UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q




(Mark
One)





x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934


For the
quarterly period ended September 30,
2009





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934





Commission File No. 333-140633





UKARMA
CORPORATION





(Exact
name of registrant as specified in it charter)





Nevada
            
            68-048-2472(State
      or other jurisdiction of incorporation or
              organization)
            
            (IRS
      Employer Identification No.)





499
North Canon Drive, Suite 308


Beverly
Hills, CA 90210





(Address
of principal executive offices)




(310)
998-8909





(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 for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No  ̈





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





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  ̈
              
              Non-Accelerated
      Filer  ̈Accelerated
      Filer  ̈
              
              Smaller
      Reporting Company x





Indicate
by check market whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes  ̈ No x




APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each issuer's classes of common stock, as of
the latest practicable date: 52,794,482 issued and outstanding as of November
20, 2009.





UKARMA
CORPORATION


TABLE OF
CONTENTS


TO
QUARTERLY REPORT ON FORM 10-Q


FOR
QUARTER ENDED SEPTEMBER 30, 2009




PagePART
      I
                
                FINANCIAL
      INFORMATIONItem
      1.
                
                Financial
      Statements
                
                2Item
      2.
                
                Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                
                3Item
      3.
                
                Quantitative
      and Qualitative Disclosures About Market Risk
                
                8Item
      4.
                
                Controls
      and Procedures
                
                8PART
      II
                
                OTHER
      INFORMATIONItem
      1.
                
                Legal
      Proceedings
                
                9Item
      2.
                
                Unregistered
      Sales of Equity Securities and Use of Proceeds
                
                9Item
      3.
                
                Defaults
      Upon Senior Securities
                
                9Item
      4.
                
                Submission
      of Matters to a Vote of Security Holders
                
                9Item
      5.
                
                Other
      Information
                
                9Item
      6.
                
                Exhibits
                
                10Signatures
                
                11


1


PART
I - FINANCIAL INFORMATION




ITEM 1.
            FINANCIAL
      STATEMENTS




Our
financial statements start on the following page, beginning with page
F-1.




2




UKARMA
CORPORATION
 
 BALANCE
SHEETS
 
 As ofSeptember 30,
                    
                    
                    December 31,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Audited)ASSETSCurrent
      AssetsCash
                    
                    $
                    2,412
                    
                    
                    $
                    1,781Accounts
      receivable
                    
                    
                    -
                    
                    
                    
                    309Due
      from stockholder
                    
                    
                    13,906Other
      receivable
                    
                    
                    -
                    
                    
                    
                    26,691Prepaid
      expenses
                    
                    
                    67,380
                    
                    
                    
                    70,863Inventory
                    
                    
                    18,475
                    
                    
                    
                    22,327Total
      Current Assets
                    
                    
                    102,173
                    
                    
                    
                    121,971Property
      and equipment, net of accumulated depreciationof $8,464 for
      2009, and $4,689 for 2008
                    
                    
                    19,520
                    
                    
                    
                    391,514Other
      AssetsProduction
      costs, net of accumulated amortization of $304,910 for 2009, and $212,047
      for 2008
                    
                    
                    314,175
                    
                    
                    
                    407,038Deposit
                    
                    
                    -
                    
                    
                    
                    28,380Patent
                    
                    
                    10,358
                    
                    
                    
                    10,358Total
      Other Assets
                    
                    
                    324,533
                    
                    
                    
                    445,776TOTAL
      ASSETS
                    
                    $
                    446,226
                    
                    
                    $
                    959,261LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      LiabilitiesAccounts
      payable
                    
                    $
                    304,585
                    
                    
                    
                    196,161Accrued
      expenses
                    
                    
                    113,940
                    
                    
                    
                    66,677Refundable
      good faith deposit
                    
                    
                    75,000
                    
                    
                    
                    -Notes
      payable to unrelated parties, including accrued interest
      of  $161 for 2009
                    
                    
                    10,661
                    
                    
                    
                    -Notes
      payable to related party, including accrued interest of  $22,637
      for 2008
                    
                    
                    -
                    
                    
                    
                    207,768Total
      Current Liabilities
                    
                    
                    504,186
                    
                    
                    
                    470,606Stockholders'
      EquityCommon
      stock, $0.001 par value; 100,000,000 shares authorized; 52,794,482 and
      29,768,292  shares issued and outstanding in 2009 and 2008,
      respectively
                    
                    
                    52,795
                    
                    
                    
                    29,768Preferred
      stock, $0.001 par value; 20,000,000 shares authorized, none
      issued
                    
                    
                    -
                    
                    
                    
                    -Paid-in
      capital
                    
                    
                    7,484,723
                    
                    
                    
                    6,548,088Accumulated
      deficit
                    
                    
                    (7,595,478
                    )
                    
                    
                    (6,089,201
                    )Total
      Stockholders' Equity (Deficit)
                    
                    
                    (57,960
                    )
                    
                    
                    488,655TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                    
                    $
                    446,226
                    
                    
                    $
                    959,261
 
 See notes
to interim unaudited financial statements
  F-1
 
 UKARMA
CORPORATION
 STATEMENTS
OF OPERATIONS (Unaudited)
 For
the three months and nine months ended September 30, 2009 and 2008
 
 
 For three months ended
                  
                  
                  For nine months endedSeptember 30,
                  
                  
                  September 30,2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Sales
                  
                  $
                  2,796
                  
                  
                  $
                  70,215
                  
                  
                  $
                  20,619
                  
                  
                  $
                  75,637Cost
      of  Sale
                  
                  
                  82
                  
                  
                  
                  3,340
                  
                  
                  
                  1,226
                  
                  
                  
                  3,614Gross
      Profit
                  
                  
                  2,714
                  
                  
                  
                  66,875
                  
                  
                  
                  19,393
                  
                  
                  
                  72,023Selling,
      General and Administrative Expenses
                  
                  
                  751,631
                  
                  
                  
                  511,023
                  
                  
                  
                  1,505,698
                  
                  
                  
                  2,079,374Operating
      Loss
                  
                  
                  (748,917
                  )
                  
                  
                  (444,148
                  )
                  
                  
                  (1,486,305
                  )
                  
                  
                  (2,007,351
                  )Other
      Income (Expenses)Interest
      Expense
                  
                  
                  (4,605
                  )
                  
                  
                  (2,769
                  )
                  
                  
                  (19,172
                  )
                  
                  
                  (9,182
                  )Total
      Other Income (Expense)
                  
                  
                  (4,605
                  )
                  
                  
                  (2,769
                  )
                  
                  
                  (19,172
                  )
                  
                  
                  (9,182
                  )Net
      Loss before Income Taxes
                  
                  
                  (753,522
                  )
                  
                  
                  (446,917
                  )
                  
                  
                  (1,505,477
                  )
                  
                  
                  (2,016,533
                  )Provision
      for Income Taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  800
                  
                  
                  
                  800Net
      Loss
                  
                  $
                  (753,522
                  )
                  
                  $
                  (446,917
                  )
                  
                  $
                  (1,506,277
                  )
                  
                  $
                  (2,017,333
                  )Loss
      Per Share-Basic and Diluted
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.09
                  )Weighted
      Average Number of Shares
                  
                  
                  52,475,461
                  
                  
                  
                  25,395,786
                  
                  
                  
                  40,662,031
                  
                  
                  
                  22,999,257
 
 See notes
to interim unaudited financial statements
  F-2
 
 UKARMA
CORPORATION
 STATEMENTS
OF CASH FLOWS (Unaudited)
 For
the nine months ended September 30, 2009, and 2008
 
 
 For nine months endedSeptember 30,2009
                      
                      
                      2008Cash
      Flow from Operating Activities:Net
      loss
                      
                      $
                      (1,506,277
                      )
                      
                      $
                      (2,017,333
                      )Adjustment
      to reconcile net loss tonet
      cash used by operating activities:Depreciation
                      
                      
                      3,775
                      
                      
                      
                      1,841Amortization
      of production costs
                      
                      
                      92,863
                      
                      
                      
                      81,700Abandonment
      of leasehold improvements
                      
                      
                      492,119Issuance
      of stock for services
                      
                      
                      304,791
                      
                      
                      
                      486,704Issuance
      of stock for loan fee
                      
                      
                      21,500
                      
                      
                      
                      -Stock
      option expenses
                      
                      
                      147,405
                      
                      
                      
                      180,604Stock
      warrant expenses
                      
                      
                      -
                      
                      
                      
                      14,440(Increase)
      Decrease in:Trade
      accounts receivable
                      
                      
                      309
                      
                      
                      
                      (1,965
                      )Payroll
      tax refund receivable
                      
                      
                      7,159
                      
                      
                      
                      (7,159
                      )Employee
      advances
                      
                      
                      -
                      
                      
                      
                      -Prepaid
      expenses
                      
                      
                      3,483
                      
                      
                      
                      (24,211
                      )Inventory
                      
                      
                      3,852
                      
                      
                      
                      3,614Capitalized
      production costs
                      
                      
                      -
                      
                      
                      
                      75,017Deposit
                      
                      
                      28,380
                      
                      
                      
                      (28,057
                      )Increase
      (Decrease) in:Accounts
      payable
                      
                      
                      108,424
                      
                      
                      
                      152,022Accrued
      expenses
                      
                      
                      196,767
                      
                      
                      
                      1,771Refundable
      good faith deposit
                      
                      
                      75,000
                      
                      
                      
                      -Net
      Cash Used by Operating Activities
                      
                      
                      (20,450
                      )
                      
                      
                      (1,081,012
                      )Cash
      Flow from Investing Activities:Due
      from stockholder
                      
                      
                      5,626
                      
                      
                      
                      -Purchase
      of property and equipment
                      
                      
                      (123,900
                      )
                      
                      
                      (130,730
                      )Net
      Cash Used by Investing Activities
                      
                      
                      (118,274
                      )
                      
                      
                      (130,730
                      )Cash
      Flow from Financing Activities:Proceeds
      from notes payable
                      
                      
                      30,854
                      
                      
                      
                      -Repayments
      to notes payable
                      
                      
                      (30,499
                      )
                      
                      
                      (35,001
                      )Proceeds
      from sale of stock
                      
                      
                      139,000
                      
                      
                      
                      859,750Net
      Cash Provided by Financing Activities
                      
                      
                      139,355
                      
                      
                      
                      824,749Net
      Increase (Decrease) in Cash
                      
                      
                      631
                      
                      
                      
                      (386,993
                      )Cash
      Balance at Beginning of Year
                      
                      
                      1,781
                      
                      
                      
                      483,564Cash
      Balance at End of Year
                      
                      $
                      2,412
                      
                      
                      $
                      96,571Supplemental
      Disclosures:Interest
      Paid
                      
                      $
                      44,473
                      
                      
                      $
                      -Taxes
      Paid
                      
                      $
                      800
                      
                      
                      $
                      800Noncash
      Investment and Financing Activities:Conversion
      of notes payable and accrued interest into common stock
                      
                      $
                      202,735
                      
                      
                      $
                      -Conversion
      of accrued compensation into common stock
                      
                      $
                      144,231
                      
                      
                      $
                      -
 
 See notes
to interim unaudited financial statements
  F-3
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
 
 NOTE
1 – NATURE OF OPERATIONS
 
 uKarma
Corporation (“the Company”) was incorporated under the name of OM Capital
Corporation in the State of Nevada on June 26, 2001.  On April 30,
2004, the Company changed its name to uKarma Corporation.  In 2006,
the Company relocated its headquarter to the State of California and became a
California foreign corporation.
 
 The
Company develops and markets proprietary branded personal health and wellness
products, including fitness DVDs, nutraceuticals, and mind, body, and spirit
goods and services, for fitness and health-conscious consumers.  The
Company’s product lines target the rapidly growing tens of millions that are
seeking to enrich their physical, spiritual, and mental wellness.
 
 Through
infomercials and other marketing initiatives, the Company launched its initial
products.  The goal of the infomercials is to generate initial working
capital, and build a community of loyal customers.  From there, the
Company will expand its product offerings into proprietary branded products
primarily within the fitness and wellbeing multimedia and nutraceutical
markets.  As the brand image builds, the Company intends to extend its
brand systematically to other complementary consumer products that meet its
stringent product guidelines and are consistent with its message of “total
health and happiness for oneself and others.”
 
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”).
 
 Presentation of Interim
Information: The financial information at September 30, 2009 and for the
three and nine months ended September 30, 2009 and 2008 is unaudited but
includes all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of the financial
information set forth herein, in accordance with U.S. GAAP for interim financial
information. Accordingly, such information does not include all of the
information and footnotes required by U.S. GAAP for annual financial statements.
For further information, please refer to the financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2008.
 
 The
balance sheet as of December 31, 2008 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by U.S. GAAP for complete financial
statements.
 
 The
results for the nine months ended September 30, 2009 may not be indicative of
results for the year ending December 31, 2009 or any future
periods.
 
 Use of Estimates: The
preparation of the accompanying financial statements in conformity with U.S.
GAAP requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.
  F-4
  
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 Revenue Recognition:
The Company generally recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. In instances where the final acceptance of the
product is specified by the customer, revenue is deferred until all acceptance
criteria have been met. Customers’ prepayments are deferred until products are
shipped and accepted by the customers. No provisions were established for
estimated product returns and allowances based on the Company’s historical
experience.
 
 Cash Equivalents: For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
 
 Concentration of
Cash: The Company places its cash and cash equivalents with high quality
financial institutions. At times, cash balances may be in excess of the FDIC’s
insurance limits. Management considers the risk to be minimal.
 
 Inventories:
Inventories consist of finished goods and are stated at the lower of cost or
market, using the first-in, first-out method.
 
 Property and
Equipment: Property and equipment are valued at cost. Maintenance and
repair costs are charged to expenses as incurred. Depreciation is computed on
the straight-line method based on the estimated useful lives of the assets,
generally 5 to 7 years. Depreciation expense for the three months ended
September 30, 2009 and 2008 was $1,277 and $809, respectively. Depreciation
expense for the nine months ended September 30, 2009 and 2008 was $3,775 and
$1,841, respectively.
 
 Patents: The Company
capitalizes patent costs as incurred, excluding costs associated with Company
personnel, relating to patenting its technology. The majority of capitalized
costs represent legal fees related to a patent application. If the Company
elects to stop pursuing a particular patent application or determines that a
patent application is not likely to be awarded or elects to discontinue payment
of required maintenance fees for a particular patent, the Company, at that time,
records as expense the capitalized amount of such patent application or patent.
Awarded patents will be amortized over the shorter of the economic or legal life
of the patent.
 
 Fair Value of Financial
Instruments: All financial instruments are carried at amounts that
approximate estimated fair value.
 
 Income Taxes: Income
tax expense is based on pretax financial accounting income. Deferred tax assets
and liabilities are recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and their reported
amounts.
 
 Advertising Costs:
All costs associated with advertising and promoting the Company’s products and
services are expensed as incurred. Advertising expense for the three months
ended September 30, 2009 was a negligible amount, and for the three months ended
September 30, 2008 was $8,025. Advertising expense for the nine months ended
September 30, 2009 and 2008 was $15,987 and $312,011,
respectively.
  F-5
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 Net Loss Per Share:
Basic net loss per share includes no dilution and is computed by dividing net
loss available to common stockholders by the weighted average number of common
stock outstanding for the period.  Diluted net loss per share does not
differ from basic net loss per share since potential shares of common stock are
anti-dilutive for all periods presented.  Potential shares consist of
restricted common stock, stock warrants, and stock options.
 
 Stock Based
Compensation:  Effective January 1, 2006, the Company adopted
the fair value recognition provisions of FASB Statement No. 123(R),
“Shares-Based Payment” (SFAS 123R), using the modified-prospective-transition
method.  Under that transition method, compensation cost recognized in
2006 includes: (a) compensation cost for all share-based payments granted prior
to, but not yet vested as of, January 1, 2006 based of the grant date fair value
calculated in accordance with the original provisions of SFAS 123, and (b)
compensation cost for all share-based payments granted subsequent to December
31, 2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R).  As a result of adopting SFAS 123(R) on
January 1, 2006, the Company reorganized pre-tax compensation expense related to
stock options of $47,947 and $147,405 for three months and nine months ended
September 30, 2009, respectively.
 
 The
Company accounts for stock issued to non-employees in accordance with the
provisions of SFAS No. 123R and the EITF Issue No. 00-18, “Accounting For Equity Instruments
That Are Issued To Other Than Employees for Acquiring, Or In Conjunction With
Selling, Goods Or Services.” SFAS No. 123R states that equity instruments
that are issued in exchange for the receipt of goods or services should be
measured at the fair value of the consideration received or the fair value of
the equity instruments issued, whichever is more reliably measurable. Under the
guidance in Issue 00-18, the measurement date occurs as of the earlier of (a)
the date at which a performance commitment is reached or (b) absent a
performance commitment, the date at which the performance necessary to earn the
equity instruments is complete (that is, the vesting date).
 
 New Accounting
Pronouncements: In April 2009, the FASB issued three Staff Positions
(FSPs): (i) FSP FAS 157-4, “Determining Fair Value When the Volume and Level of
Activity for the Asset or Liability Have Significantly Decreased and Identifying
Transactions That Are Not Orderly”, (ii) FSP FAS 107-1 and APB 28-1, “Interim
Disclosures about Fair Value of Financial Statements,” and (iii) FSP FAS 115-2
and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary
Impairments.” The pronouncements are intended to provide additional application
guidance and enhance disclosures regarding fair value measurements and
impairments of securities, but they will not be applicable to the current
operations of the Company. Therefore a description and the impact on the
Company’s operations and financial position for each of the pronouncements above
have not been disclosed.
  In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles – a replacement of FASB Statements No.
162”. The statement establishes the Accounting Standards Codification TM(Codification) as the source of authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. Under the Codification, all of
its content will carry the same level of authority. This statement is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this statement did not have a material
impact on the Company’s financial position or results of
operations.
  F-6
  UKARMA
CORPORATION
  NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
  NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
  In June
2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation
No. 46(R).”  The statement changes the approach to determining
the primary beneficiary of a variable interest entity (VIE) and requires
companies to more frequently assess whether they must consolidate VIEs. This new
standard is effective for fiscal years beginning after November 15, 2009.
The Company is currently assessing the potential impacts, if any, on its
financial statements.
  In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140.” The statement
improves the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. This new standard is
effective for fiscal years beginning after November 15, 2009. The Company is
currently assessing the potential impacts, if any, on its financial
statements.
  In May
2009, the FASB issued SFAS No. 165, “Subsequent Events.” The statement establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. This new standard is effective for fiscal years or
interim periods after June 15, 2009. The adoption of this statement did not have
a material impact on the Company’s financial position or results of
operations.
 
 NOTE
3 – GOING CONCERN
 
 The
Company's financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the settlement of liabilities
and commitments in the normal course of business.  In the near term,
the Company expects operating costs to continue to exceed funds generated from
operations.  As a result, the Company expects to continue to incur
operating losses, and the operations in the near future are expected to continue
to use working capital.
 
 Management
of the Company is actively increasing marketing efforts to increase revenues.
The ability of the Company to continue as a going concern is dependent on its
ability to meet its financing arrangement and the success of its future
operations. The financial statements do not include any adjustments that might
be necessary if the Company is unable to continue as a going
concern.
  F-7
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE
4 – PREPAID EXPENSES
 
 Prepaid
expenses consisted of the following:
 
 September 30,
                    
                    
                    December 31,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Audited)Prepaid
      Royalty
                    
                    $
                    67,380
                    
                    
                    $
                    68,581Prepaid
      Legal
                    
                    
                    -
                    
                    
                    
                    2,282Total
      Prepaid Expenses
                    
                    $
                    67,380
                    
                    
                    $
                    70,863
 
 On April
25, 2008, the Company entered into an agreement with a coauthor for its diet and
nutrition book that it is self-publishing and plans to market directly to
customers.  Pursuant to this agreement, the Company paid the coauthor
a $10,000 advance against future royalties.  The Company will pay the
coauthor a 5% royalty if uKarma acts as the publisher or a 2 1⁄2% royalty if
uKarma engages a third party publisher after the $10,000 advance is
recouped.
 
 On March
26, 2008, the Company entered into an agreement with an author to write a book
related to diet and nutrition that the Company plans to self-publish and market
directly to consumers. Pursuant to the agreement, the author will be paid a
$40,000 advance on royalties with the following arrangement: $15,000 payable
upon execution of the agreement; $15,000 payable on or before the completion and
delivery of the first 50% of the book; and $10,000 on full completion, delivery,
and acceptance of the book.  The $40,000 advance on royalties is based on
the first 50,000 books sold. The author will receive a 5% royalty on sales above
50,000 books sold where the Company acts as the publisher and 2 1/2% royalty on
sales above 50,0000 books sold if the Company engages a third party
publisher.  As of September 30, 2009, no advance payment has been
paid.
 
 On April
19, 2006, the Company entered into an agreement with a consultant to provide
consulting and advisory services for the Company, to appear in the Company’s
yoga, health, and wellness film productions, to assist in scriptwriting for the
projects such as classes, interviews and introductions, to participate in the
projects rehearsals, and to assist in marketing and promoting the projects.
Accordingly, the Company will pay a royalty of 8% on the first $300,000 and 10%
on above $300,000 on all gross revenue, net of returns, refunds, chargebacks,
taxes, and shipping and handling charges. As of September 30, 2009, there is a
balance of $57,380 after advancing $70,000 and deducting royalties on the 2009
sales. Future royalty obligations will be deducted from the current
balance.
  F-8
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE
5 – PROPERTY AND EQUIPMENT
 
 Property
and equipment consisted of the following:
 
 September 30,
                    
                    
                    December 31,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Audited)Furniture
      & Fixtures
                    
                    $
                    15,459
                    
                    
                    $
                    13,721Machinery
      & Equipment
                    
                    
                    12,525
                    
                    
                    
                    12,525Studio
      Leasehold Improvements
                    
                    
                    -
                    
                    
                    
                    369,95727,984
                    
                    
                    
                    396,203Accumulated
      Depreciation
                    
                    
                    (8,464
                    )
                    
                    
                    (4,689
                    )Property
      and Equipment, net
                    
                    $
                    19,520
                    
                    
                    $
                    391,514
 
 NOTE
6 – PRODUCTION COSTS
 
 The
Company capitalized costs incurred for recording seven fitness videos’ master
copies.  As of September 30, 2009, total costs of $619,085 were
capitalized.  All costs consisted of in-production costs
only.
 
 Starting
in the second quarter of 2007, the costs were amortized on a straight-line
method over the estimated life of the recorded performances, which is five
years.  The Company recorded an amortization expense of $30,954 and
$30,955 for the three months ended September 30, 2009 and 2008, respectively.
The Company recorded an amortization expense of $92,863 and $81,700 for the nine
months ended September 30, 2009 and 2008, respectively.
 
 NOTE
7 – PATENT
 
 The
Company filed for a patent for three proprietary yoga mats, which it believes
provide unique functions and benefits compared to yoga mats currently in the
market.  Through to date, the patent is still pending for
approval.
 
 NOTE
8 – GOOD FAITH DEPOSIT FOR MERGER AND ACQUISITION
 
 On
October 19, 2009, the Company and its wholly owned subsidiary, GCC Merger Sub
Corporation (“Merger Sub”), entered into a Merger Agreement with Galen Capital
Corporation (“GCC”) dated as of  October 15, 2009
(“Agreement”).  This followed a previously executed Letter of Intent
between the Company and GCC dated June 11, 2009.
  Under the
Agreement, Merger Sub would merge with GCC such that following the merger
(“Merger” or “Transaction”), GCC would be a wholly owned subsidiary of the
Company.  As consideration for the transaction, the Company would
issue to GCC security holders that number of shares of common stock on a fully
diluted basis (“Common Shares”) such that following such issuance, GCC security
holders would hold 95% of the outstanding Company Common Shares on a fully
diluted basis.  GCC common stock would be exchanged for Company Common
Shares.  GCC convertible preferred stock, options, and warrants would
be exchanged for equivalent Company preferred stock, options, and
warrants.
  In
addition, GCC has agreed to pay Company an amount equal to $275,000 (“Cash
Payment”). Through date of this report, $150,000 of the Cash Payment has already
been paid to uKarma as a non-refundable deposit along with an $11,000 advance
for the Company’s third quarter accounting fees.
  F-9
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE
9 – ACCRUED EXPENSES
 
 Accrued
expenses consisted of the following:
 
 September 30,
                      
                      
                      December 31,2009
                      
                      
                      2008(Unaudited)
                      
                      
                      (Audited)Accrued
      Professional Fees
                      
                      $
                      28,200
                      
                      
                      $
                      15,000Accrued
      Salaries
                      
                      
                      84,140
                      
                      
                      
                      41,404Employee
      Reimbursable
                      
                      
                      -
                      
                      
                      
                      6,955Accrued
      Sales Tax
                      
                      
                      -
                      
                      
                      
                      18Accrued
      Income Tax
                      
                      
                      1,600
                      
                      
                      
                      800Others
                      
                      
                      -
                      
                      
                      
                      2,500Total
      Accrued Expenses
                      
                      $
                      113,940
                      
                      
                      $
                      66,677
 
 NOTE
10 – NOTES PAYABLE
 
 The notes
payable to unrelated parties bear interest at 6% per annum and are due on their
one year anniversaries in May 2010 and September 2010. As of September 30, 2009,
the balance was $10,661 including accrued interest of $161.
 
 During
the nine months ended September 30, 2009, a notes payable to a related party of
$202,735, including accrued interest of $27,749, was converted into shares of
the Company’s common stock. As of December 31, 2008, the balance was $207,768,
including accrued interest of $22,637.
 
 NOTE
11 – STOCKHOLDERS’ EQUITY
 
 During
the nine months ended September 30, 2009, the Board of Directors of the Company
approved the issuance of an aggregate 3,639,653 shares of Company’s common stock
to various providers in consideration of their services to the Company. 
The shares were valued and charged to operations based on the opening trading
price on the grant date, or $304,791 in the aggregate.
 
 During
the nine months ended September 30, 2009, the Board of Directors of the Company
approved the issuance of an aggregate 17,348,271 restricted shares of common
stock to its Chief Executive Officer in consideration for cancellation of debt
and deferred and accrued compensation owed by the Company to the CEO pursuant to
a Conversion Agreement entered into between the Company and the CEO on June 11,
2009.  The shares were valued based on the opening bid price on the
grant date, or $346,966 in the aggregate.
 
 Through
September 30, 2009, the Company received $139,000 and sold 1,288,266 shares of
the Company’s common stock at a price of $0.06 to $0.15 per share in a private
placement offering.
 
 On
September 17, 2009, the Board of Directors of the Company approved the issuance
of an aggregate 250,000 restricted shares of common stock to an individual in
connection with a loan made by him to the Company. The shares were valued based
on the opening bid price on the grant date, or $7,500 in the
aggregate.
  F-10
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE
11 – STOCKHOLDERS’ EQUITY (continued)
 
 On August
17, 2009, the Board of Directors of the Company approved the issuance of an
aggregate 200,000 restricted shares of common stock to an individual in
connection with a loan made by him to the Company. The shares were valued based
on the opening bid price on the grant date, or $8,000 in the
aggregate.
 
 On June
11, 2009, the Board of Directors of the Company approved the issuance of an
aggregate 300,000 restricted shares of common stock to an individual in
connection with a loan made by him to the Company. The shares were valued based
on the opening bid price on the grant date, or $6,000 in the
aggregate.
 
 During
the nine months ended September 30, 2008, the Company received $859,750 and sold
2,456,428 shares of the Company’s common stock pursuant to the August 6, 2007
offering at a price of $0.35 per share.
 
 On
September 18, 2008, the Board of Directors approved to issue 90,000 shares of
common stock, valued at $0.20 per share or $18,000, to an outside consultant in
consideration of legal services rendered to the Company. As of September 30,
2008, the shares were not issued by the Company and it was accrued as
professional fees.
 
 NOTE
12 – NET LOSS PER SHARE
 
 The
following table sets forth the computation of basic and diluted net loss per
share:
 
 For
      three months ended
                  
                  
                  For
      nine months endedSeptember
      30,
                  
                  
                  September
      30,Numerator:
                  
                  2009
                  
                  
                  2008
                  
                  
                  2009
                  
                  
                  2008Net
      Loss
                  
                  $
                  (753,522
                  )
                  
                  $
                  (446,917
                  )
                  
                  $
                  (1,506,277
                  )
                  
                  $
                  (2,017,333
                  )Denominator:Weighted
      Average of Common Shares
                  
                  
                  52,475,461
                  
                  
                  
                  25,395,786
                  
                  
                  
                  40,662,031
                  
                  
                  
                  22,999,257Basic
      and Diluted Net Loss per Share
                  
                  $
                  (0.01
                  )
                  
                  $
                  (0.02
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.09
                  )
 
 As a
result of our net loss for the three and nine months ended September 30, 2009
and 2008, all common share equivalents would have been anti-dilutive and
therefore, have been excluded from the diluted net loss per share calculation.
The weighted average securities, consisting of stock options and warrants, that
were either out of the money or anti-dilutive from our calculation of diluted
net loss per share were approximately 11,777,000 and 11,777,000 for three months
ended September 30, 2009 and 2008, respectively. The weighted average
securities, consisting of stock options and warrants, that were either out of
the money or anti-dilutive from our calculation of diluted net loss per share
were approximately 11,777,000 and 11,747,000 for nine months ended September 30,
2009 and 2008, respectively.
  F-11
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE
13 – 2006 STOCK OPTION PLAN
 
 On
January 1, 2006, the Board of Directors approved and adopted the 2006 Stock
Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide the
issuance of non-qualified and/or incentive stock options to employees, officers,
directors, and consultants and other service providers.  Generally,
all options granted expire ten years from the date of grant.  All
options have an exercise price equal to or higher than the fair market value of
the Company’s stock on the date the options were granted.  It is the
policy of the Company to issue new shares for stock option exercised and
restricted stock, rather than issued treasury shares.  Options
generally vest over ten years.  The Plan reserves 7,500,000 shares of
common stock under the Plan and is effective through December 31,
2015.
 
 A summary
of the status of stock options issued by the Company as of September 30, 2009
and 2008 is presented in the following table:
 
 2009
                    
                    
                    2008Weighted
                    
                    
                    
                    
                    
                    WeightedNumber
                    
                    
                    Average
                    
                    
                    Number
                    
                    
                    Averageof
                    
                    
                    Exercise
                    
                    
                    of
                    
                    
                    ExerciseShares
                    
                    
                    Price
                    
                    
                    Shares
                    
                    
                    PriceOutstanding
      at beginning of year
                    
                    
                    5,295,000
                    
                    
                    $
                    0.20
                    
                    
                    
                    5,250,000
                    
                    
                    $
                    0.20Granted
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    45,000
                    
                    
                    
                    0.35Exercised/Expired/Cancelled
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -Outstanding
      at end of period
                    
                    
                    5,295,000
                    
                    
                    $
                    0.20
                    
                    
                    
                    5,295,000
                    
                    
                    $
                    0.20Exercisable
      at end of period
                    
                    
                    4,265,000
                    
                    
                    $
                    0.20
                    
                    
                    
                    3,166,667
                    
                    
                    $
                    0.20
 
 The fair
value of the stock option granted is estimated on the date of grant using the
Black-Scholes option valuation model. This model uses the assumptions listed in
the table below. Expected volatilities are based on the estimated volatility of
the Company’s stock. The risk-free rate for periods within the expected life of
the option is based on the U.S. Treasury yield curve in effect at the time of
grant.
 
 2009
                      
                      2008Weighted
      average fair value per option granted
                      N/A
                      
                      N/ARisk-free
      interest rate
                      N/A
                      
                      N/AExpected
      dividend yield
                      N/A
                      
                      N/AExpected
      lives
                      N/A
                      
                      N/AExpected
      volatility
                      N/A
                      
                      N/A
 
 The
following table sets forth additional information about stock options
outstanding at September 30, 2009:
 
 WeightedAverage
                      
                      
                      WeightedRange
      of
                      
                      
                      
                      
                      Remaining
                      
                      
                      AverageExercise
                      
                      Options
                      
                      
                      Contractual
                      
                      
                      Exercise
                      
                      
                      OptionsPrices
                      
                      Outstanding
                      
                      
                      Life
                      
                      
                      Price
                      
                      
                      Exercisable$0.20-$0.35
                      
                      
                      5,295,000
                      
                      
                      
                      6.01
                      
                      
                      $
                      0.20
                      
                      
                      
                      4,265,0005,295,000
                      
                      
                      
                      6.01
                      
                      
                      $
                      0.20
                      
                      
                      
                      4,265,000
  F-12
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS
 
 NOTE
13 – 2008 STOCK OPTION PLAN (continued)
 
 As of
September 30, 2009, there was $145,521 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under the
Plan.  That cost is expected to be recognized over a weighted average
period of 0.77 years.
 
 As of
September 30, 2008, there was $344,437 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under the
Plan.  That cost is expected to be recognized over a weighted average
period of 1.72 years.
 
 NOTE
14 – RELATED PARTY TRANSACTIONS
 
 During
the nine months ended September 30, 2008, the Company paid $23,500 to a director
for his consulting services to the Company. During the nine months ended
September 30, 2009, the Company paid $14,285 in 714,250 shares of the Company’s
common stock for his services to the Company.
 
 NOTE
15 – LEGAL DISPUTE
 
 On June
17, 2009, Jeffrey Fischer (the “Landlord”) filed a compliant against the Company
and Bill Glaser in the Los Angeles Superior Court in Los Angeles, California.
The Landlord claims that the Company owes back rent on the lease of its yoga and
fitness studio in Sherman Oaks, California and seeks to recover $222,859.97 and
evict the Company from the subject property. The Company denies liability and
contends that the Landlord never reimbursed the Company for a tenant improvement
allowance of $165,000 pursuant to the lease along with other breaches by the
Landlord.  The judge in the case denied a writ of attachment motion
that was submitted by the Landlord.  A settlement could not be reached
between the parties, and as such the Company vacated the property on September
30, 2009. The case is expected to be reassigned by the Court from an unlawful
detainer to a breach of contract dispute. At such time, the Company plans to
initiate legal action against the Landlord for full recovery of all tenant
improvements it incurred to date along with other damages.
  F-13




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




Forward
Looking Statements





Certain
statements in this Management’s Discussion and Analysis (“MD&A”), other than
purely historical information, including estimates, projections, statements
relating to our business plans, objectives and expected operating results, and
the assumptions upon which those statements are based, are “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act
of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. These forward-looking statements generally are
identified by the words “believe,” “project,” “expect,” “anticipate,”
“estimate,” “intend,” “strategy,” “plan,” “may,” “should,” “will,” “would,”
“will be,” “will continue,” “will likely result,” and similar expressions.
Forward-looking statements are based on current expectations and assumptions
that are subject to risks and uncertainties which may cause actual results to
differ materially from the forward-looking statements. We undertake no
obligation to update or revise publicly any forward-looking statements, whether
as a result of new information, future events, or otherwise.




As
used in this Form 10-Q, unless the context requires otherwise, “we” or “us” or
the “Company” or “uKarma” means uKarma Corporation, a Nevada
corporation.




Overview





We are an
early stage company that develops and markets proprietary branded personal
health and wellness products, including yoga and fitness DVDs, books and CDs,
nutraceuticals, and other products targeting the mass market and MBS
(Mind/Body/Spirit) consumers. We generated no revenues since inception through
the first quarter of 2007. We began to generate revenue in the second quarter of
2007. Accordingly, we are no longer a development stage since April 1,
2007.





Since
April 2004, we have dedicated our resources to developing our business plan and
producing items that will appeal to the “wellness” conscious consumer, such as
yoga and fitness DVDs. In May 2007, we began to market and sell our initial
Xflowsion products.We believe that our
success depends upon our ability to successfully produce, market, and distribute
such products along with having the necessary capital to operate and grow our
business. After test-marketing the initial version of our infomercial, we
recognized the need to shoot additional footage and to reedit it before airing
it again. Due to capital constraints, we had to wait until our registration
statement was declared effective by the Securities and Exchange Commission in
order to raise capital. Our registration statement was declared effective on
August 9, 2007, and we focused the remainder of 2007 raising capital and
preparing to update our infomercial and implement our marketing strategy in
2008.





We began
airing the reedited version of our Xflowsion infomercial nationally on June 27,
2008. Infomercials typically go through a period of on-air testing and other
means such as focus groups to obtain feedback that can be used to make edits
designed to elicit the greatest consumer response. We had been going through
such a process and conducted a focus group during the 3rd quarter
of 2008. We had a very high percentage (approximately 80%) of participants who
were interested in buying our Xflowsion DVD series. Overall, the focus group
feedback revealed a strong interest in the Xflowsion workout and instructor Eric
Paskel and confirmed our potential for Xflowsion to be a big seller. We used the
feedback we received from the focus group and on-air infomercial testing to
tweak our branding and edit our infomercial to maximize the potential response
and sales by consumers. With the economic downturn and the fall season typically
not being the best time to sell fitness-oriented products, we did not air our
infomercial again during 2008 and have yet to do so in 2009 due to capital
constraints.





The personality of our Xflowsion DVD
series, Eric Paskel, appeared on this season of CBS’ reality show, The Amazing
Race, which started airing in September 2009.  Prior to the airing of
the first episode of this season, we engaged an online marketing firm to market
our Xflowsion DVD series on a CPA (Cost Per Acquisition) basis.  We
also explored and planned many other marketing initiatives in order to leverage
the large audience that was going to be exposed to Eric Paskel.  While
it was possible that Mr. Paskel could have been eliminated on the first show,
the audience of millions was a big opportunity to leverage into potential
Xflowsion DVD sales.  Unfortunately, Mr. Paskel was eliminated at the
beginning of the first episode and, as such, our marketing initiatives relating
to that exposure have been put on hold.  We believe that Mr. Paskel
was well received on a show that has several million viewers, and we are
pursuing opportunities for other television appearances that can be a catalyst
for awareness and marketing opportunities for our Xflowsion DVD
series.


3


We also
plan to increase our brand exposure and awareness of Xflowsion and drive sales
via a public relations campaign. Toward that end, Xflowsion has already been
profiled in People Magazine, People.com, Fitness Magazine, TMZ, The National
Enquirer, and many other publications.  The product was recently
profiled on an E! Entertainment television show and is expected to be profiled
in 17 Magazine and others in the coming months. We are encouraged by the
response to our Xflowsion DVD series in the media and with consumers and via our
marketing efforts and will continue to pursue opportunities that can be
catalysts to additional press and media exposure.





Further
to the Letter of Intent (LOI) to that we entered into with Galen Capital
Corporation (“Galen”), we and our wholly owned subsidiary GCC Merger Corporation
(“Merger Sub”) subsequently executed a merger agreement with Galen. Under the
agreement, Merger Sub would merge with Galen such that following the merger
(“Merger” or “Transaction”), Galen would be a wholly owned subsidiary of the
Company.  As consideration for the transaction, the Company will issue
to the holders of Galen securities that number of shares of common stock on a
fully diluted basis (“Common Shares”) such that following such issuance, GCC
security holders would hold 95% of the outstanding Company Common Shares on a
fully diluted basis.  Galen common stock would be exchanged for
Company Common Shares.  Galen convertible preferred stock, options,
and warrants would be exchanged for equivalent Company preferred stock, options,
and warrants.





In
addition, Galen has agreed to pay Company an amount equal to $275,000 (“Cash
Payment”). As of the date of this report, $150,000 of the Cash Payment has
already been paid to uKarma as a non-refundable deposit along with an $11,000
advance for the Company’s third quarter accounting fees.





The
Company’s obligations to close the Transaction will be subject to certain
conditions of the other party that must be satisfied or waived, including, among
other things, Galen shall pay the remaining portion of the Cash Payment and
Galen shareholders shall vote to approve the merger
transaction.  Galen’s obligations to close the Transaction will be
subject to certain conditions of the other party that must be satisfied or
waived, including, among other things, Galen shall have certain persons
appointed as Company officers and directors.  The Agreement may be
terminated by any party if the Closing does not occur by December 31, 2009
provided such terminating party is not in breach of this
Agreement.  The Company has been informed by Galen’s management that
the timing to close the Transaction is based on when their audit will be
completed, which they expect to be completed by December 31, 2009.





Concurrent
with the merger of Galen, uKarma’s operating business will be spun-off into a
new entity that will be held by our current shareholders on a pro-rata basis. As
such, we believe that this transaction is beneficial for our shareholders as we
will be able to receive $275,000 without selling shares and without taking on
debt. Our shareholders will also own the same pro-rata ownership in uKarma’s
business while also retaining some ownership of Galen.





Along
with previously loaning additional funds to the Company, our CEO, Bill Glaser,
has deferred approximately $35,000 of his 2008 salary and will continue to defer
his salary in 2009 until the Company can better afford to pay it. In the
meantime, he has agreed to convert his loans to the Company along with his
deferred compensation as of June 30, 2009 into shares of our common
stock.





Critical
Accounting Policies and Estimates




Our
MD&A is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported net sales and expenses during the reporting
periods. On an ongoing basis, we evaluate our estimates and assumptions. We base
our estimates on historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.





The
following accounting policies, which are also described in Note 2 to our
financial statements, are critical to aid the reader in fully understanding and
evaluating this discussion and analysis:





Use of Estimates: The
preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.


4


Revenue Recognition:
The Company generally recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. In instances where the final acceptance of the
product is specified by the customer, revenue is deferred until all acceptance
criteria have been met. Customers’ prepayments are deferred until products are
shipped and accepted by the customers. No provisions were established for
estimated product returns and allowances based on the Company’s historical
experience.





Cash Equivalents: For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.





Concentration of
Cash: The Company places its cash and cash equivalents with high quality
financial institutions. At times, cash balances may be in excess of the FDIC’s
insurance limits. Management considers the risk to be minimal.





Inventories:
Inventories consist of finished goods and are stated at the lower of cost or
market, using the first-in, first-out method.




Property and
Equipment: Property and equipment are valued at cost. Maintenance and
repair costs are charged to expenses as incurred. Depreciation is computed on
the straight-line method based on the estimated useful lives of the assets,
generally 5 to 7 years.





Patents: The Company
capitalizes patent costs as incurred, excluding costs associated with Company
personnel, relating to patenting its technology. The majority of capitalized
costs represent legal fees related to a patent application. If the Company
elects to stop pursuing a particular patent application or determines that a
patent application is not likely to be awarded or elects to discontinue payment
of required maintenance fees for a particular patent, the Company, at that time,
records as expense the capitalized amount of such patent application or patent.
Awarded patents will be amortized over the shorter of the economic or legal life
of the patent.





Fair Value of Financial
Instruments: All financial instruments are carried at amounts that
approximate estimated fair value.





Income Taxes: Income
tax expense is based on pretax financial accounting income. Deferred tax assets
and liabilities are recognized for the expected tax consequences of temporary
differences between the tax bases of assets and liabilities and their reported
amounts.





Advertising Costs:
All costs associated with advertising and promoting the Company’s products and
services are expensed as incurred.





Net Loss Per Share:
Basic net loss per share includes no dilution and is computed by dividing net
loss available to common stockholders by the weighted average number of common
stock outstanding for the period.  Diluted net loss per share does not
differ from basic net loss per share since potential shares of common stock are
anti-dilutive for all periods presented.  Potential shares consist of
restricted common stock, stock warrants, and stock options.





Stock Based
Compensation:  Effective January 1, 2006, the Company adopted
the fair value recognition provisions of FASB Statement No. 123(R),
“Shares-Based Payment” (SFAS 123R), using the modified-prospective-transition
method.  Under that transition method, compensation cost recognized in
2006 includes: (a) compensation cost for all share-based payments granted prior
to, but not yet vested as of, January 1, 2006 based of the grant date fair value
calculated in accordance with the original provisions of SFAS 123, and (b)
compensation cost for all share-based payments granted subsequent to December
31, 2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R).  The Company accounts for stock issued to
non-employees in accordance with the provisions of SFAS No. 123R and the EITF
Issue No. 00-18, “Accounting
For Equity Instruments That Are Issued To Other Than Employees for Acquiring, Or
In Conjunction With Selling, Goods Or Services.” SFAS No. 123R states
that equity instruments that are issued in exchange for the receipt of goods or
services should be measured at the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more reliably
measurable. Under the guidance in Issue 00-18, the measurement date occurs as of
the earlier of (a) the date at which a performance commitment is reached or (b)
absent a performance commitment, the date at which the performance necessary to
earn the equity instruments is complete (that is, the vesting
date).


5


New Accounting
Pronouncements





In April 2009, the FASB issued three
Staff Positions (FSPs): (i) FSP FAS 157-4, “Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly”, (ii) FSP FAS 107-1
and APB 28-1, “Interim Disclosures about Fair Value of Financial Statements,”
and (iii) FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of
Other-Than-Temporary Impairments.” The pronouncements are intended to provide
additional application guidance and enhance disclosures regarding fair value
measurements and impairments of securities, but they will not be applicable to
the current operations of the Company. Therefore a description and the impact on
the Company’s operations and financial position for each of the pronouncements
above have not been disclosed.




In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles – a replacement of FASB Statements No.
162”. The statement establishes the Accounting Standards Codification TM(Codification) as the source of authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. Under the Codification, all of
its content will carry the same level of authority. This statement is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this statement did not have a material
impact on the Company’s financial position or results of
operations.




In June
2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation
No. 46(R).”  The statement changes the approach to determining
the primary beneficiary of a variable interest entity (VIE) and requires
companies to more frequently assess whether they must consolidate VIEs. This new
standard is effective for fiscal years beginning after November 15, 2009.
The Company is currently assessing the potential impacts, if any, on its
financial statements.




In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140.” The statement
improves the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. This new standard is
effective for fiscal years beginning after November 15, 2009. The Company is
currently assessing the potential impacts, if any, on its financial
statements.




In May
2009, the FASB issued SFAS No. 165, “Subsequent Events.” The statement establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. This new standard is effective for fiscal years or
interim periods after June 15, 2009. The adoption of this statement did not have
a material impact on the Company’s financial position or results of
operations.




Results
of Operations





Comparison of Nine Months
ended September 30, 2009 and September 30, 2008





Net sales.
For the nine months ended September 30, 2009, net sales decreased 73% relative
to the nine months ended September 30, 2008, from $75,637 to $20,619. The
decrease is primarily attributable to press coverage and infomercial airings in
2008 that did not occur in the same period of 2009.




Cost of
sales. Cost of sales for the nine months ended September 30, 2009 was
$1,226 as compared to $3,614 for the nine months ended September 30, 2008, a
decrease of approximately 66%. The decrease in our cost of sales is attributable
to a decrease in sales but a consistent product cost.





Gross
profit. Gross profit for the nine months ended September 30, 2009 was
$19,393 as compared to a gross profit of $72,023 for the nine months ended
September 30, 2008, representing gross margins of approximately 94% and 95%,
respectively.





Operating
expenses.Our operating expenses
consisted primarily of general and administrative expenses and expenses related
to marketing our product and construction of our proposed yoga and fitness
studio. For the nine months ended September 30, 2009, total operating expenses
were $1,505,698, while total operating expenses for the nine months ended
September 30, 2008 were $2,079,374, representing a decrease of approximately
28%. The decrease in operating expenses is primarily due to infomercial
production costs incurred in 2008 and not in 2009.


6


Net income
(loss). We had net loss of $1,506,277 for the nine months ended September
30, 2009 as compared to net loss of $2,017,333 for the nine months ended
September 30, 2008.





Comparison of Three Months
ended September 30, 2009 and September 30, 2008





Net sales.
For the three months ended September 30, 2009, net sales decreased 96% relative
to the three months ended September 30, 2008, from $70,215 to $2,796. The
decrease from the third quarter of 2008 to the third quarter of 2009 is
primarily attributable to press coverage in People Magazine and other outlets in
2008 that was not received in 2009.





Cost of
sales. Cost of sales for the three months ended September 30, 2009 was
$82 as compared to $3,340 for the three months ended September 30, 2008, a
decrease of approximately 97.5%. The decrease in our cost of sales is
attributable to a decrease in sales but consistent product cost.





Gross
profit. Gross profit for the three months ended September 30, 2009 was
$2,714 as compared to a gross profit of $66,875 for the three months ended
September 30, 2008, representing gross margins of approximately 97% and 95%,
respectively.





Operating
expenses.Our operating expenses
consisted primarily of general and administrative expenses and expenses related
to marketing our product and construction of our proposed yoga and fitness
studio. For the three months ended September 30, 2009, total operating expenses
were $751,631, while total operating expenses for the three months ended
September 30, 2008 were $511,023, representing an increase of approximately
47%.The increase in operating expenses is due to the write-off of leasehold
improvements related to our proposed yoga and fitness studio.





Net income
(loss). We had net loss of $753,522 for the three months ended September
30, 2009 as compared to net loss of $446,917 for the three months ended
September 30, 2008.





LIQUIDITY





Cash
Flows





Net cash
used by operating activities was $20,450 for the nine months ended September 30,
2009, while net cash used by operating activities was $1,081,012 for the nine
months ended September 30, 2008. The decrease in net cash used by operating
activities between the periods was mainly due to the write-off of leasehold
improvements, higher accrued expenses, and a deposit related to a pending merger
transaction.





Net cash
used by investing activities was $118,274 for the nine months ended September
30, 2009, while net cash used by investing activities was $130,730 for the nine
months ended September 30, 2008. The decrease in net cash used by investing
activities between the periods was due to a decrease in the purchase of
equipment and property.





Net cash
provided by financing activities was $139,355 for the nine months ended
September 30, 2009, while net cash provided by financing activities was $824,749
for the nine months ended September 30, 2008. The decrease in net cash flow from
financing activities between the periods was mainly due to the Company raising
more capital in 2008 than in 2009 through the sale of its common
stock.




Material Impact
of Known Events on Liquidity





Although
we no longer have the lease obligation of our proposed yoga and fitness studio
and have limited our operations due to capital constraints, we do have ongoing
legal expenses related to a contract dispute with the landlord of the studio
along with other planned marketing initiatives of our Xflowsion DVD series. Due
to our current liquidity, we must raise additional capital in order to meet the
aforementioned obligations.





CAPITAL RESOURCES





As
ofSeptember 30,
2009, we had working capital of $(402,013). To satisfy current working capital
needs, our CEO, Bill Glaser, previously loaned funds to the Company along with
raising capital through the sale of common stock and loans by other individuals.
Until we raise sufficient capital via the sale of our common stock or via
additional loans, there is no guarantee that we will be able to meet current
working capital needs. We have fully incurred the production cost of our
Xflowsion DVD series and last version of our infomercial. We plan to make
financial investments in editing and airing our infomercial and marketing of our
Xflowsion DVD series for the next six months. We expect to incur substantial
losses over the next two years.


7


We
estimate that our expenses over the next 12 months beginning on October 1, 2009
will be approximately $875,000 as follows:





General
      and Administrative
                  
                  $
                  300,000Infomercial
      Production
                  
                  
                  150,000Inventory
                  
                  
                  50,000Media
      (Airtime)
                  
                  
                  50,000Marketing/Publicity
                  
                  
                  150,000Legal
                  
                  
                  75,000DVD/CD
      Production
                  
                  
                  50,000Accounting
                  
                  
                  50,000





As of
September 30, 2009, we had cash equivalents of $16,318, which will meet our
capital requirements for approximately the next month. We believe that we need
approximately an additional $860,000 to meet our capital requirements over the
next 12 months. Our intention is to obtain this money through debt and/or equity
financings.





We plan
to engage outside contractors and consultants who are willing to be paid in
stock rather than cash or a combination of stock and cash. Expenses incurred
that cannot be paid in stock, such as auditors' fees, will be paid in cash.
There are no assurances that we will be able to meet our capital requirements or
that our capital requirements will not increase. If we are unable to raise
necessary capital to meet our capital requirements, we may not be able to
successfully market and sell our Xflowsion DVDs.





CONTRACTUAL
OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS





Contractual
Obligations





We do not
currently have fixed contractual obligations or commitments that include future
estimated payments.





Off-Balance Sheet
Arrangements





We have
not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
stockholders’ equity or that are not reflected in our financial statements.
Furthermore, we do not have any retained or contingent interest in assets
transferred to an unconsolidated entity that serves as credit, liquidity or
market risk support to such entity. We do not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit
support to us or engages in leasing, hedging or research and development
services with us.




ITEM 3.
            QUANTITATIVE AND QUALITATIVE
      DISCLOSURES ABOUT MARKET
RISK





Not
applicable.




ITEM 4.
            CONTROLS AND
      PROCEDURES




Disclosure
Controls and Procedures





As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). Based upon that evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were effective as of the end of the applicable period to ensure that
the information required to be disclosed by the Company in reports that it files
or submits under the Exchange Act (i) is recorded, processed, summarized, and
reported within the time periods specified in Securities and Exchange Commission
rules and forms and (ii) is accumulated and communicated to our management,
including our Chief Executive Officer and Chief Financial Officer, as
appropriate to allow timely decisions regarding required
disclosures.


8


Changes
in Internal Control over Financial Reporting





There was
no change in our internal control over financial reporting during our most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.





PART
II - OTHER INFORMATION





ITEM 1.
            LEGAL
      PROCEEDINGS





On June
17, 2009, Jeffrey Fischer (the “Landlord”) filed a compliant against uKarma
Corporation and Bill Glaser in the Los Angeles Superior Court in Los Angeles,
California. The Landlord claimed that we owe back rent on the lease of our yoga
and fitness studio in Sherman Oaks, California and sought to recover $222,859.97
and evict us from the subject property. We denied liability and contend that the
Landlord never reimbursed us for a tenant improvement allowance of $165,000
pursuant to the lease along with other breaches by the Landlord. The judge in
the case denied a writ of attachment motion that was submitted by the
Landlord.  A settlement could not be reached between the parties, and
as such the Company vacated the property on September 30, 2009. The case is
expected to be reassigned by the Court from an unlawful detainer to a breach of
contract dispute. At such time, the Company plans to initiate legal action
against the Landlord for full recovery of all tenant improvements it incurred to
date along with other damages.





Other
than the proceeding discussed above, there have been no material developments
during the quarter ended September 30, 2009 in any material pending legal
proceedings to which the Company is a party or of which any of our property is
the subject




ITEM 2.
            UNREGISTERED SALES OF EQUITY
      SECURITIES AND USE OF
PROCEEDS





On
September 17, 2009, we issued 250,000 restricted shares of our common stock to
Maher Khoury in connection with a loan made by him to the Company in the amount
of $2,500.  We relied on Section 4(2) of the Securities Act of 1933,
as amended, as providing an exemption from registering the sale of these shares
of common stock under the Securities Act.





On August
17, 2009, we issued 200,000 restricted shares of our common stock to Leonard
Panzer in connection with a loan made by him to the Company in the amount of
$2,000.  We relied on Section 4(2) of the Securities Act of 1933, as
amended, as providing an exemption from registering the sale of these shares of
common stock under the Securities Act.





Other
than the above, there are no unregistered sales of equity securities during the
quarter ended September 30, 2009 to report that have not already been disclosed
in a Current Report on Form 8-K.




ITEM 3.
            DEFAULTS UPON SENIOR
      SECURITIES





None.





ITEM 4.
            SUBMISSION OF MATTERS TO A VOTE
      OF SECURITY HOLDERS





None





ITEM 5.
            OTHER
      INFORMATION





(a)         None.





(b)         There were no changes to the procedures
by which security holders may recommend nominees to our board of
directors


9


ITEM 6.
              EXHIBITS





Exhibit
                  Number
                
                Description3.1
                
                Amended
      and Restated Certificate of Incorporation, as currently in effect
      (1)3.2
                
                Bylaws,
      as currently in effect (1)4.1
                
                Form
      of Warrant (1)10.1
                
                Merger
      Agreement between Galen Capital Corporation, GCC Merger Sub Corporation,
      and uKarma Corporation, dated October 15, 2009 *31.1
                
                Section
      302 Certification by the Corporation’s Chief Executive Officer
      *31.2
                
                Section
      302 Certification by the Corporation’s Chief Financial Officer
      *32.1
                
                Section
      906 Certification by the Corporation’s Chief Executive Officer and Chief
      Financial Officer *







*
            Filed
      herewith.





(1)
            Incorporated herein by reference
      to our Form SB-2 filed with the SEC on February 12,
      2007.


10


SIGNATURES





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




UKARMA
      CORPORATION(Registrant)Date:
      November 23, 2009
                By:
                /s/ Bill GlaserBill
      GlaserChief
      Executive Officer and President (Principal Executive Officer) and Interim
      Chief Financial Officer (Principal Financial and Accounting
      Officer)




11