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 June 30,
2009





o
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 o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period than the
registrant was required to submit and post such files). Yes oNo o





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





Large
      Accelerated filer o
                  
                  Non-Accelerated
      Filer oAccelerated
      Filer o
                  
                  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 o 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: 52,344,482 issued and outstanding as of August 19,
2009.









UKARMA
CORPORATION


TABLE OF
CONTENTS


TO
QUARTERLY REPORT ON FORM 10-Q


FOR
QUARTER ENDED JUNE 30, 2009




PagePART I
                  FINANCIAL INFORMATION
                  3Item
      1.
                  Financial
      Statements
                  3Item
      2.
                  Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                  4Item
      3.
                  Quantitative
      and Qualitative Disclosures About Market Risk
                  9Item
      4.
                  Controls
      and Procedures
                  9PART
      II
                  OTHER
      INFORMATION
                  10Item
      1.
                  Legal
      Proceedings
                  10Item
      2.
                  Unregistered
      Sales of Equity Securities and Use of Proceeds
                  10Item
      3.
                  Defaults
      Upon Senior Securities
                  10Item
      4.
                  Submission
      of Matters to a Vote of Security Holders
                  10Item
      5.
                  Other
      Information
                  10Item
      6.
                  Exhibits
                  11Signatures
                  12


2


PART
I - FINANCIAL INFORMATION




ITEM
      1.
                FINANCIAL
      STATEMENTS


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




3




UKARMA
CORPORATION
 
 BALANCE
SHEETS
 
 As
      ofJune
      30,
                                  
                                  
                                  December
      31,2009
                                  
                                  
                                  2008(Unaudited)
                                  
                                  
                                  (Audited)ASSETSCurrent
      AssetsCash
                                  
                                  $
                                  239
                                  
                                  
                                  $
                                  1,781Accounts
      receivable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  309Due
      from stockholder
                                  
                                  
                                  7,000
                                  
                                  
                                  
                                  -Other
      receivable
                                  
                                  
                                  420
                                  
                                  
                                  
                                  26,691Prepaid
      expenses
                                  
                                  
                                  67,457
                                  
                                  
                                  
                                  70,863Inventory
                                  
                                  
                                  18,558
                                  
                                  
                                  
                                  22,327Total
      Current Assets
                                  
                                  
                                  93,674
                                  
                                  
                                  
                                  121,971Property
      and equipment, net of accumulated depreciation of $7,187 for 2009, and
      $4,689 for 2008
                                  
                                  
                                  510,916
                                  
                                  
                                  
                                  391,514Other
      AssetsProduction
      costs, net of accumulated amortization of $273,956 for 2009, and
      $212,047 for 2008
                                  
                                  
                                  345,129
                                  
                                  
                                  
                                  407,038Deposit
                                  
                                  
                                  22,000
                                  
                                  
                                  
                                  28,380Patent
                                  
                                  
                                  10,358
                                  
                                  
                                  
                                  10,358Total
      Other Assets
                                  
                                  
                                  377,487
                                  
                                  
                                  
                                  445,776TOTAL
      ASSETS
                                  
                                  $
                                  982,077
                                  
                                  
                                  $
                                  959,261LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
                                  
                                  $
                                  249,211
                                  
                                  
                                  
                                  196,161Accrued
      expenses
                                  
                                  
                                  44,703
                                  
                                  
                                  
                                  66,677Refundable
      good faith deposit
                                  
                                  
                                  50,000
                                  
                                  
                                  
                                  -Note
      payable to unrelated party, including accrued interest of $48 for
      2009
                                  
                                  
                                  6,048
                                  
                                  
                                  
                                  -Notes
      payable to related party, including accrued interest of $22,637 for
      2008
                                  
                                  
                                  -
                                  
                                  
                                  
                                  207,768Total
      Current Liabilities
                                  
                                  
                                  349,962
                                  
                                  
                                  
                                  470,606Stockholders'
      EquityCommon
      stock, $0.001 par value; 100,000,000 shares authorized; 52,344,482
      and 29,768,292  shares issued and outstanding in 2009 and
      2008, respectively
                                  
                                  
                                  52,345
                                  
                                  
                                  
                                  29,768Preferred
      stock, $0.001 par value; 20,000,000 shares authorized, none
      issued
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -Paid-in
      capital
                                  
                                  
                                  7,421,726
                                  
                                  
                                  
                                  6,548,088Accumulated
      deficit
                                  
                                  
                                  (6,841,956
                                  )
                                  
                                  
                                  (6,089,201
                                  )Total
      Stockholders' Equity
                                  
                                  
                                  632,115
                                  
                                  
                                  
                                  488,655TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                                  
                                  $
                                  982,077
                                  
                                  
                                  $
                                  959,261
  The
accompanying notes are an integral part of these financial
statements
  F-1
  UKARMA
CORPORATION
 STATEMENTS
OF OPERATIONS (Unaudited)
 For
the three and six months ended June 30, 2009 and 2008
 For
      three months ended
                          
                          
                          For
      six months endedJune 30,
                          
                          
                          June 30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Sales
                          
                          $
                          4,392
                          
                          
                          $
                          2,663
                          
                          
                          $
                          17,823
                          
                          
                          $
                          5,422Cost
      of  Sale
                          
                          
                          371
                          
                          
                          
                          130
                          
                          
                          
                          1,144
                          
                          
                          
                          274Gross
      Profit
                          
                          
                          4,021
                          
                          
                          
                          2,533
                          
                          
                          
                          16,679
                          
                          
                          
                          5,148Selling,
      General and Administrative Expenses
                          
                          
                          223,166
                          
                          
                          
                          1,053,044
                          
                          
                          
                          754,067
                          
                          
                          
                          1,567,644Operating
      Loss
                          
                          
                          (219,145
                          )
                          
                          
                          (1,050,511
                          )
                          
                          
                          (737,388
                          )
                          
                          
                          (1,562,496
                          )Other
      Income (Expenses)Interest
      Expense
                          
                          
                          (7,068
                          )
                          
                          
                          (3,205
                          )
                          
                          
                          (14,567
                          )
                          
                          
                          (6,413
                          )Total
      Other Income (Expense)
                          
                          
                          (7,068
                          )
                          
                          
                          (3,205
                          )
                          
                          
                          (14,567
                          )
                          
                          
                          (6,413
                          )Net
      Loss before Income Taxes
                          
                          
                          (226,213
                          )
                          
                          
                          (1,053,716
                          )
                          
                          
                          (751,955
                          )
                          
                          
                          (1,568,909
                          )Provision
      for Income Taxes
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          800
                          
                          
                          
                          800Net
      Loss
                          
                          $
                          (226,213
                          )
                          
                          $
                          (1,053,716
                          )
                          
                          $
                          (752,755
                          )
                          
                          $
                          (1,569,709
                          )Loss
      Per Share-Basic and Diluted
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.02
                          )
                          
                          $
                          (0.07
                          )Weighted
      Average Number of Shares
                          
                          
                          37,420,288
                          
                          
                          
                          22,662,462
                          
                          
                          
                          34,624,054
                          
                          
                          
                          22,095,602
 
 The
accompanying notes are an integral part of these financial
statements
 
 F-2
 
 UKARMA
CORPORATION
 
 STATEMENT
OF CASH FLOWS (Unaudited)
 For
the six months ended June 30, 2009, and 2008
 
 For
      six months endedJune
      30,2009
                                  
                                  
                                  2008Cash
      Flow from Operating Activities:Net
      loss
                                  
                                  $
                                  (752,755
                                  )
                                  
                                  $
                                  (1,569,709
                                  )Adjustment
      to reconcile net loss to net cash used by operating
      activities:Depreciation
                                  
                                  
                                  2,498
                                  
                                  
                                  
                                  1,032Amortization
      of production costs
                                  
                                  
                                  61,909
                                  
                                  
                                  
                                  50,746Issuance
      of stock for services
                                  
                                  
                                  304,791
                                  
                                  
                                  
                                  459,480Issuance
      of stock for loan fee
                                  
                                  
                                  6,000
                                  
                                  
                                  
                                  -Stock
      option expenses
                                  
                                  
                                  99,458
                                  
                                  
                                  
                                  129,093Stock
      warrant expenses
                                  
                                  
                                  -
                                  
                                  
                                  
                                  14,440(Increase)
      Decrease in:Trade
      accounts receivable
                                  
                                  
                                  309
                                  
                                  
                                  
                                  -Payroll
      tax refund receivable
                                  
                                  
                                  6,739
                                  
                                  
                                  
                                  (7,159
                                  )Employee
      advances
                                  
                                  
                                  19,532
                                  
                                  
                                  
                                  -Prepaid
      expenses
                                  
                                  
                                  3,406
                                  
                                  
                                  
                                  (26,940
                                  )Inventory
                                  
                                  
                                  3,769
                                  
                                  
                                  
                                  274Capitalized
      production costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  75,017Deposit
                                  
                                  
                                  6,380
                                  
                                  
                                  
                                  (22,000
                                  )Increase
      (Decrease) in:Accounts
      payable
                                  
                                  
                                  53,050
                                  
                                  
                                  
                                  85,352Accrued
      expenses
                                  
                                  
                                  127,417
                                  
                                  
                                  
                                  (1,807
                                  )Refundable
      good faith deposit
                                  
                                  
                                  50,000
                                  
                                  
                                  
                                  -Net
      Cash Used by Operating Activities
                                  
                                  
                                  (7,497
                                  )
                                  
                                  
                                  (812,181
                                  )Cash
      Flow from Investing Activities:Due
      from stockholder
                                  
                                  
                                  (7,000
                                  )Purchase
      of property and equipment
                                  
                                  
                                  (121,900
                                  )
                                  
                                  
                                  (22,793
                                  )Net
      Cash Used by Investing Activities
                                  
                                  
                                  (128,900
                                  )
                                  
                                  
                                  (22,793
                                  )Cash
      Flow from Financing Activities:Proceeds
      from notes payable
                                  
                                  
                                  26,354
                                  
                                  
                                  
                                  -Repayments
      to notes payable
                                  
                                  
                                  (30,499
                                  )
                                  
                                  
                                  -Proceeds
      from sale of stock
                                  
                                  
                                  139,000
                                  
                                  
                                  
                                  798,500Net
      Cash Provided by Financing Activities
                                  
                                  
                                  134,855
                                  
                                  
                                  
                                  798,500Net
      Increase (Decrease) in Cash
                                  
                                  
                                  (1,542
                                  )
                                  
                                  
                                  (36,474
                                  )Cash
      Balance at Beginning of Period
                                  
                                  
                                  1,781
                                  
                                  
                                  
                                  483,564Cash
      Balance at End of Period
                                  
                                  $
                                  239
                                  
                                  
                                  $
                                  447,090Supplemental
      Disclosures:Interest
      Paid
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Taxes
      Paid
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -Noncash
      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
                                  
                                  
                                  $
                                  -
  The
accompanying notes are an integral part of these 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 of people
who seek 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/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.”
 
 The
Company has predominantly completed construction on a retail studio that will
offer Xflowsion, fitness, and yoga classes along with retail items, retreats and
teacher training, and food and beverages. The Company expects construction to be
completed within approximately 2 weeks from the time that the Company resolves a
legal dispute with its landlord (see note 15).  Additionally, the
Company is working on a prototype of a patent-pending proprietary yoga
mat.
 
 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
(GAAP).
 
 Presentation Of Interim
Information: The financial information at June 30, 2009 and for the three
and six months ended June 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 accounting principles generally accepted in the
United States of America ("GAAP") for interim financial information.
Accordingly, such information does not include all of the information and
footnotes required by GAAP for annual financial statements. For further
information 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 three and six months ended June 30, 2009 may not be indicative
of results for the year ending December 31, 2009 or any future
periods.
  F-4
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
  NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 Use of estimates: The
preparation of the accompanying financial statements in conformity with
accounting principles generally accepted in the United States 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.
 
 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
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 June 30,
2009 and 2008 was $1,278 and $522, respectively. Depreciation expense for the
six months ended June 30, 2009 and 2008 was $2,498 and $1,032,
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 June 30, 2009 and 2008 was $6,952 and $115,191, respectively. Advertising
expense for the six months ended June 30, 2009 and 2008 was $15,987 and
$303,546, 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 $99,458 for three months and six month ended June
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 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.
  F-6
 
 UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
  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.
 
 NOTE
4 – PREPAID EXPENSES
 
 Prepaid
expenses consisted of the following:
 
 June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Audited)Prepaid
      Royalty
                    
                    $
                    67,457
                    
                    
                    $
                    68,581Prepaid
      Legal
                    
                    
                    -
                    
                    
                    
                    2,282Total
      Prepaid Expenses
                    
                    $
                    67,457
                    
                    
                    $
                    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 the Company acts as the publisher or a 2 1⁄2% royalty if
the Company 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 June 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 shall 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 June 30, 2009, there is a
balance of $57,457 after advancing $70,000 and deducting royalties to the 2009
sales. Future royalty obligations will be deducted from the current
balance.
  F-7
  UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
  NOTE
5 – PROPERTY AND EQUIPMENT
 
 Property
and equipment consisted of the following:
 
 June
      30,
                    
                    
                    December
      31,2009
                    
                    
                    2008(Unaudited)
                    
                    
                    (Audited)Furniture
      & Fixtures
                    
                    $
                    15,459
                    
                    
                    $
                    13,721Machinery
      & Equipment
                    
                    
                    12,524
                    
                    
                    
                    12,525Studio
      Leasehold Improvements
                    
                    
                    490,120
                    
                    
                    
                    369,957518,103
                    
                    
                    
                    396,203Accumulated
      Depreciation
                    
                    
                    (7,187
                    )
                    
                    
                    (4,689
                    )Property
      and Equipment, net
                    
                    $
                    510,916
                    
                    
                    $
                    391,514
 
 NOTE
6 – PRODUCTION COSTS
 
 The
Company capitalized costs incurred for recording seven fitness videos’ master
copies.  As of June 30, 2009, total costs of $619,085 were
capitalized.  All costs consisted of in-production costs
only.
 
 Commenced
on 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 $30,955 and
$30,954 for the three months ended June 30, 2009 and 2008, respectively. The
Company recorded an amortization expense of $61,909 and $50,746 for the six
months ended June 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.  To date, the patent is still pending for
approval.
 
 NOTE
8 – GOOD FAITH DEPOSIT FOR MERGER AND ACQUISITION
 
 On June
11, 2009, the Company entered into a Letter of Intent (LOI) to acquire Galen
Capital Corporation (“Galen”).  Pursuant to the LOI, the Company will
issue to Galen’s shareholders that number of newly-issued shares such that they
will hold 95% of our outstanding equity shares after the Transaction in exchange
for all outstanding Galen equity securities from Galen’s shareholders and
$275,000, $50,000 of which is to be transferred to the Company as a good faith
deposit. The deposit will be refunded to Galen if the Company cannot or will not
close the transaction.
  F-8
  UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
  NOTE
9 – ACCRUED EXPENSES
 
 Accrued
expenses consisted of the following:
 
 June
      30,
                      
                      
                      December
      31,2009
                      
                      
                      2008(Unaudited)
                      
                      
                      (Audited)Accrued
      Professional Fees
                      
                      $
                      21,000
                      
                      
                      $
                      15,000Accrued
      Salaries
                      
                      
                      22,035
                      
                      
                      
                      41,404Employee
      Reimbursable
                      
                      
                      -
                      
                      
                      
                      6,955Accrued
      Sales Tax
                      
                      
                      68
                      
                      
                      
                      18Accrued
      Income Tax
                      
                      
                      1,600
                      
                      
                      
                      800Others
                      
                      
                      -
                      
                      
                      
                      2,500Total
      Accrued Expenses
                      
                      $
                      44,703
                      
                      
                      $
                      66,677
 
 NOTE
10 – NOTES PAYABLE
 
 A note
payable to an unrelated party bears interest at 6% per annum and is due in May
2009. As of June 30, 2009, the balance on this note was $6,048, including
accrued interest of $48.
 
 On June
11, 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 six months ended June 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 closing trading
price on the grant date, or $304,791 in the aggregate.
 
 On June
11, 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 closing bid price on the grant date, or $346,966
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 closing bid price on the grant date, or $6,000 in the
aggregate.
 
 Through
June 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 self-private
placement offering.
  F-9
  UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
  NOTE
11 – STOCKHOLDERS’ EQUITY (continued)
 
 As of
June 30, 2008, the Board of Directors of the Company approved the issuance of an
aggregate 1,349,566 shares of Company’s common stock to various providers in
consideration for their services to the Company. The shares were valued and
charged to operations at a price ranging from $0.2326 to $0.35 per share, or
$459,480 in the aggregate. The valuation was based on the private placement
offering in the second quarter of 2008 of $0.35 per share, with discounts, if
applicable as per the service agreements.
 
 During
the six months ended June 30, 2008, the Company received $798,500 and sold
2,281,428 shares of the Company’s common stock pursuant to the August 6, 2007
offering at a price of $0.35 per share.
 
 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
      six months endedJune
      30,
                          
                          
                          June
      30,2009
                          
                          
                          2008
                          
                          
                          2009
                          
                          
                          2008Numerator:Net
      Loss
                          
                          $
                          (226,213
                          )
                          
                          $
                          (1,053,716
                          )
                          
                          $
                          (752,755
                          )
                          
                          $
                          (1,569,709
                          )Denominator:Weighted
      Average of Common Shares
                          
                          
                          37,420,288
                          
                          
                          
                          22,662,462
                          
                          
                          
                          34,624,054
                          
                          
                          
                          22,095,602Basic
      and Diluted Net Loss per Share
                          
                          $
                          (0.01
                          )
                          
                          $
                          (0.05
                          )
                          
                          $
                          (0.02
                          )
                          
                          $
                          (0.07
                          )
 
 There
were no dilutive securities for the three months and six months ended June 30,
2009.
 
 As the
Company incurred net losses for the three months and six months ended June 30,
2008, the effect of dilutive securities totaling 2,937,143 and 2,925,715
equivalent shares has been excluded from the calculation of diluted loss per
share because their effect was anti-dilutive.
 
 There
were also 11,777,000 and 5,827,000 shares out-of-money stock options and
warrants excluded from the calculation of diluted net loss per share for the six
months ended June 30, 2009 and 2008, respectively, because their conversion
prices or exercise prices, as applicable, were greater than the average fair
market price of the common stock.
 
 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
Company’s policy to issue new shares for stock option exercised and restricted
stock, rather than issue 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.
  F-10
  UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
  NOTE
13 – 2006 STOCK OPTION PLAN (continued)
 
 A summary
of the status of stock options issued by the Company as of June 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
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Exercised/Expired/Cancelled
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Outstanding
      at end of period
                  
                  
                  5,295,000
                  
                  
                  $
                  0.20
                  
                  
                  
                  5,250,000
                  
                  
                  $
                  0.20Exercisable
      at end of period
                  
                  
                  3,750,000
                  
                  
                  $
                  0.20
                  
                  
                  
                  2,666,667
                  
                  
                  $
                  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 June 30, 2009:
 
 WeightedAverage
                              
                              
                              WeightedRange
      of
                              
                              
                              
                              
                              Remaining
                              
                              
                              AverageExercise
                              
                              Options
                              
                              
                              Contractual
                              
                              
                              Exercise
                              
                              
                              OptionsPrices
                              
                              Outstanding
                              
                              
                              Life
                              
                              
                              Price
                              
                              
                              Exercisable$0.20-$0.35
                              
                              
                              5,295,000
                              
                              
                              
                              6.26
                              
                              
                              $
                              0.20
                              
                              
                              
                              3,750,0005,295,000
                              
                              
                              
                              6.26
                              
                              
                              $
                              0.20
                              
                              
                              
                              3,750,000
 
 As of
June 30, 2009, there was $193,468 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 1.02 years.
 
 As of
June 30, 2008, there was $390,908 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 1.97 years.
  F-11
  UKARMA
CORPORATION
 
 NOTES TO INTERIM UNAUDITED FINANCIAL
STATEMENTS
 
  NOTE
14 – RELATED PARTY TRANSACTIONS
 
 During
the six months ended June 30, 2008, the Company paid $16,000 to a director for
his consulting services to the Company. During the six months ended June 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.  Unless the Company reaches
a settlement with the Landlord where the Landlord reimburses the Company with
the tenant improvement allowance and reduces the Company’s future rent payments
or where the Landlord allows the Company to vacate the property for a
reimbursement of its tenant improvements, 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.  In the proceeding
initiated by the Landlord, the Company filed a demurrer that will be heard on
September 24, 2009.
  F-12




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. In addition to our infomercial, our Xflowsion DVD series has been
approved for sale on QVC, the home shopping television network, and we have
finalized the economic terms of our relationship with QVC. While we expected
that the first air date on QVC would be sometime in January 2009, that airing
has not yet occurred. It was indicated to us that the delay was due to economic
conditions and because our product would be less known to the QVC audience since
our infomercial was not airing on television. We do expect at some point that
QVC will begin selling our Xflowsion DVD series.





The
personality of our Xflowsion DVD series, Eric Paskel, will appear on a network
television reality show this fall, which appearance is expected to be announced
after Labor Day. While this television show eliminates cast members after each
episode or each week, and there can be no guarantee that Mr. Paskel will
continue for any period beyond the first episode, we expect this to be a
marketing tool for our brand of DVD series, which features Mr. Paskel, as he
will be exposed to an audience of up to 15-30 million
individuals.


4


Toward
this end, we executed an online marketing agreement with Livemercial which is
one of the largest online marketers of direct response products. Among other
products, Livemercial has marketed many products featuring Billy Mays as the
pitchman. Pursuant to the agreement with Livemercial, Livemercial will incur all
expenses related to the establishment of websites for our Xflowsion DVD series
as well as all online marketing expenses intended to direct traffic to the
websites that Livemercial creates. Livemercial will be paid by us a percentage
of each sale they generate, and we will not incur any related marketing
expenses.





We expect
that we will have a big opportunity to leverage the press coverage that Mr.
Paskel will receive as a result of being a cast member on the upcoming network
television show through our marketing collaborations, and 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. We are encouraged by the response to our Xflowsion
DVD series in the media and with consumers and via our marketing efforts.





We are
also pleased to report that we entered into a Letter of Intent (LOI) to acquire
Galen Capital Corporation (“Galen”). Galen is a holding company that has two
wholly owned government defense contractors as well as a wealth management and
investment banking division. Pursuant to the LOI, we will receive $275,000 from
Galen and all outstanding Galen equity securities from Galen’s shareholders. In
return, we will issue to Galen’s shareholders that number of newly-issued shares
such that they will hold 95% of our outstanding equity shares after the
Transaction.





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 (prior to the
Transaction) 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 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
to date 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 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.





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
insurance limits. Management considers the risk to be minimal.


5





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).





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 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.





Results
of Operations





Comparison of Six Months
ended June 30, 2009 and June 30, 2008





Net sales.
For the six months ended June 30, 2009, net sales increased 229% relative to the
six months ended June 30, 2008, from $5,422 to $17,823. The increase from the
first half of 2008 to the first half of 2009 is primarily attributable to
increased public relations exposure of our Xflowsion DVD
series.


6




Cost of
sales. Cost of sales for the six months ended June 30, 2009 was $1,144 as
compared to $274 for the six months ended June 30, 2008, an increase of
approximately 318%. The increase in our cost of sales is attributable to a
greater number of product units sold.





Gross
profit. Gross profit for the six months ended June 30, 2009 was $16,679
as compared to a gross profit of $5,148 for the six months ended June 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 studio.
For the six months ended June 30, 2009, total operating expenses were $754,067,
while total operating expenses for the six months ended June 30, 2008 were
$1,567,644, representing a decrease of approximately 53%. The decrease in
operating expenses is due to fewer expenses related to infomercial production
and stock for services.





Net income
(loss). We had net loss of $752,755 for the six months ended June 30,
2009 as compared to net loss of $1,569,709 for the six months ended June 30,
2008.





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





Net sales.
For the three months ended June 30, 2009, net sales increased 65% relative to
the three months ended June 30, 2008, from $2,663 to $4,392. The increase from
the second quarter of 2008 to the second quarter of 2009 is primarily
attributable to increased public relations exposure of our Xflowsion DVD
series.





Cost of
sales. Cost of sales for the three months ended June 30, 2009 was $371 as
compared to $130 for the three months ended June 30, 2008, an increase of
approximately 185%. The increase in our cost of sales is attributable to a
greater number of product units sold.





Gross
profit. Gross profit for the three months ended June 30, 2009 was $4,021
as compared to a gross profit of $2,533 for the three months ended June 30,
2008, representing gross margins of approximately 91.5% 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 studio.
For the three months ended June 30, 2009, total operating expenses were
$233,166, while total operating expenses for the three months ended June 30,
2008 were $1,053,044, representing a decrease of approximately 78%.The decrease
in operating expenses is due to fewer production costs and stock issued for
services.





Net income
(loss). We had net loss of $226,213 for the three months ended June 30,
2009 as compared to net loss of $1,053,716 for the three months ended June 30,
2008.





LIQUIDITY





Cash
Flows





Net cash
used by operating activities was $7,497 for the six months ended June 30, 2009,
while net cash used by operating activities was $812,181 for the six months
ended June 30, 2008. The decrease in net cash flow from operating activities
between the two periods was mainly due to lower net loss.





Net cash
used by investing activities was $128,900 for the six months ended June 30,
2009, while net cash used by investing activities was $22,793 for the six months
ended June 30, 2008. The increase in net cash flow from investing activities
between the periods was due to increased use of cash for purchases of property
and equipment.





Net cash
provided by financing activities was $134,855 for the six months ended June 30,
2009, while net cash provided by financing activities was $798,500 for the six
months ended June 30, 2008. The decrease in net cash flow from financing
activities was mainly due to capital received from our IPO in 2008.




Material Impact
of Known Events on Liquidity





Our
obligation to perform tenant improvements of our yoga and fitness studio and
then begin operations is a cause of a decrease in our liquidity. We estimate
that the completed construction costs for our studio will be approximately
$500,000 and then require approximately $55,000 per month to operate once we
open for business. Due to our current liquidity, we must raise additional
capital in order to meet the aforementioned obligations.


7




CAPITAL
RESOURCES





As
ofJune 30, 2009, we had
working capital of $(256,288). To satisfy current working capital needs, our
CEO, Bill Glaser, loaned funds to the Company along with raising capital via the
sale of common stock. Until we raise sufficient capital via the sale of our
common stock, there is no guarantee that we will be able to meet current working
capital needs if we do not receive additional loans from either our CEO or other
individuals. We have fully incurred the production cost of our Xflowsion DVD
series and last version of our infomercial, and have incurred approximately
$400,000 worth of costs related to the construction of our yoga and fitness
studio. We plan to make financial investments in completing and opening our yoga
and fitness studio and in marketing of our Xflowsion DVD series for the next six
months. We expect to incur substantial losses over the next two
years.





We
estimate that our expenses over the next 12 months beginning on January 1, 2009
will be approximately $1,025,000 as follows:





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





As of
June 30, 2009, we had cash equivalents of $7,659, which will meet our capital
requirements for approximately the next month. We believe that we need
approximately an additional $900,000 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 and open and operate our yoga
and fitness studio.




CONTRACTUAL
OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS





Contractual
Obligations





We have
certain fixed contractual obligations and commitments that include future
estimated payments. Changes in our business needs, cancellation provisions,
changing interest rates, and other factors may result in actual payments
differing from the estimates. We cannot provide certainty regarding the timing
and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash
flows.




The
following table summarizes our contractual obligations as of June 30, 2009, and
the effect these obligations are expected to have on our liquidity and cash
flows in future periods.





Payments
      Due by PeriodTotal
                        
                        
                        Less
      than 1
                          year
                        
                        
                        1-3
      Years
                        
                        
                        3-5
      Years
                        
                        
                        5
      years +Contractual Obligations:Bank
      Indebtedness
                        
                        $
                        ―
                        
                        
                        $
                        ―
                        
                        
                        $
                        ―
                        
                        
                        $
                        ―
                        
                        
                        $
                        ―Other
      Indebtedness
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―
                        
                        
                        
                        ―Operating
      Leases
                        
                        
                        1,584,000
                        
                        
                        
                        132,000
                        
                        
                        
                        792,000
                        
                        
                        
                        660,000
                        
                        
                        
                        ―Totals:
                        
                        $
                        1,584,000
                        
                        
                        $
                        132,000
                        
                        
                        $
                        792,000
                        
                        
                        $
                        660,000
                        
                        
                        $
                        ―




8





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.





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.


9




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 claims that we owe back rent on the lease of our yoga
and fitness studio in Sherman Oaks, California and seeks to recover $222,859.97
and evict us from the subject property. We deny 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. Unless we reach
a settlement with the Landlord where the Landlord reimburses us with the tenant
improvement allowance and reduces our future rent payments or where the Landlord
allows us to vacate the property for a reimbursement of our tenant improvements,
we plan to initiate legal action against the Landlord for full recovery of all
tenant improvements we incurred to date along with other damages. In the
proceeding initiated by the Landlord, we filed a demurrer that will be heard on
September 24, 2009.





Other
than the proceeding discussed above, there have been no material developments
during the quarter ended June 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 to
June 11, 2009, we issued 714,250 shares of our common stock to Fred Tannous in
consideration for $14,285 in fees for consulting services rendered to the
Company. 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 Act.





On to
June 11, 2009, we issued 500,000 shares of our common stock to Mark Lindon in
consideration for $10,000 in fees for legal services rendered to the Company. 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
Act.





On to
June 11, 2009, we issued 17,348,271 shares of our common stock to Bill Glaser in
consideration for $202,734.72 in debt conversion and $144,230.70 in deferred and
accrued compensation. 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 Act.





On to
June 11, 2009, we issued 300,000 shares of our common stock to Leonard Panzer in
consideration for a $6,000 loan to the Company. 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 Act.





Other
than the above, there are no unregistered sales of equity securities during the
quarter ended June 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.




10




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
                                    
                                    Letter
      of Intent between Galen Capital Corporation and uKarma Corporation, dated
      June 11, 2009 *10.2
                                    
                                    Amendment
      to Letter of Intent between Galen Capital Corporation and uKarma
      Corporation, dated August 18, 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.


11




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:
      August 19, 2009
                    By:
                    /s/
      Bill GlaserBill
      GlaserChief
      Executive Officer and President (Principal Executive Officer) and Interim
      Chief Financial Officer (Principal Financial and Accounting
      Officer)


12