.
    
    expected life of 3 to 6 years in fiscal 2009 and 2008;
 4.
    
    a volatility factor of the expected market price of the Companys common stock
of 334 percent in fiscal 2009 and 74 percent in 2008.
 Income Taxes
  Loss Per Share
  Reclassification
  Segments of an Enterprise and Related Information
 Disclosures about Segments of an
Enterprise and Related Information,
 F-20




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##### Table of Contents



Comprehensive Income
 Reporting Comprehensive Income
 Effect of New Accounting Pronouncements
 Determining Whether an Instrument (or Embedded Feature) Is Indexed
to an Entitys Own Stock
  Note 3  Convertible Debentures
      F-21




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##### Table of Contents



Note 4  Capital Leases
   Cost
    
    $
    51,319Less accumulated amortization
    
    
    (1,711
    )Net carrying value
    
    $
    49,608
  Year ended June 30,
2010
    
    
    43,521Total minimum lease payments
    
    
    43,521Amount representing interest
    
    
    (2,031
    )Present value of net minimum lease payments
    
    $
    41,490
 F-22




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##### Table of Contents



Note 5  Line of Credit
  Note 6  Stockholders Equity
   Note 7  Stock Option Grants and Warrants
 Stock Option Grants
 Accounting for Equity Instruments That
Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services.
  F-23




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##### Table of Contents



Warrants
   WeightedAverageOptions
    
    
    Warrants
    
    
    Exercise PriceOutstanding and exercisable, June 30, 2007
    
    
    2,900,031
    
    
    
    
    7,681,382
    
    
    
    $
    2.01Granted
    
    
    2,805,000
    
    
    
    
    9,882,992
    
    
    
    $
    0.35Cancelled
    
    
    
    
    
    
    
    
    
    
    
    $
    Exercised
    
    
    (115,000
    )
    
    
    
    (1,433,083
    )
    
    
    $
    0.29Expired
    
    
    (1,955,666
    )
    
    
    
    (4,856,211
    )
    
    
    $
    0.68Outstanding and exercisable, June 30, 2008
    
    
    3,634,365
    
    
    
    
    11,275,080
    
    
    
    $
    0.37Granted
    
    
    5,652,000
    
    
    
    
    20,790,128
    
    
    
    $
    0.52Cancelled
    
    
    
    
    
    
    
    
    
    
    
    $
    Exercised
    
    
    (15,000
    )
    
    
    
    (9,128,564
    )
    
    
    $
    0.30Expired
    
    
    (610,942
    )
    
    
    
    (484,000
    )
    
    
    $
    0.50Outstanding and exercisable, June 30, 2009
    
    
    8,660,423
    
    
    
    
    22,452,644
    
    
    
    $
    0.54Options
    
    
    WarrantsYear ended June 30, 2008:Weighted average exercise price
    
    $
    0.45
    
    
    
    $
    0.35Weighted average remaining contractual life (years)
    
    
    9.2
    
    
    
    
    3.9Weighted average fair value of options and
warrants granted during 2008
    
    $
    0.38
    
    
    
    $
    0.30Year ended June 30, 2009:Weighted average exercise price
    
    $
    0.62
    
    
    
    $
    0.49Weighted average remaining contractual life (years)
    
    
    9.8
    
    
    
    
    3.0Weighted average fair value of options and
warrants granted during 2009
    
    $
    0.62
    
    
    
    $
    0.46
 F-24




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##### Table of Contents



Note 8  Common Stock and Warrant Offerings
   1.
    
    March 16, 2009: The issuance of 3,925,000 shares of common stock of the Company
at a purchase price of $0.20 per share and issued warrants exercisable for 3,925,000 shares
of our common stock with a strike price of $0.50. Gross proceeds received amounted to
$785,000. Total cash fees for this offering were $78,500.
 2.
    
    March 26, 2009: The issuance of 9,115,000 shares of common stock of the Company
at a purchase price of $0.20 per share and issued warrants exercisable for 9,115,000 shares
of our common stock with a strike price of $0.50. Gross proceeds received amounted to
$1,823,000. Total cash fees for this offering were $182,300.
 3.
    
    April 6, 2009: The issuance of 4,460,000 shares of common stock of the Company
at a purchase price of $0.20 per share and issued warrants exercisable for 4,460,000 shares
of our common stock with a strike price of $0.50. Gross proceeds received amounted to
$892,000. Total cash fees for this offering were $39,200.
   Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants,
 F-25




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##### Table of Contents



March 16, 2009
    
    
    March 26, 2009
    
    
    April 6, 2009Classification
    
    Allocation
    
    
    Allocation
    
    
    AllocationCommon stock
    
    $
    479,536
    
    
    $
    1,228,291
    
    
    $
    Paid in Capital
( Warrants)
    
    
    305,464
    
    
    
    594,709
    
    
    
    3,510,466Day-one derivative loss
    
    
    
    
    
    
    
    
    
    
    (2,605,466
    )Proceeds
    
    $
    785,000
    
    
    $
    1,823,000
    
    
    $
    905,000
  Commonsharesindexed to theplacementagent warrants
    
    
    Fair valueMarch 16, 2009
    
    
    392,500
    
    
    $
    100,009March 26, 2009
    
    
    911,500
    
    
    
    378,819April 6, 2009
    
    
    196,000
    
    
    
    154,272Total
    
    
    1,500,000
    
    
    $
    633,100
   March 16, 2009
    
    March 26, 2009
    
    April 6, 2009Trading market values
    
    $
    0.50
    
    
    $
    0.50
    
    
    $
    0.50Term (years)
    
    
    3
    
    
    
    3
    
    
    
    3Volatility
    
    
    151
    %
    
    
    151
    %
    
    
    151
    %Risk-free rate
    
    
    1.39
    %
    
    
    1.39
    %
    
    
    1.37
    %Dividends
    
    
    
    
    
    
    
    
    
    
    
   F-26




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##### Table of Contents



June 30, 2009Common stock and warrant offering:March 16, 2009 offering (warrants)
    
    $
    1,909,513March 26, 2009 offering (warrants)
    
    
    4,446,297April 6, 2009 offering (warrants)
    
    
    2,073,900$
    8,429,710Significant assumptions:Trading market values
    
    $
    0.67Term (years)
    
    
    2.7Volatility
    
    
    154
    %Risk-free rate
    
    
    1.64
    %Dividends
    
    
    
    Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants,
  June 30, 2009Classification
    
    AllocationCommon stock
    
    $
    1,256,842Paid in Capital
(Warrants)
    
    
    243,158Proceeds
    
    $
    1,500,000
 F-27




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##### Table of Contents



Commonsharesindexed to theplacementagent warrants
    
    Fair valueJune 30, 2009
    
    
    113,000
    
    
    $
    56,285
   June 30, 2009Trading market values
    
    $
    0.67Term (years)
    
    
    3Volatility
    
    
    151
    %Risk-free rate
    
    
    1.64
    %Dividends
    
    
    
 Note 9  Income Taxes
   2009
    
    
    2008Current taxes
    
    $
    
    
    
    $
    Deferred taxes
    
    
    (2,444,000
    )
    
    
    46,000Less: valuation allowance
    
    
    2,444,000
    
    
    
    (46,000
    )Net income tax provision (benefit)
    
    $
    
    
    
    $
    
  2009
    
    2008Federal statutory income tax rate
    
    
    (34.00
    %)
    
    
    (34.00
    %)State income taxes, net of federal benefit
    
    
    (3.06
    %)
    
    
    (3.06
    %)Tax return to provision true-up
    
    
    1.97
    %
    
    
    36.13
    %Permanent differences  interest on convertible debt
    
    
    1.46
    %
    
    
    
 F-28




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##### Table of Contents



2009
    
    2008 change in derivative liability
    
    
    3.30
    %
    
    
     stock option compensation
    
    
    3.50
    %
    
    
    2.93
    % other
    
    
    0.20
    %
    
    
    0.25
    %Increase/(Decrease) in valuation allowance
    
    
    26.63
    %
    
    
    (2.25
    %)Net income tax provision (benefit)
    
    
    
    
    
    
    
  2009
    
    
    2008Deferred tax assets:Federal and state net operating loss carryovers
    
    $
    5,366,000
    
    
    $
    2,767,000Contribution carryover
    
    
    1,400
    
    
    
    249,000Deferred debt offering costs
    
    
    300
    
    
    
    163,000Stock option compensation
    
    
    381,000
    
    
    
    148,000Accrued interest & allowance for returns
    
    
    71,000
    
    
    
    114,000Deferred tax asset
    
    $
    5,819,700
    
    
    $
    3,441,000Deferred tax liabilities:Deferred debt offering costs
    
    $
    
    
    
    $
    (72,000
    )Deferred expenses
    
    
    (3,700
    )
    
    
    Patents and trademarks
    
    
    (685,000
    )
    
    
    (720,000
    )Property & equipment
    
    
    (38,000
    )
    
    
    Total deferred liabilities
    
    
    (726,700
    )
    
    
    (792,000
    )Net deferred tax asset
    
    
    5,093,000
    
    
    
    2,649,000Less: valuation allowance
    
    
    (5,093,000
    )
    
    
    (2,649,000
    )Deferred tax liability
    
    $
    
    
    
    $
    
  Accounting for Uncertainty in Income Taxes
 F-29




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##### Table of Contents



Note 10  Commitments and Contingencies

     Corporate Office
      Year ending June 30,2010
    
    
    306,6312011
    
    
    316,3152012
    
    
    307,4522013
    
    
    108,094Total future minimum Lease payments
    
    $
    1,038,492
 Warehouse Facilities
  Capital Lease
  F-30




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##### Table of Contents



Other Commitments
   Payments due by periodLess thanContractual Obligations
    
    Total
    
    1 year
    
    1-3 years
    
    3-5 yearsConvertible Debt Obligations
(subject to conversion to common
stock)
    
    
    1,145,000
    
    
    
    1,145,000Capital Lease Obligations
    
    
    43,522
    
    
    
    43,522Operating Lease Obligations
    
    
    1,038,492
    
    
    
    306,631
    
    
    
    623,767
    
    
    
    108,094Distributor Commitments
    
    
    1,195,000
    
    
    
    1,195,000Total
    
    
    3,422,014
    
    
    
    2,690,153
    
    
    
    623,767
    
    
    
    108,094
 Note 11  Interim Financial Results (Unaudited)
  
 YearQuarter
    
    endedYear ended June 30, 2009
    
    First
    
    Second
    
    Third
    
    Fourth
    
    June 30, 2009Sales, net
    
    $
    1,273.5
    
    
    $
    578.5
    
    
    $
    655.1
    
    
    $
    1,634.2
    
    
    $
    4,141.3Gross profit
    
    
    1,038.0
    
    
    
    450.9
    
    
    
    529.9
    
    
    
    1,269.7
    
    
    
    3,288.5Net income (loss)
    
    $
    (131.1
    )
    
    $
    (566.0
    )
    
    $
    (3,100.3
    )
    
    $
    (5,317.2
    )
    
    $
    (9,114.6
    )Per common share:Loss per share, basic
and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.12
    )
    
    $
    (0.11
    )
    
    $
    (0.23
    )
 YearQuarter
    
    endedYear ended June 30, 2008
    
    First
    
    Second
    
    Third
    
    Fourth
    
    June 30, 2008Sales, net
    
    $
    807.3
    
    
    $
    796.4
    
    
    $
    783.9
    
    
    $
    812.6
    
    
    $
    3,200.2Gross profit
    
    
    630.0
    
    
    
    610.4
    
    
    
    609.1
    
    
    
    655.3
    
    
    
    2,504.8Net income (loss)
    
    $
    (298.7
    )
    
    $
    (401.8
    )
    
    $
    (604.7
    )
    
    $
    (749.2
    )
    
    $
    (2,054.4
    )Per common share:Loss per share, basic
and diluted
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.03
    )
    
    $
    (0.03
    )
    
    $
    (0.09
    )
 Note 12  Subsequent Events
  F-31




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Note 13  Litigation
   F-32




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F-33