UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K





(Mark
One)





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


For
the fiscal year ended December 31, 2009





o TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the
transition period from _______ to _______.





Commission
File Number 333-140633





UKARMA
CORPORATION


(Name of
small business issuer in its charter)





NEVADA
            
            68-048-2472(State
      or other jurisdiction of
            
            (I.R.S.
      Employer Identification No.)incorporation
      or organization)





499
      North Canon Drive, Suite 308Beverly
      Hills, CA
            
            90210(Address
      of principal executive offices)
            
            (Zip
      Code)




Issuer's
telephone number: (310)
998-8909





Securities
registered under Section 12(b) of the Exchange Act: none


Securities
registered under Section 12(g) of the Exchange Act: none





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes o  No þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes þNo o





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 o No  þ





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 if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will
not be contained herein, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. þ





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. (Check
one):


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





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





At June
30, 2009, the last business day of the registrant’s most recently completed
second fiscal quarter, the aggregate market value of the voting and non-voting
common equity held by non-affiliates of the registrant was $625,447, based on a
closing price of $0.03 per share and 20,848,253 shares of common
stock.





Number of
shares of common stock outstanding as of April 14, 2010: 52,794,482







TABLE
OF CONTENTS





PageFORWARD-LOOKING
      STATEMENTS
            1PART
      I
            
            1Item
      1.
            Business
            1Item
      2.
            Properties
            8Item
      3.
            Legal
      Proceedings
            8Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            8PART
      II
            
            8Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            8Item
      6.
            Selected
      Financial Data
            10Item
      7.
            Management's
      Discussion and Analysis of Financial Condition  and Results of
      Operations
            10Item
      8.
            Financial
      Statements and Supplementary Data
            14Item
      9.
            Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure
            15Item
      9A.
            Controls
      and Procedures
            15PART
      III
            
            16Item
      10.
            Directors,
      Executive Officers and Corporate Governance
            16Item
      11.
            Executive
      Compensation
            18Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            20Item
      13.
            Certain
      Relationships and Related Transactions, and Director
      Independence
            21Item
      14.
            Principal
      Accounting Fees and Services
            21PART
      IV
            
            21Item
      15.
            Exhibits,
      Financial Statement Schedules
            21SIGNATURES
            23


2


FORWARD-LOOKING
STATEMENTS





This
annual report on Form 10-K for the fiscal year ended December 31, 2009 contains
“forward-looking” statements including statements regarding our expectations of
our future operations.  For this purpose, any statements contained in
this Form 10-K that are not statements of historical fact may be deemed to be
forward-looking statements.  Without limiting the foregoing, words
such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or
“continue,” or comparable terminology are intended to identify forward-looking
statements.  These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our control.  These
factors include, but are not limited to, economic conditions generally and in
the industries in which we may participate, competition within our chosen
industry, including competition from much larger competitors, technological
advances, and the failure by us to successfully develop business
relationships.  In light of these risks and uncertainties, you are
cautioned not to place undue reliance on these forward-looking
statements.  Except as required by law, we undertake no obligation to
announce publicly revisions we make to these forward-looking statements to
reflect the effect of events or circumstances that may arise after the date of
this report.  All written and oral forward-looking statements made
subsequent to the date of this report and attributable to us or persons acting
on our behalf are expressly qualified in their entirety by this
section.





When used
in this annual report, the terms the “Company,” “uKarma,” “we,” “us,” “our,” and
similar terms refer to uKarma Corporation, a Nevada
corporation.


3


PART
I





ITEM
1.  BUSINESS





Overview




We were
incorporated in Nevada on June 26, 2001 under the name “OM Capital Corporation,”
and changed our name to “uKarma Corporation” on April 20, 2004.





We
develop and market proprietary branded personal health and wellness products,
including fitness DVDs and mind, body, and spirit goods and services, for
fitness and health-conscious consumers.  Our product lines target the
rapidly growing tens of millions that are seeking to enrich their physical,
spiritual, and mental wellness.





We
launched our initial products, a fitness DVD series called Xflowsion, through an
infomercial and other marketing initiatives. The goal of the infomercial, if it
successfully generates consumer response and sales, is to generate initial
working capital and build a community of loyal customers.  From there,
we plan on expanding our product offerings into proprietary branded products
primarily within the fitness/well-being multimedia and nutraceutical
markets.  As our brand image builds, we intend to extend our brand
systematically to other complementary consumer products that meet our stringent
product guidelines and are consistent with our message of “total health and
happiness for oneself and others.”





We began
to generate revenue in the second quarter of 2007.  Accordingly, we
are no longer a development stage since April 1, 2007.





Recent
Events





On
October 19, 2009, the Company and its wholly owned subsidiary, GCC Merger Sub
Corporation (“Merger Sub”), entered into a Merger Agreement with Galen Capital
Corporation (“GCC”) dated as of  October 15, 2009.  This
followed a previously executed Letter of Intent between the Company and GCC
dated June 11, 2009.




Under the
agreement, Merger Sub would merge with GCC such that following the merger
(“Merger” or “Transaction”), GCC would be a wholly owned subsidiary of the
Company.  As consideration for the transaction, the Company would
issue to GCC security holders that number of shares of common stock on a fully
diluted basis (“Common Shares”) such that following such issuance, GCC security
holders would hold 95% of the outstanding Company Common Shares on a fully
diluted basis.  GCC common stock would be exchanged for Company Common
Shares.  GCC convertible preferred stock, options, and warrants would
be exchanged for equivalent Company preferred stock, options, and
warrants.




On
December 22, 2009, the Company amended the Merger Agreement with GCC. Pursuant
to the terms of the amended agreement, the closing date was changed to on or
before May 15, 2010. GCC has also agreed to pay Company an amount equal to
$475,000 (“Cash Payment”) and replaced the previous agreement amount of
$275,000. Through the date of this report, $375,000 of the Cash Payment has
already been paid to the Company as a non-refundable deposit along with $23,500
worth of expenses. In addition, GCC must pay the Company a final payment of
$100,000 on or before the latest of March 31, 2010 or the date the Company files
the Form 10-K.





Principal
Products and Services




Fitness
and Relationship-oriented DVDs




We plan
to offer complementary products within our target categories after we have
enough customers (approximately 10,000 customers) to warrant such product
extensions.  We expect to develop additional bundles of DVDs within
the fitness and personal development segments. The timing of this will depend on
the timing of our market penetration with Xflowsion and being in a cash position
to re-edit our infomercial and initiate other marketing programs.  We
anticipate, however, producing and marketing a series of other DVDs related to
developing and maintaining healthy relationships sometime after we obtain at
least 10,000 customers.  As a result of Eric Paskel’s educational and
clinical expertise in this area, including an advanced degree in clinical
psychology and background in family therapy, he is extremely well-suited to
cross-over effectively from his yoga/fitness DVDs to this arena.  Each
relationship DVD will likely have a retail price of $19.95, similar to the
individual pricing for our fitness DVDs when not sold as part of a bundle of
products.




Additional
Multimedia Offerings




After we
build a strong customer base and establish Xflowsion, we plan to extend our media
offerings into pod casting, web broadcasting, and TV production.  For
TV productions, we will consider developing and producing original content of
shows that are uplifting and inspirational, as well as fitness/workout formats
and reality shows focusing on the behind-the-life of a yogi or guru.  
We previously engaged an agent for such a purpose and had interest in producing
a TV show from production companies, along with Eric Paskel appearing on “The
Amazing Race” in September 2009.  However, we expect such TV
opportunities to become more viable if and when our Xflowsion brand becomes more
successful and attains a loyal following of consumers.




4





Acquisition/Re-brandings




We will
seek out products and services that are consistent with our vision and business
objectives for possible acquisition and re-branding through
repackaging.  This strategy may enable us to get to market more
quickly with several product offerings, particularly complementary accessories
and nutraceuticals.  Moreover, we plan to identify and possibly
acquire synergistic companies that have innovative complementary products,
strong management, and solid distribution channels that will forward our
growth.




Distribution
and Sales





Once we
are in a capital position to do so, we plan to continue to edit and test market
our infomercial with the intention of obtaining the right formula to attract
sales and make the economics of airing the infomercial nationally
viable.  If successful in doing so, we will build a customer base
through our infomercial and other direct–to-consumer marketing.  We
would then expect to increase brand equity and growth through additional
complementary product offerings, such as other DVD products and
nutraceuticals.  While infomercials will be the initial focus for our
channel distribution strategy, we expect to sell our products through additional
channels, including retail.  We initially offered our Xflowsion DVD
series for sale in May 2007 for $39.95 plus $9.95 shipping and
handling.  This pricing was made available to those who had previously
registered on www.xflowsion.com.  The pricing for the Xflowsion DVD
series was offered for 3 payments of $19.95, or $59.85, plus $12.95 shipping and
handling when our infomercial ran in May 2007.  We began re-airing our
updated and reedited 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 went
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.  However due to cash constraints, we
have not edited or aired the infomercial since.  Once we are in a
position to do so, we plan to use the feedback we received from the focus group
and on-air infomercial testing to tweak our branding and edit our infomercial so
we can maximize the potential response and sales by consumers.





DVD
Continuity Programs




We plan
to offer to our customers who purchase the initial Xflowsion DVD series (in
response to the infomercial either via the call center or website) the
opportunity to participate in an exclusive continuity program whereby the
customer will receive one new DVD every 1-2 months. We anticipate producing
multiple DVDs for our continuity program every quarter after we obtain
approximately 10,000 customers.  Since we shot and edited a total of 7
Xflowsion DVDs already and are selling 4 workout DVDs in our current Xflowsion
DVD series, we currently have 3 Xflowsion DVDs available for our continuity
program.





Web-based
Sales




We
believe that our websites, www.xflowsion.com and www.uKarma.com, will be an
integral component of our direct response television marketing (DRTV)
campaigns.  Koeppel Direct estimates that between 15-50% of DRTV
purchases are now occurring on the web due to the high percentage of people who
surf the Internet and watch TV concurrently.  Koeppel Direct also
estimates that approximately 50% of U.S. homes now have a high-speed broadband
connection, enabling prospective customers to easily view short clips of the
infomercial or selected video and lead them to a purchase
decision.  The website may also serve as a tool to further educate the
consumer about our products and its benefits.  Current traffic to
www.xflowsion.com has been generated as a result of receiving press coverage
(www.xflowsion.com/press.html), in response to the airings of our infomercial,
to online marketing we initiated, and from word of mouth.  We expect
to drive additional traffic to our websites via the airings of our infomercial,
additional press coverage, and via online marketing including Social Media, SEO
(search engine optimization), banner advertisements, and email
marketing.





Paid
Subscription Services




If we can
reach a critical mass of customers (approximately 50,000 unique individuals)
through our infomercial and begin to drive customers to our website through
other marketing activities, we expect to offer an online subscription service to
paying members.  The service may offer customers updated content on
health tips, yoga poses, healthy recipes, bulletins, live chats with
instructors, among others.





Viral/Social
Media Marketing




In order
to expand our database, we expect to use viral marketing (marketing techniques
that use pre-existing social networks to produce increases in brand awareness
through self-replicating viral processes), such as by establishing Facebook,
Twitter, YouTube, and other social media sites for our Xflowsion DVD series and
providing free content and previews of our products.  We also expect
to offer daily inspirational messages to our prospective customers via opt-in
email services, which are effective tools from which to then offer products and
services and advertise third-party paid sponsors.




5





Affiliate
Programs




The
uKarma Affiliate Partner Program is intended to allow our partners to earn a
commission by promoting uKarma products and/or brand links (text, images,
banners, products) on our affiliates’ websites.  We are expected to
provide affiliates with a range of banners, coupons, and product links for each
product. Using web-based technology, we will be able to track visitors from each
affiliate site.  Affiliate sites could include online yoga and fitness
journals (i.e., www.yogajournal.com), as well as sites dedicated to selling
products from infomercials (i.e.,
www.asseenontv.com).





Retail
Sales




Our DRTV
campaign will be designed to be integrated with a retail strategy such that the
infomercial helps drive retail sales and build awareness for our product among
consumers.  We expect to take our Xflowsion DVD series to retail
stores after it has gained success in the direct-to-consumer market but prior to
the direct-to-consumer market being saturated.





Market
and Industry Overview




The
healthy lifestyles and personal development industry has grown in the last few
years to become a multi-billion dollar industry representing products in many
different segments.  According to LOHAS (Lifestyles of Health and
Sustainability -www.lohas.com/about.htm), the healthy lifestyle sector of the
marketplace includes natural organics, nutritional products, food and beverage,
dietary supplements, and personal care products.  LOHAS defines the
personal development segment of the marketplace to include mind, body, and
spirit products such as CDs, books, tapes, seminars, and yoga, fitness, weight
loss, and spiritual products and services.




·
            Americans
      now spend up to $27 billion annually on yoga products (as reported by
      NAMASTA, the North American Studio Alliance, http://www.namasta.com/,
      http://www.bikramyoga.com/News/TheColoradoan071005.htm), with the average
      yoga consumer spending an estimated $1,500 per year
      (http://www.yogajournal.com/views/769.cfm).





·
            Total U.S. sales for
      nutraceutical or dietary supplement products alone were estimated to be
      $86 billion (http://en.wikipedia.org/wiki/Nutraceutical).  The term
      “nutraceutical” was coined in 1989 by the Foundation for Innovation in
      Medicine and is defined as any ingestible substance that may be considered
      a food or part of a food that provides health
    benefits.




The
instructional fitness DVD industry is highly competitive.  According
to Nielsen media research, DVD fitness titles sales rated by Nielsen VideoScan
reported in March 2004 that DVDs represented 51% of the sales for the top 30
fitness titles.  Over the past few years, the most popular fitness DVD
titles have related to pilates and yoga.  USA Today reported that,
according to Video Store Magazine Market Research, of the top 10 selling DVD
fitness titles of 2003, No. 1 in the top ten is Leslie Sansone: Walk Away the
Pounds: (168,000 Units) followed by #2 The Method Pilates Target Specific:
(150,000 Units); #3 The Method Pilates: (120,000 Units); #4 Pilates Conditioning
for Weight Loss: (117,000 Units); #5 Pilates for Dummies: (168,000 Units); #6
Crunch: Pick Your Spot Pilates: (105,000 Units); #7 Darrin's Dance Grooves:
(91,000 Units); #8 Cheer: (80,000 Units); #9 The Firm: Total Body Super Cardio
Mix: (73,000 Units); and #10 Yoga Conditioning for Weight Loss: (72,000
Units).  In addition, sales of popular fitness DVDs sold via
infomercial during the past year contained yoga related content such as in P90X
and 10 Minute Trainer.





Competition




We
believe that the “mind, body, and spirit” market is comprised of few large
competitors and also comprised of small, local, and regional
businesses.  Some of our competitors have greater financial and
marketing resources and greater brand recognition.  Some smaller
competitors may be able to more effectively personalize their relationships with
customers, thereby gaining a competitive advantage.  The largest and
most similar competitor within this market is Gaiam, Inc. (NASDAQ:
GAIA).  Gaiam is a lifestyle media company that creates media,
information, and products for individuals who seek to live healthier, more
rewarding, and sustainable lifestyles.  Other larger competitors who
produce and market fitness related DVD products via infomercials and through
other direct to consumer marketing are Beach Body and Guthy Renker, both of
which are private companies.




There are
numerous small, privately held companies in the lifestyle media space that offer
yoga, spiritual, and personal development DVDs, among others.  These
companies include Acorn Media Group (owned by Acacia), Sounds True, Revolution,
and Fitness Organica.  These companies offer mind, body, and spirit
products while being committed to being socially and environmentally responsible
as corporate citizens.




6





Our
fitness DVD sales business will face competition from the many companies that
already sell fitness DVDs via infomercials, in chain stores, through smaller
retailers, and on their own Internet sites or shopping websites such as ebay.com
and Yahoo! Shopping.  Many of our competitors who produce fitness DVDs
have greater financial and other resources than we do and will be able to
promote their products to a greater extent than we will and perhaps have
celebrity endorsements or participation that will enable them to attract more
buyers.  In addition, competing production companies may be able to
obtain more or better DVD content and have better promotional campaigns. Also,
the extent to which consumers choose to exercise in fitness centers or in other
manners without the aid of DVDs may reduce our sales, reduce our gross margins,
increase our operating expenses, and decrease our profit margins.




Although
we operate in a market that already contains many experienced companies with
greater resources, we believe that we may still be able to compete in the
market.  We believe that there is room in the marketplace for original
fitness DVDs that offer new information and types of exercise that are
specifically targeted to groups of people or to people with specific
interests.  This belief is based on informal research that our
management has done on the types of fitness DVDs available for purchase on the
Internet and in other locations, compared to discussions with approximately 30
people from various backgrounds and of different demographics regarding the
types of fitness DVDs that might appeal to them, along with a focus group
comprised of approximately 60 individuals.  We plan to produce and
sell fitness DVDs to those mass market and niche markets.




Raw
Materials and Principal Suppliers




We have
no need for raw materials or suppliers at this time but may need such
relationships if we sell nutraceutical and dietary supplement
products.  Our DVDs and CDs that are part of our Xflowsion product
offering are replicated by a DVD/CD replication company, and the guidebooks and
intro letters that are part of our Xflowsion products are printed at a printing
company.




Customers





The
marketing and sales of our Xflowsion DVD product has continued to be in the
test-marketing and word of mouth stage until we are able to get the version of
our infomercial that elicits the greatest response and makes sense to roll out
nationally once our capital position warrants.  As such, our customer
base is limited in size.   If we are able to establish a more
substantial customer base in the future, we may become dependent on a few major
customers or distributors.





Intellectual
Properties and Licenses





We have
applied and received for copyright protection for our seven Xflowsion DVDs and
other related Xflowsion products such as CDs and guidebooks.  We rely
upon a combination of nondisclosure and other contractual arrangements and trade
secret, and copyright and trademark laws to protect our proprietary
rights.  We enter into confidentiality agreements with our employees
and limit distribution of proprietary information.  However, we cannot
assure you that the steps taken by us in this regard will be adequate to deter
misappropriation of proprietary information or that we will be able to detect
unauthorized use and take appropriate steps to enforce our intellectual property
rights.  We are subject to the risk of litigation alleging
infringement of third-party intellectual property rights.  Any such
claims could require us to spend significant sums in litigation, pay damages,
develop non-infringing intellectual property, or acquire licenses to the
intellectual property that is the subject of the asserted
infringement.




We have
filed for patent protection for our proprietary yoga mat product
concept.  We do not, however, expect a patent to be issued, and, as a
result, we do not plan to produce and market such a
product.




We have
filed and received a trademarks for “Xflowision” and “uKarma.”  In
addition, we have filed for Slogan Mark protection for “The most fun you’ll ever
have working out”, “The most fun I’ve ever had working out”, “Mind Blowing
fitness for every body”, “Mind Blowing workouts for every body”, “Triple
Training”, “Look Great Outside, Feel Great Inside”, and “Ultimate Cross Training
for mind body and spirit”.  We have also filed trademarks for our DVD
titles including “Calm Down Dog,” “The Lean,” “Amazing Abs,” “Body Blast,” and
“Kick Butt Yoga.”  We also filed for trademarks for “Dreams Realized”,
“DreamsRealized.com”, and “The Karma Diet.”  The following trademarks
have been registered: uKarma, Xflowsion, Body Blast, Calm Down Dog, and The Most
Fun You’ll Ever Have Working Out.  The following trademarks have been
published: All U Need, Amazing Abs, Dreams Realized, Look Great Outside Feel
Great Inside, The Karma Diet, Triple Training, and The Most Fun I’ll Ever Have
Working out.  The others are currently pending.  Our
inability or failure to establish rights to these terms or protect our rights
may have a material adverse effect on our business, results of operations, and
financial condition.  We also own the copyright in the websites
www.ukarma.com and www.xflowsion.com.




Governmental
Approval and Regulation





Laws and
regulations directly applicable to Internet communications, commerce, and
advertising are becoming more prevalent.  Because we intend to sell
our DVDs through the Internet as one of its methods of distribution, we will be
subject to rules and regulations around the world that affect the business of
the Internet.  If and when we sell nutraceutical products, such
products are subject to a variety of FTC and FDA regulations which we would be
subject to as related to ingredients and advertising claims.




7





Research
and Development





Over the
past two fiscal years, we have conducted formal and informal research related to
the marketing of our Xflowsion products.  Included in that research
was a focus group that we conducted during the 3rd quarter
of 2008.  We recruited 4 test groups comprised of approximately 12-15
people per group who watched our infomercial for our Xflowsion DVD products and
provided their feedback via a questionnaire and group discussion.  We
also conducted more informal research on our product and marketing messaging in
our infomercial via listening to recorded customer calls at our telemarketing
company and via customer service emails sent via xflowsion.com.





Employees





We
currently have 1 employee, who is a full-time employee.





ITEM
2.  PROPERTIES





Our
principal executive offices were located at 499 North Canon Drive, Suite 308,
Beverly Hills, California 90210.   Subsequent to the lease expiration
date on April 15, 2009, we physically moved from our office but maintain an
identity plan that includes phone answering and mail service at this location on
a quarterly basis for approximately $450 per quarter.  As such, our
mailing address has not changed.  We plan to continue the identity
plan until we are able to afford office space.  In the meantime, our
CEO works from his home.




ITEM
3.  LEGAL PROCEEDINGS





On June
17, 2009, Jeffrey Fischer (the “Landlord”) filed a compliant against uKarma
Corporation and Bill Glaser, our Chief Executive Officer, in the Los Angeles
Superior Court in Los Angeles, California. The Landlord claimed that we owe back
rent on the lease of our yoga and fitness studio in Sherman Oaks, California and
sought to recover $222,859.97 and evict us from the subject property. We denied
liability and contend that the Landlord never reimbursed us for a tenant
improvement allowance of $165,000 pursuant to the lease along with other
breaches by the Landlord. The judge in the cased denied a writ of attachment
motion that was submitted by the Landlord.  A settlement could not be
reached between the parties, and as such the Company vacated the property on
September 30, 2009.   On December 2, 2009, the Landlord filed a
First Amended complaint naming the Company, Mr. Glaser, and Fred Tannous, a
director of the Company, and a number of unrelated parties and added additional
causes of actions and damages totaling $1,066,660.00.  The Company
filed a demurer that was heard and sustained by the court on March 2,
2010.  As a result of the judge’s ruling, there is currently no
pending complaint on file against the Company, Mr. Glaser, and Mr.
Tannous.  The judge did provide the Landlord with the right to amend
the complaint within 45 days from March 2, 2010.  If and when he does
so, we plan to defend such claims that we believe are false and frivolous along
with initiating legal action against the Landlord for full recovery of all
tenant improvements it incurred to date along with other damages.





Other
than the proceeding discussed above, we know of no material, existing or pending
legal proceeding against us, nor are we involved as a plaintiff in any material
proceeding or pending litigation, and there are no proceedings in which any of
our directors, officers, or affiliates, or any registered or beneficial holder
of more than 5% of our voting securities, or any associate of such persons, is
an adverse party or has a material interest adverse to the Company.








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





None.




PART
II





ITEM
5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES





Market
Information





Our
common stock is quoted on the Over-the-Counter Bulletin Board ("OTCBB") under
the symbol “UKMA.”  The following table sets forth, for the periods
indicated, the reported high and low closing bid quotations for our common stock
as reported on the OTCBB.  The bid prices reflect inter-dealer
quotations, do not include retail markups, markdowns, or commissions, and do not
necessarily reflect actual transactions.





Quarter
      Ended
            
            High
      Bid
            
            
            Low
      BidDecember
      31, 2009
            
            $
            0.015
            
            
            $
            0.005September
      30, 2009
            
            $
            0.03
            
            
            $
            0.0101June
      30, 2009
            
            $
            0.031
            
            
            $
            0.01March
      31, 2009
            
            $
            0.12
            
            
            $
            0.02December
      31, 2008
            
            $
            0.22
            
            
            $
            0.08September
      30, 2008
            
            $
            0.35
            
            
            $
            0.14June
      30, 2008
            
            $
            0.54
            
            
            $
            0.30March
      31, 2008
            
            $
            *
            
            
            $
            *







* Our
common stock had no active trading market until June 17, 2008.




8




As of
April 14, 2010, the closing sales price for shares of our common stock was $.004
per share on the OTCBB.





Holders





As of
April 14, 2010, we had approximately 102 stockholders of record of our issued
and outstanding common stock based upon a shareholder list provided by our
transfer agent.





Dividend
Policy




We do not
currently intend to pay any cash dividends in the foreseeable future on our
common stock and, instead, intend to retain earnings, if any, for
operations.  Any decision to declare and pay dividends in the future
will be made at the discretion of our board of directors and will depend on,
among other things, our results of operations, cash requirements, financial
condition, contractual restrictions, and other factors that our board of
directors may deem relevant.





Securities
Authorized for Issuance under Equity Compensation Plans





The
following table sets forth, as of December 31, 2009, certain information related
to our compensation plans under which shares of our common stock are authorized
for issuance.




Equity Compensation Plan InformationPlan category
                    
                    Number of securities to be
                      issued upon exercise of
                      outstanding options,
                      warrants and rights
                      (a)
                    
                    Weighted-average
                      exercise price of
                      outstanding options,
                      warrants and rights
                      (b)
                    
                    Number of securities
                      remaining available for
                      future issuance under
                      equity compensation plans
                      (excluding securities
                      reflected in column (a))
                      (c)Equity
      compensation plans approved by security holders
                    
                    —
                    
                    
                    —
                    
                    —Equity
      compensation plans not approved by security holders
                    
                    5,250,000
                    (1)
                    $
                    0.20
                    
                    2,250,000
                    (2)Total
                    
                    5,250,000
                    
                    $
                    0.20
                    
                    2,250,000







(1)
            Includes
      outstanding options granted pursuant to our 2006 Stock Option, Deferred
      Stock and Restricted Stock Plan.(2)
            Includes
      shares remaining available for future issuance under our 2006 Stock
      Option, Deferred Stock and Restricted Stock
  Plan.




On
January 1, 2006, our board of directors approved 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 our stock on the
date the options were granted.  It is our policy to issue new shares
for stock option exercised and restricted stock, rather than issued treasury
shares.  Options generally vest over ten years.  There are
7,500,000 shares of common stock reserved for issuance under the Plan, and the
Plan is effective through December 31, 2015.




9





Recent
Sales of Unregistered Securities




During
the year ended December 31, 2009, we sold the following equity securities of the
Company that were not registered under the Securities Act of 1933, as amended,
and that were not previously disclosed in a quarterly report on Form 10-Q or on
a current report on Form 8-K:





ITEM
6.  SELECTED FINANCIAL DATA





Not
applicable.





ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS





The
following discussion and analysis of the results of operations and financial
condition of uKarma Corporation for the fiscal years ending December 31, 2009
and 2008 should be read in conjunction with our financial statements and the
notes to those financial statements that are included elsewhere in this
report.  Our discussion includes forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations, and intentions.  Actual results and the
timing of events could differ materially from those anticipated in these
forward-looking statements as a result of a number of factors, including those
set forth under the Forward-Looking Information and Business sections in this
report.  We use words such as “anticipate,” “estimate,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,”
“will,” “should,” “could,” and similar expressions to identify forward-looking
statements.





Overview





We are an
early stage company that develops and markets proprietary branded personal
health and wellness products, including yoga and fitness DVDs, printed materials
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.





We
incurred net losses of approximately $122,488 in 2005, $1,397,922 in 2006,
$1,849,636 in 2007, 2,677,092 in 2008 and $1,743,449 in 2009. As of December 31,
2009, we had an accumulated deficit of $7,832,650.  As a company in
the early stage of development, our limited history of operations makes
prediction of future operating results difficult. We believe that
period-to-period comparisons of our operating results should not be relied on as
predictive of our future results.




In May
2007, we began to market and sell our initial Xflowsion yoga/fitness DVD
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 went
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 also previously received strong
media coverage regarding our Xflowsion brand.  Xflowsion has been
profiled in People Magazine, People.com, Fitness Magazine, TMZ, The National
Enquirer, and many other publications. We have been encouraged by the response
to our Xflowsion DVD series in the media and with consumers and via our past
marketing efforts, and, when in a better capital position, we plan to
reinstitute our marketing initiatives.  It has also been indicated to
us by executives of our competitors and other industry contacts that most
successful fitness DVD infomercials take many incarnations before they become
successful.





During
2008, we entered into a lease to develop and operate a yoga and fitness studio
in Sherman Oaks, CA that we expected to be open in late 2008 or early
2009.  Due to a number of construction delays that we believe were in
large part caused by the breaches and interference of the landlord, and after
spending approximately $500,000 in tenant improvements, we were unable to open
and operate that component of our business.  During that time period,
the U.S. and global economic recession and related turmoil and volatility in the
equity markets along with our financial results made if very difficult to raise
additional capital.  As such, our marketing efforts for our Xflowsion
DVD series and, in particular, the editing and re-airing of our infomercial has
been delayed until such time that we are sufficiently
capitalized.  The ongoing economic uncertainty in general and current
economic condition of the Company may continue to impact our ability to raise
capital and successfully market and sell our Xflowsion products along with
creating and marketing other products.  This could negatively impact
our future operating performance and cash flow.





10





The
personality of our Xflowsion DVD series, Eric Paskel, appeared on the CBS
reality show, The Amazing Race, which started airing in September
2009.  Prior to the airing of the first episode of that season, we
engaged an online marketing firm to market our Xflowsion DVD series on a CPA
(Cost per Acquisition) basis.  We also explored and planned many other
marketing initiatives in order to leverage the large audience that was going to
be exposed to Eric Paskel.  While it was possible that Mr. Paskel
could have been eliminated on the first show, the audience of millions was a big
opportunity to leverage into potential Xflowsion DVD
sales.  Unfortunately, Mr. Paskel was eliminated at the beginning of
the first episode and, as such, our marketing initiatives relating to that
exposure were put on hold, which affected our sales.





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





In
addition, we entered into an amendment to the merger agreement in which Galen
has agreed to pay the Company an amount equal to $475,000 (“Cash Payment”). As
of the date of this report, $375,000 of the Cash Payment has already been paid
to the Company as a non-refundable deposit along with $23,500 worth of
expenses.





Our
obligations to close the Transaction will be subject to certain conditions of
the other party that must be satisfied or waived, including, among other things,
Galen shall pay the remaining portion of the Cash Payment and Galen shareholders
shall vote to approve the merger transaction.  Galen’s obligations to
close the Transaction will be subject to certain conditions of the other party
that must be satisfied or waived, including, among other things, Galen shall
have certain persons appointed as Company officers and directors.  The
Agreement may be terminated by any party if the Closing does not occur by May
15, 2010 provided such terminating party is not in breach of this
Agreement.  The Company has been informed by Galen’s management that
the timing to close the Transaction is based on when their audit will be
completed, which they expect to be completed in order to close by May 15,
2010.





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





Along
with converting his loans to the Company and $144, 231 of deferred compensation
into common stock, our CEO, Bill Glaser, continues to have his salary deferred
until the Company can better afford to pay it.





Critical
Accounting Policies and Estimates





Our
management’s discussion and analysis of our financial condition and results of
operations are 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 U.S.
GAAP requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.





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.




11





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





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





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




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





Patents: The Company
capitalizes patent costs as incurred, excluding costs associated with Company
personnel, relating to patenting its technology. The majority of capitalized
costs represent legal fees related to a patent application. As of the balance
sheet date, the Company 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.





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.





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




12





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





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





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





Results
of Operations





The
following table sets forth the results of our operations for the years ended
December 31, 2009 and 2008:





Fiscal Year Ended
              December 31,2009
            
            
            2008Net
      Sales
            
            $
            20,528
            
            
            $
            86,339Cost
      of Sales
            
            
            1,226
            
            
            
            4,048Gross
      Profit
            
            
            19,302
            
            
            
            82,291Operating
      Expenses
            
            
            (1,738,427
            )
            
            
            (2,741,075
            )Operating
      Loss
            
            
            (1,719,125
            )
            
            
            (2,658,784
            )Interest
      Expense
            
            
            (23,524
            )
            
            
            (16,758
            )Net
      Loss Before Income Tax
            
            
            (1,742,649
            )
            
            
            (2,675,542
            )Provision
      for Income Taxes
            
            
            800
            
            
            
            800Net
      Loss
            
            
            (1,743,449
            )
            
            
            (2,676,342
            )





Net Sales.
 Net sales were
$20,528 in 2009, a decrease of approximately 76.2% from $86,339 in
2008.  We attribute the decrease to not airing our infomercial and
less publicity coverage.





Cost of
Sales. 
Cost of sales was $1,226 in 2009, a decrease of approximately 69.7% from $4,048
in 2008.  The decrease is attributable to lower sales as we were
unable to take advantage of volume discounts that are associated with our larger
sales.





Gross
Profit. 
Gross profit was $19,302 in 2009, a decrease of approximately 76.5% from $82,291
in 2008.  The decrease is attributable to lower sales and a lower
selling price of our DVDs.




Operating
Expenses.Operating expenses in 2009 were $1,738,427, a
decrease of approximately 36.6% from $2,741,825 in 2008.  The decrease
was due to lower production expenses along with other reduced expenses and fewer
stock for services expenses.





Operating
Loss.  Operating loss was $1,719,125 in 2009, a decrease of
approximately 35.3% from an operating loss of $2,658,784 in 2008.  The
decrease in operating loss is attributable to lower operating costs due to not
producing and airing our infomercial and other reduced
expenditures.





Net
Loss.  Net loss was $1,743,449 in 2009, a decrease of
approximately 34.9% from a net loss of $2,676,342 in 2008.  The
decrease in net loss is mainly attributable to lower operating costs due to not
producing and airing our infomercial and other reduced
expenditures.




13




Liquidity





Cash
Flows





Net cash
used in operating activities was $165,511 in 2009 while net cash flow used in
operating activities was $1,335,715 in 2008.  The increase in net cash
flow from operating activities was due primarily to a lack of infomercial
productions costs and less stock for services issued.





Net cash
used in investing activities was $150,540 in 2009 while net cash flow used in
investing activities was $383,563 in 2008.  The decrease in net cash
flow from investing activities was due to less capital raised.





Net cash
provided by financing activities was $314,355 in 2009 while net cash flow
provided by financing activities was $1,237,495 in 2008.  The
decrease in net cash flow from financing activities was due to less capital
raised.





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.





Capital
Resources





As
ofDecember 31,
2009, we had working capital of $(273,648).  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 as well as receiving capital
from its planned merger with Galen Capital.  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
infusions of cash via loans, stock sales, revenues, or other
sources.  We have fully incurred the production cost of our Xflowsion
DVD series and last version of our infomercial, and plan to make financial
investments 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, 2010
will be approximately $860,000 as follows:





General
      and Administrative
            
            $
            300,000Infomercial
      Production
            
            
            150,000Inventory
            
            
            50,000Media
      (Airtime)
            
            
            50,000Marketing/Publicity
            
            
            150,000Legal
            
            
            75,000DVD/CD
      Production
            
            
            50,000Accounting
            
            
            35,000





As of
December 31, 2009, we had cash equivalents of $85.  We believe that we
need approximately an additional $860,000 to meet our capital requirements over
the next 12 months.  Our intention is to obtain this money through
debt and/or equity financings.





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




Our
independent certified public accountants have stated in their report dated April
9, 2010 included herein that we have incurred operating losses from our
inception and that we are dependent upon our ability to meet our future
financing requirements and the success of future operations.  These
factors raise substantial doubts about our ability to continue as a going
concern.





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
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Our
financial statements for the years ended December 31, 2009 and 2008 begin on the
following page.




14


UKARMA
CORPORATION


INDEX TO
FINANCIAL STATEMENTS





PagesReport
      of Independent Registered Public Accounting Firm
            
            
            F-2Balance
      Sheets as of December 31, 2009 and 2008
            
            
            F-3Statements
      of Operations for the Year Ended December 31, 2009 and
2008
            
            
            F-4Statements
      of Changes in Stockholders’ Equity
            
            
            F-5Statements
      of Cash Flows for the Year Ended December 31, 2009 and
2008
            
            
            F-6Notes
      to Financial Statements
            
            
            F-7


F-1




HAROLD
      Y. SPECTOR, CPA
                  SPECTOR
      & ASSOCIATES, LLP
                  
                  70
      SOUTH LAKE AVENUESTEVEN
      M. SPECTOR, CPA
                  Certified
      Public Accountants
                  
                  SUITE  630(888)
      584-5577
                    FAX  (626)
      584-6447
                    admin@swdcpa.com
                  
                  PASADENA,
      CA 91101
  To the
Board of Directors and
 Stockholders
of uKarma Corporation
  We have
audited the accompanying balance sheets of uKarma Corporation as of December 31,
2009 and 2008, and the related statements of operations, changes in
stockholders’ equity (deficit), and cash flows for the years then ended. These
financial statements are the responsibility of the company’s management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
  We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of uKarma Corporation as of December
31, 2009 and 2008, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
  The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 3, the Company’s ability
to continue in the normal course of business is dependent upon the success of
future operations. The Company has recurring losses, substantial working capital
deficiency, stockholders’ deficit and negative cash flows from operations. These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans regarding these matters are also described in
Note 3. These financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
 /s/Spector
      & Associates, LLPPasadena,
      CAApril
      9, 2010
 
 F-2
  UKARMA
CORPORATION
 
 BALANCE
SHEETS
  As
      ofDecember
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008ASSETSCurrent
      AssetsCash
                    
                    $
                    85
                    
                    
                    $
                    1,781Accounts
      receivable
                    
                    
                    -
                    
                    
                    
                    309Due
      from stockholder
                    
                    
                    46,172
                    
                    
                    
                    -Merger
      and acquisition receivable
                    
                    
                    100,000
                    
                    
                    
                    -Other
      receivable
                    
                    
                    -
                    
                    
                    
                    26,691Prepaid
      expenses
                    
                    
                    67,380
                    
                    
                    
                    70,863Inventory
                    
                    
                    18,476
                    
                    
                    
                    22,327Total
      Current Assets
                    
                    
                    232,113
                    
                    
                    
                    121,971Property
      and equipment, net of accumulated depreciation of $9,742 for 2009, and
      $4,689 for 2008
                    
                    
                    18,242
                    
                    
                    
                    391,514Other
      AssetsProduction
      costs, net of accumulated amortization of $335,864 for 2009, and $212,047
      for 2008
                    
                    
                    283,221
                    
                    
                    
                    407,038Deposit
                    
                    
                    -
                    
                    
                    
                    28,380Patent
                    
                    
                    -
                    
                    
                    
                    10,358Total
      Other Assets
                    
                    
                    283,221
                    
                    
                    
                    445,776TOTAL
      ASSETS
                    
                    $
                    533,576
                    
                    
                    $
                    959,261LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable
                    
                    $
                    318,396
                    
                    
                    
                    196,161Accrued
      expenses
                    
                    
                    176,546
                    
                    
                    
                    66,677Notes
      payable to unrelated parties, including accrued interest of $319 for
      2009
                    
                    
                    10,819
                    
                    
                    
                    -Notes
      payable to related party, including accrued interest of $22,637 for
      2008
                    
                    
                    -
                    
                    
                    
                    207,768Total
      Current Liabilities
                    
                    
                    505,761
                    
                    
                    
                    470,606Stockholders'
      EquityCommon
      stock, $0.001 par value; 100,000,000 shares authorized; 52,794,482 and
      29,768,292  shares issued and outstanding in 2009 and 2008,
      respectively
                    
                    
                    52,795
                    
                    
                    
                    29,768Preferred
      stock, $0.001 par value; 20,000,000 shares authorized, none
      issued
                    
                    
                    -
                    
                    
                    
                    -Paid-in
      capital
                    
                    
                    7,807,670
                    
                    
                    
                    6,548,088Accumulated
      deficit
                    
                    
                    (7,832,650
                    )
                    
                    
                    (6,089,201
                    )Total
      Stockholders' Equity
                    
                    
                    27,815
                    
                    
                    
                    488,655TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY
                    
                    $
                    533,576
                    
                    
                    $
                    959,261
  See notes
to financial statements
  F-3
  UKARMA
CORPORATION
 
 STATEMENTS
OF OPERATIONS
 For
the years ended December 31, 2009 and 2008
 For
      the yearsended
      December 31,2009
                              
                              
                              2008Sales
                              
                              $
                              20,528
                              
                              
                              $
                              86,339Cost
      of  Sale
                              
                              
                              1,226
                              
                              
                              
                              4,048Gross
      Profit
                              
                              
                              19,302
                              
                              
                              
                              82,291Selling,
      General and Administrative Expenses
                              
                              
                              1,738,427
                              
                              
                              
                              2,741,825Operating
      Loss
                              
                              
                              (1,719,125
                              )
                              
                              
                              (2,659,534
                              )Other
      Income (Expenses)Interest
      Expense
                              
                              
                              (23,524
                              )
                              
                              
                              (16,758
                              )Total
      Other Income (Expense)
                              
                              
                              (23,524
                              )
                              
                              
                              (16,758
                              )Net
      Loss before Income Taxes
                              
                              
                              (1,742,649
                              )
                              
                              
                              (2,676,292
                              )Provision
      for Income Taxes
                              
                              
                              800
                              
                              
                              
                              800Net
      Loss
                              
                              $
                              (1,743,449
                              )
                              
                              $
                              (2,677,092
                              )Loss
      Per Share-Basic and Diluted
                              
                              $
                              (0.04
                              )
                              
                              $
                              (0.11
                              )Weighted
      Average Number of Shares
                              
                              
                              43,608,671
                              
                              
                              
                              23,886,934
  See notes
to financial statements
  F-4
 UKARMA
CORPORATION
 
 STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY
 For
the years ended December 31, 2009 and 2008
 
 Common
      Stock
              
              
              Paid-in
              
              
              Stock
              
              
              AccumulatedShares
              
              
              Amount
              
              
              Capital
              
              
              Subscriptions
              
              
              Deficit
              
              
              TotalBalance
      at December 31, 2007
              
              
              20,611,406
              
              
              $
              20,611
              
              
              $
              4,152,161
              
              
              $
              147,200
              
              
              $
              (3,412,109
              )
              
              $
              907,863Stock
      subscriptions issued
              
              
              420,571
              
              
              
              421
              
              
              
              146,779
              
              
              
              (147,200
              )
              
              
              
              
              
              
              -Sales
      of common stock
              
              
              5,349,575
              
              
              
              5,349
              
              
              
              1,230,646
              
              
              
              
              
              
              
              
              
              
              
              1,235,995Issuance
      of common stock for services
              
              
              3,386,740
              
              
              
              3,387
              
              
              
              771,947
              
              
              
              
              
              
              
              
              
              
              
              775,334Issuance
      of stock options
              
              
              
              
              
              
              
              
              
              
              232,115
              
              
              
              
              
              
              
              
              
              
              
              232,115Issuance
      of stock warrants
              
              
              
              
              
              
              
              
              
              
              14,440
              
              
              
              
              
              
              
              
              
              
              
              14,440Net
      Loss for the year endedDecember
      31, 2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,677,092
              )
              
              
              (2,677,092
              )Balance
      at December 31, 2008
              
              
              29,768,292
              
              
              $
              29,768
              
              
              $
              6,548,088
              
              
              $
              -
              
              
              $
              (6,089,201
              )
              
              $
              488,655Sales
      of common stock
              
              
              1,288,266
              
              
              
              1,288
              
              
              
              137,712
              
              
              
              
              
              
              
              
              
              
              
              139,000Issuance
      of common stock forservices
              
              
              3,639,653
              
              
              
              3,640
              
              
              
              301,151
              
              
              
              
              
              
              
              
              
              
              
              304,791Issuance
      of stock options
              
              
              
              
              
              
              
              
              
              
              195,352
              
              
              
              
              
              
              
              
              
              
              
              195,352Insurance
      of common stock for loan fees
              
              
              750,000
              
              
              
              750
              
              
              
              20,750
              
              
              
              
              
              
              
              
              
              
              
              21,500Conversion
      loans and compensation toCommon
      stock
              
              
              17,348,271
              
              
              
              17,349
              
              
              
              329,617
              
              
              
              
              
              
              
              
              
              
              
              346,966Pending
      merger cash proceeds
              
              
              
              
              
              
              
              
              
              
              275,000
              
              
              
              
              
              
              
              
              
              
              
              275,000Net
      Loss for the year endedDecember
      31, 2009
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,743,449
              )
              
              
              (1,743,449
              )Balance
      at December 31, 2009
              
              
              52,794,482
              
              
              $
              52,795
              
              
              $
              7,532,670
              
              
              $
              -
              
              
              $
              (7,832,650
              )
              
              $
              27,815
  See notes
to financial statements
  F-5
  UKARMA
CORPORATION
 
 STATEMENTS
OF CASH FLOWS
 For
the years ended December 31, 2009 and 2008
 
 For
      the years endedDecember
      31,2009
                
                
                2008Cash
      Flow from Operating Activities:Net
      loss
                
                $
                (1,743,449
                )
                
                $
                (2,677,092
                )Adjustment
      to reconcile net loss to net cash used by operating
      activities:Depreciation
                
                
                5,053
                
                
                
                2,760Amortization
      of production costs
                
                
                123,817
                
                
                
                112,654Loss
      on abandonment of leasehold improvements
                
                
                492,119
                
                
                
                -Impairment
      of intangible assets
                
                
                10,358
                
                
                
                -Issuance
      of stock for services
                
                
                304,791
                
                
                
                775,334Issuance
      of stock for loan fee
                
                
                21,500
                
                
                
                -Stock
      option expenses
                
                
                195,352
                
                
                
                232,115Stock
      warrant expenses
                
                
                -
                
                
                
                14,440(Increase)
      Decrease in:Trade
      accounts receivable
                
                
                309
                
                
                
                (309
                )Other
      receivable
                
                
                -
                
                
                
                (26,691
                )Payroll
      tax refund receivable
                
                
                7,159
                
                
                
                -Prepaid
      expenses
                
                
                3,483
                
                
                
                (15,717
                )Inventory
                
                
                3,851
                
                
                
                1,220Capitalized
      production costs
                
                
                -
                
                
                
                75,017Deposit
                
                
                28,380
                
                
                
                (24,646
                )Increase
      (Decrease) in:Accounts
      payable
                
                
                122,235
                
                
                
                139,174Accrued
      expenses
                
                
                259,531
                
                
                
                56,026Net
      Cash Provided (Used) by Operating Activities
                
                
                (165,511
                )
                
                
                (1,335,715
                )Cash
      Flow from Investing Activities:Due
      from stockholder
                
                
                (26,640
                )
                
                
                -Purchase
      of property and equipment
                
                
                (123,900
                )
                
                
                (383,563
                )Net
      Cash Provided (Used) by Investing Activities
                
                
                (150,540
                )
                
                
                (383,563
                )Cash
      Flow from Financing Activities:Proceeds
      from notes payable
                
                
                30,854
                
                
                
                36,500Repayments
      to notes payable
                
                
                (30,499
                )
                
                
                (35,000
                )Proceeds
      from pending mergers
                
                
                175,000
                
                
                
                -Proceeds
      from sale of stock
                
                
                139,000
                
                
                
                1,235,995Net
      Cash Provided (Used) by Financing Activities
                
                
                314,355
                
                
                
                1,237,495Net
      Increase (Decrease) in Cash
                
                
                (1,696
                )
                
                
                (481,783
                )Cash
      Balance at Beginning of Year
                
                
                1,781
                
                
                
                483,564Cash
      Balance at End of Year
                
                $
                85
                
                
                $
                1,781Supplemental
      Disclosures:Interest
      Paid
                
                $
                48,666
                
                
                $
                -Taxes
      Paid
                
                $
                800
                
                
                $
                1,600Noncash
      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
                
                
                $
                -Receivable
      incurred for pending merger proceeds
                
                $
                100,000
                
                
                $
                -
  See notes
to financial statements
  F-6
 UKARMA
CORPORATION
 
 NOTES TO FINANCIAL STATEMENTS
 
 NOTE
1 – NATURE OF OPERATIONS
 
 uKarma
Corporation (“the Company”) was incorporated under the name of OM Capital
Corporation in the State of Nevada on June 26, 2001.  On April 30,
2004, the Company changed its name to uKarma Corporation.  In 2006,
the Company relocated its headquarter to the State of California and became a
California foreign corporation.
 
 The
Company develops and markets proprietary branded personal health and wellness
products, including fitness DVDs, nutraceuticals, and mind, body, and spirit
goods and services, for fitness and health-conscious consumers.  The
Company’s product lines target the rapidly growing tens of millions that are
seeking to enrich their physical, spiritual, and mental wellness.
 
 Through
infomercials and other marketing initiatives, the Company launched its initial
products.  The goal of the infomercials is to generate initial working
capital, and build a community of loyal customers.  From there, the
Company will expand its product offerings into proprietary branded products
primarily within the fitness and wellbeing multimedia and nutraceutical
markets.  As the brand image builds, the Company intends to extend its
brand systematically to other complementary consumer products that meet its
stringent product guidelines and are consistent with its message of “total
health and happiness for oneself and others.”
 
 NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 The
accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America
(GAAP).
 
 Use of estimates: The
preparation of the accompanying financial statements in conformity with U.S.
GAAP requires management to make certain estimates and assumptions that directly
affect the results of reported assets, liabilities, revenue, and expenses.
Actual results may differ from these estimates.
 
 Revenue recognition:
The Company generally recognizes product revenue when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable, and
collectability is probable. In instances where the final acceptance of the
product is specified by the customer, revenue is deferred until all acceptance
criteria have been met. Customers’ prepayments are deferred until products are
shipped and accepted by the customers. No provisions were established for
estimated product returns and allowances based on the Company’s historical
experience.
 
 Cash Equivalents: For
purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with an original maturity of three months or less to be
cash equivalents.
 
 Concentration of
Cash: The Company places its cash and cash equivalents with high quality
financial institutions. At times, cash balances may be in excess of the FDIC’s
insurance limits. Management considers the risk to be minimal.
 
 Inventories:
Inventories consist of finished goods and are stated at the lower of cost or
market, using the first-in, first-out method.
 
 F-7
 UKARMA
CORPORATION
 
 NOTES TO FINANCIAL
STATEMENTS
 
 NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 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 year then ended December
31, 2009 and 2008 was $5,053 and $2,760, 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. As of the balance
sheet date, the Company 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.
 
 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 year then ended
December 31, 2009 and 2008 was $15,987 and $319,761, respectively.
 
 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 $195,352 and $232,115 for year then ended December 31, 2009 and
2008, respectively.
 
 F-8
 UKARMA
CORPORATION
 
 NOTES TO FINANCIAL
STATEMENTS
 
 NOTE 2 - SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 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.
 
 In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards
CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles – a replacement of FASB Statements No.
162”. The statement establishes the Accounting Standards Codification TM(Codification) as the source of authoritative U.S. GAAP recognized by the
FASB to be applied by nongovernmental entities. Under the Codification, all of
its content will carry the same level of authority. This statement is effective
for financial statements issued for interim and annual periods ending after
September 15, 2009. The adoption of this statement did not have a material
impact on the Company’s financial position or results of
operations.
 
 In June
2009, the FASB issued SFAS No.167, “Amendments to FASB Interpretation
No. 46(R).”  The statement changes the approach to determining
the primary beneficiary of a variable interest entity (VIE) and requires
companies to more frequently assess whether they must consolidate VIEs. This new
standard is effective for fiscal years beginning after November 15, 2009.
The Company is currently assessing the potential impacts, if any, on its
financial statements.
  In June
2009, the FASB issued SFAS No. 166, “Accounting for Transfers of
Financial Assets, an amendment of FASB Statement No. 140.” The statement
improves the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. This new standard is
effective for fiscal years beginning after November 15, 2009. The Company is
currently assessing the potential impacts, if any, on its financial
statements.
  In May
2009, the FASB issued SFAS No. 165, “Subsequent Events.” The statement establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. This new standard is effective for fiscal years or
interim periods after June 15, 2009. The adoption of this statement did not have
a material impact on the Company’s financial position or results of
operations.
 
 F-9
 UKARMA
CORPORATION
 
 NOTES TO 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:
 
 December
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008(Audited)
                    
                    
                    (Audited)Prepaid
      Royalty
                    
                    $
                    67,380
                    
                    
                    $
                    68,581Prepaid
      Legal
                    
                    
                    -
                    
                    
                    
                    2,282Total
      Prepaid Expenses
                    
                    $
                    67,380
                    
                    
                    $
                    70,863
 On April
25, 2008, the Company entered into an agreement with a coauthor for its diet and
nutrition book that it is self publishing and plans to market direct to
customers.  Pursuant to this agreement, the Company paid the coauthor
a $10,000 advance against future royalties.  The Company will pay the
coauthor a 5% royalty if uKarma acts as the publisher or a 2 1⁄2% royalty if
uKarma engages a third party publisher after the $10,000 advance is
recouped.
 
 On March
26, 2008, the Company entered into an agreement with an author to write a book
related to diet and nutrition that the Company plans to self publish and market
directly to consumers. Pursuant to the agreement, the author will be paid a
$40,000 advance on royalties with the following arrangement: $15,000 payable
upon execution of the agreement; $15,000 payable on or before the completion and
delivery of the first 50% of the book; and $10,000 on full completion, delivery,
and acceptance of the book.  The $40,000 advance on royalties is based on
the first 50,000 books sold. The author will receive a 5% royalty on sales above
50,000 books sold where the Company acts as the publisher and 2 1/2% royalty on
sales above 50,0000 books sold if the Company engages a third party
publisher.  As of December 31, 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 December 31, 2009, there is a
balance of $57,380 after advancing $70,000 and deducting royalties to the 2009
sales. Future royalty obligations will be deducted from the current
balance.
 
 F-10
 UKARMA
CORPORATION
 
 NOTES TO FINANCIAL
STATEMENTS
  NOTE
5 – PROPERTY AND EQUIPMENT
 
 Property
and equipment consisted of the following:
 
 December
      31,
                    
                    
                    December
      31,2009
                    
                    
                    2008(Audited)
                    
                    
                    (Audited)Furniture
      & Fixtures
                    
                    $
                    15,459
                    
                    
                    $
                    13,721Machinery
      & Equipment
                    
                    
                    12,525
                    
                    
                    
                    12,525Studio
      Leasehold Improvements
                    
                    
                    -
                    
                    
                    
                    369,95727,984
                    
                    
                    
                    396,203Accumulated
      Depreciation
                    
                    
                    (9,742
                    )
                    
                    
                    (4,689
                    )Property
      and Equipment, net
                    
                    $
                    18,242
                    
                    
                    $
                    391,514
 NOTE
6 – PRODUCTION COSTS
 
 The
Company capitalized costs incurred for recording seven fitness videos’ master
copies.  As of December 31, 2009, total costs of $619,085 were
capitalized.  All costs consisted of in-production costs
only.
 
 Beginning
in the second quarter of 2007, the costs were amortized on a straight-line
method over the estimated life of the recorded performances, which is five
years.  The Company recorded an amortization expense of $123,817 and
$112,654 for the year ended December 31, 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.  As of the balance sheet date, the Company determined that the
patent application is not likely to be awarded, accordingly, recognized an
impairment loss of $10,358. The impairment loss was included in legal expense
for 2009.
 
 NOTE
8 – MERGER AND ACQUISITION
 
 On
October 19, 2009, the Company and its wholly owned subsidiary, GCC Merger Sub
Corporation (“Merger Sub”), entered into a Merger Agreement with Galen Capital
Corporation (“GCC”) dated as of October 15, 2009 (“Agreement”).  This
followed a previously executed Letter of Intent between the Company and GCC
dated June 11, 2009.
 
 Under the
Agreement, Merger Sub would merge with GCC such that following the merger
(“Merger” or “Transaction”), GCC would be a wholly owned subsidiary of the
Company.  As consideration for the transaction, the Company would
issue to GCC security holders that number of shares of common stock on a fully
diluted basis (“Common Shares”) such that following such issuance, GCC security
holders would hold 95% of the outstanding Company Common Shares on a fully
diluted basis.  GCC common stock would be exchanged for the Company
Common Shares.  GCC’s convertible preferred stock, options, and
warrants would be exchanged for equivalent the Company’s preferred stock,
options, and warrants. In addition, GCC agreed to pay the Company an amount
equal to $275,000.
 
 F-11
 UKARMA
CORPORATION
 NOTES TO FINANCIAL
STATEMENTS
  NOTE
8 – MERGER AND ACQUISITION (continued)
 
 On
December 22, 2009, the Company amended the Merger Agreement with GCC. Under the
amended agreement, the closing date has changed to May 15, 2010. GCC has also
agreed to pay the Company an amount equal to $475,000 (“Cash Payment”) and
replaced the previous agreement amount of $275,000. As of December 31, 2009,
$175,000 of the Cash Payment has already been paid to uKarma as a non-refundable
deposit along with  $11,000 of expenses. The remaining balance of the
Cash Payment shall be paid in three equal installments of $100,000 on or before
December 31, 2009, January 30, 2010 and March 31, 2010. The Company recorded a
receivable of $100,000 for the installment that was due on December 31,
2009.
 
 NOTE
9 – ACCRUED EXPENSES
 
 Accrued
expenses consisted of the following:
 
 December
      31,
                
                
                December
      31,2009
                
                
                2008Accrued
      Professional Fees
                
                $
                28,700
                
                
                $
                15,000Accrued
      Salaries
                
                
                146,246
                
                
                
                41,404Employee
      Reimbursable
                
                
                -
                
                
                
                6,955Accrued
      Sales Tax
                
                
                -
                
                
                
                18Accrued
      Income Tax
                
                
                1,600
                
                
                
                800Others
                
                
                -
                
                
                
                2,500Total
      Accrued Expenses
                
                $
                176,546
                
                
                $
                66,677
 
 NOTE
10 – NOTES PAYABLE
 
 The notes
payable to unrelated parties bear interest at 6% per annum and are due on one
year anniversary of May 2009 and September 2009. As of December 31, 2009, the
balance was $10,819 including accrued interest of $319.
 
 During
the year ended December 31, 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 year ended December 31, 2009, the Board of Directors of the Company approved
the issuance of an aggregate 3,639,653 shares of Company’s common stock to
various providers in consideration of their services to the Company.  The
shares were valued and charged to operations based on the opening trading price
on the grant date, or $304,791 in the aggregate.
 
 F-12
 UKARMA
CORPORATION
 NOTES TO FINANCIAL
STATEMENTS
  NOTE
11 – STOCKHOLDERS’ EQUITY (continued)
 
 During
the year ended December 31, 2009, the Board of Directors of the Company approved
the issuance of an aggregate 17,348,271 restricted shares of common stock to its
Chief Executive Officer in consideration for cancellation of debt and deferred
and accrued compensation owed by the Company to the CEO pursuant to a Conversion
Agreement entered into between the Company and the CEO on June 11,
2009.  The shares were valued based on the opening bid price on the
grant date, or $346,966 in the aggregate.
 
 Through
December 31, 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.
 
 On
September 17, 2009, the Board of Directors of the Company approved the issuance
of an aggregate 250,000 restricted shares of common stock to an individual in
connection with a loan made by him to the Company. The shares were valued based
on the opening bid price on the grant date, or $7,500 in the
aggregate.
 
 On August
17, 2009, the Board of Directors of the Company approved the issuance of an
aggregate 200,000 restricted shares of common stock to an individual in
connection with a loan made by him to the Company. The shares were valued based
on the opening bid price on the grant date, or $8,000 in the
aggregate.
 
 On June
11, 2009, the Board of Directors of the Company approved the issuance of an
aggregate 300,000 restricted shares of common stock to an individual in
connection with a loan made by him to the Company. The shares were valued based
on the opening bid price on the grant date, or $6,000 in the
aggregate.
 
 During
the year ended December 31, 2008, the Board of Directors of the Company approved
the issuance of an aggregate 3,386,740 shares of the Company’s common stock to
various providers as consideration for their services to the Company. The shares
were valued and charged to operations at a price of $0.12 to $0.35 per share, or
$775,334 in the aggregate. The valuation was based on the closing trading price
and/or the public offering prior to June 2008 of $0.35 per share, with
discounts, if applicable as per the service agreements.
 
 During
the year ended December 31, 2008, the Company received $859,750 and sold
2,456,428 shares of the Company’s common stock pursuant to the August 6, 2007
offering at a price of $0.35 per share. The Company also sold 2,893,147 shares
of its common stock and received $376,245 in a self-private placement
offering.
 
 NOTE
12 - PROVISION FOR INCOME TAXES
 
 Provision
of income tax consists of a minimum state franchise tax of $800 for the year
ended December 31, 2009 and 2008, respectively.
 
 The
Company has net operating loss carryforwards, approximately of $7,513,900 and
$6,058,451, which is suspended until 2010, to reduce future federal and state
taxable income as of December 31, 2009 and 2008, respectively. To the extent not
utilized, the carryforwards will begin to expire through 2028 for federal tax
purposes and through 2020 for state tax purposes. The Company’s ability to
utilize its federal net operating loss carryforwards is uncertain and thus a
valuation reserve has been provided against the Company’s net deferred tax
assets.
 
 F-13
 UKARMA
CORPORATION
 NOTES TO FINANCIAL
STATEMENTS
  NOTE
12 - PROVISION FOR INCOME TAXES (continued)
 
 The
deferred tax asset as of December 31, 2009 and 2008 consists of the
following:
  2009
              
              
              2008Tax
      Benefit on Net Operating Loss Carryforward
              
              $
              2,629,865
              
              
              $
              2,120,458Less:
      Valuation Allowance
              
              
              (2,629,865
              )
              
              
              (2,120,458
              )Net
      Deferred Tax Asset
              
              $
              -
              
              
              $
              -
 
 NOTE
13 – NET LOSS PER SHARE
 
 The
following table sets forth the computation of basic and diluted net loss per
share:
 
 For
      years endedDecember
      31,Numerator:
                
                2009
                
                
                2008Net
      Loss
                
                $
                (1,743,449
                )
                
                $
                (2,677,092
                )Denominator:Weighted
      Average of Common Shares
                
                
                43,608,671
                
                
                
                23,886,934Basic
      and Diluted Net Loss per Share
                
                $
                (0.04
                )
                
                $
                (0.11
                )
 There
were no dilutive securities for the year ended December 31, 2009.
 
 As the
Company incurred a net loss for the year ended December 31, 2009, the effect of
dilutive securities totaling 250,000 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 6,527,000 shares out-of-money stock options and
warrants excluded from the calculation of diluted net loss per share for the
year ended December 31, 2009 and 2008, respectively, because their exercise
prices were greater than the average fair market price of the common
stock.
 
 NOTE
14 – 2006 STOCK OPTION PLAN
 
 On
January 1, 2006, the Board of Directors approved and adopted the 2006 Stock
Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide the
issuance of non-qualified and/or incentive stock options to employees, officers,
directors and consultants and other service providers.  Generally, all
options granted expire ten years from the date of grant.  All options
have an exercise price equal to or higher than the fair market value of the
Company’s stock on the date the options were granted.  It is the
policy of the Company to issue new shares for stock option exercised and
restricted stock, rather than issued treasury shares.  Options
generally vest over ten years.  The Plan reserves 7,500,000 shares of
common stock under the Plan and shall be effective through December 31,
2015.
 
 F-14
 UKARMA
CORPORATION
 NOTES TO FINANCIAL
STATEMENTS
  NOTE
14 – 2006 STOCK OPTION PLAN (continued)
 
 A summary
of the status of stock options issued by the Company as of December 31, 2009 and
2008 is presented in the following table:
  2009
                
                
                2008Weighted
                
                
                
                
                
                WeightedNumber
                
                
                Average
                
                
                Number
                
                
                Averageof
                
                
                Exercise
                
                
                of
                
                
                ExerciseShares
                
                
                Price
                
                
                Shares
                
                
                PriceOutstanding
      at beginning of year
                
                
                5,295,000
                
                
                $
                0.20
                
                
                
                5,250,000
                
                
                $
                0.20Granted
                
                
                -
                
                
                
                -
                
                
                
                45,000
                
                
                $
                0.35Exercised/Expired/Cancelled
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Outstanding
      at end of period
                
                
                5,295,000
                
                
                $
                0.20
                
                
                
                5,295,000
                
                
                $
                0.20Exercisable
      at end of period
                
                
                4,265,000
                
                
                $
                0.20
                
                
                
                3,208,344
                
                
                $
                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
                
                
                $
                0.11Risk-free
      interest rate
                
                
                N/A
                
                
                
                3.23
                %Expected
      dividend yield
                
                
                N/A
                
                
                
                0
                %Expected
      lives
                
                
                N/A
                
                
                
                5Expected
      volatility
                
                
                N/A
                
                
                
                29.49
                %
 
 The
following table sets forth additional information about stock options
outstanding at December 31, 2009:
  WeightedAverage
                
                
                WeightedRange
      of
                
                
                
                
                
                Remaining
                
                
                AverageExercise
                
                
                Options
                
                
                Contractual
                
                
                Exercise
                
                
                OptionsPrices
                
                
                Outstanding
                
                
                Life
                
                
                Price
                
                
                Exercisable$0.20-$0.35
                
                
                
                5,295,000
                
                
                
                5.76
                
                
                $
                0.20
                
                
                
                4,265,0005,295,000
                
                
                
                5.76
                
                
                $
                0.20
                
                
                
                4,265,000
  F-15
 UKARMA
CORPORATION
 NOTES TO FINANCIAL
STATEMENTS
  NOTE
14 – 2006 STOCK OPTION PLAN (continued)
 
 As of
December 31, 2009, there was $97,574 of total unrecognized compensation cost
related to non-vested share-based compensation arrangements granted under the
Plan.  That cost is expected to be recognized over a weighted average
period of 0.52 years.
 
 As of
December 31, 2008, there was $292,926 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 1.49 years.
 
 NOTE
15 – STOCK WARRANTS
 
 As of
December 31, 2009, the Company had warrants to purchase 6,482,000 shares of the
Company’s common stocks. The warrants are exercisable from $0.25 to $1.00 and
will expire through October 2012.
 
 The
Company recognized $14,440 stock warrant expense for the year ended December 31,
2008.  No stock warrant expense was recognized for the year ended
December 31, 2009.
 
 NOTE
16 – RELATED PARTY TRANSACTIONS
 
 During
the year ended December 31, 2008, the Company paid $23,500 to a director for his
consulting services to the Company. During the year ended December 31, 2009, the
Company paid $14,285 in 714,250 shares of the Company’s common stock for his
services to the Company.
 
 As of
December 31, 2008, the Company had an employee advance of $19,532 due from the
Company’s CEO. The Company also had accrued salary of $38,462 payable to the
CEO. The advance will be netted against the accrued salary payable when it is
reported to the Internal Revenue Service. In addition, the Company had an
employee reimbursable of $6,955 due to the Company’s CEO. The reimbursable did
not carry interest and payable on demand.
 As of
December 31, 2009, the Company had an employee advance of $46,173 due from the
Company’s CEO. The Company also had accrued salary of $134,615 payable to the
CEO. The advance will be netted against the accrued salary payable when it is
reported to the Internal Revenue Service.
 NOTE
17 – LEGAL DISPUTE
 
 On June
17, 2009, Jeffrey Fischer (the “Landlord”) filed a compliant against uKarma
Corporation and Bill Glaser, our Chief Executive Officer, in the Los Angeles
Superior Court in Los Angeles, California. The Landlord claimed that we owe back
rent on the lease of our yoga and fitness studio in Sherman Oaks, California and
sought to recover $222,859.97 and evict us from the subject property. We denied
liability and contend that the Landlord never reimbursed us for a tenant
improvement allowance of $165,000 pursuant to the lease along with other
breaches by the Landlord. The judge in the cased denied a writ of attachment
motion that was submitted by the Landlord.  A settlement could not be
reached between the parties, and as such the Company vacated the property on
September 30, 2009.   On December 2, 2009, the Landlord filed a First
Amended complaint naming the Company, Mr. Glaser, and Fred Tannous, a director
of the Company, and a number of unrelated parties and adding additional causes
of actions and damages totaling $1,066,660.00.  The Company filed a demurer
that was heard and sustained by the court on March 2, 2010.  As a result of
the judge’s ruling, there is currently no pending complaint on file against the
Company, Mr. Glaser and Mr. Tannous.  The judge did provide the Landlord
with the right to amend the complaint within 45 days from March 2, 2010. 
If and when he does so, we plan to defend such claims that we believe are false
and frivolous along with initiating legal action against the Landlord for full
recovery of all tenant improvements it incurred to date along with other
damages.
 
 F-16
 UKARMA
CORPORATION
 NOTES TO FINANCIAL
STATEMENTS
  NOTE
18 – SUBSEQUENT EVENTS
 
 On March
9, 2010 and pursuant to the terms of the Merger Agreement between the Company
and GCC, the Company received a payment in the amount of $100,000 towards the
Cash Payment that is due under the agreement and $12,500 worth of
expenses.
 
 F-17


ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE





There
were no changes in or disagreements with our accountants on accounting and
financial disclosures during our last two fiscal years.





ITEM
9A.  CONTROLS AND PROCEDURES





Disclosure
Controls and Procedures





Regulations
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
require public companies to maintain “disclosure controls and procedures,” which
are defined to mean a company’s controls and other procedures that are designed
to ensure that information required to be disclosed in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized, and
reported, within the time periods specified in the SEC’s rules and
forms.  Our Chief Executive Officer and Interim Chief Financial
Officer carried out an evaluation of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this
report.  Based on those evaluations, as of December 31, 2009, our CEO
and CFO believes that:





(i)
            our
      disclosure controls and procedures are designed to ensure that information
      required to be disclosed by us in the reports we file under the Exchange
      Act is recorded, processed, summarized, and reported within the time
      periods specified in the SEC’s rules and forms, and that such information
      is accumulated and communicated to our management, including the CEO and
      CFO, as appropriate, to allow timely decisions regarding required
      disclosure; and





(ii)
            our
      disclosure controls and procedures are
  effective.





Internal
Control over Financial Reporting





(a) Management’s
annual report on internal control over financial reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting.  Internal control over financial
reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated
under the Exchange Act as a process designed by, or under the supervision of,
the Company’s principal executive officer and principal financial officer and
effected by the Company’s board of directors, management, and other personnel,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles and includes those policies and
procedures that:





·
            Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of the assets of the
      Company;





·
            Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the Company
      are being made only in accordance with authorizations of management and
      directors of the Company; and





·
            Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use, or disposition of the Company’s assets that
      could have a material effect on the financial
  statements.





Because
of its inherent limitations, the Company’s internal control over financial
reporting may not prevent or detect misstatements.  Therefore, even
those systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation and
presentation.  Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.





Our
management assessed the effectiveness of our internal control over financial
reporting as of December 31, 2009.  In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework.





Based on
our assessment, management believes that, as of December 31, 2009, our
internal control over financial reporting is effective based on those
criteria.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only the management’s report in this
annual report.




15





(b)
Changes in internal control over financial reporting





There
were no changes in our internal control over financial reporting identified in
connection with the evaluation required by Rule 13a-15(d) or
Rule15d-15(d) promulgated under the Exchange Act that occurred during our
fourth fiscal quarter that has materially affected, or is reasonably likely to
materially affect, our internal control over financial
reporting.







PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





The
names, ages and biographical information of each of our directors and executive
officers as of December 31, 2009 are set forth below.





Name
            
            Age
            
            Position Held
            
            Initial Election or
              Appointment DateBill
      Glaser
            
            43
            
            Chairman,
      Chief Executive Officer and Interim Chief Financial
      Officer
            
            June
      2001Fred
      Tannous
            
            43
            
            Director
            
            June
      2001




Business
Experience Descriptions





Set forth
below is a summary of our executive officers’ and directors’ business experience
for the past 5 years.  The experience and background of each of the
directors, as summarized below, were significant factors in their previously
being nominated as directors of the Company.





Bill
Glaser.  Mr. Glaser is currently our Chairman, Chief Executive
Officer and Interim Chief Financial Officer.  Mr. Glaser began to
devote his full time to the Company beginning in July 2005.  From
December 2000 to July 2005 Bill served as President of Health Sciences Group,
Inc., a manufacturer, marketer, and distributor of pharmaceuticals and nutrition
based products.  He was also a director of Health Sciences from
December 2000 to May 2007, during which time the company was publicly
traded.  He worked closely with the CEO of Health Sciences to provide
oversight in all aspects of operations ranging from crafting and executing
Health Sciences’ overall growth strategy to structuring debt and equity
financings and seeking and evaluating qualified acquisition
candidates.  Prior to that, Mr. Glaser was founder and Chief Executive
Officer of Zenterprise, Inc., a corporate consulting firm, which provided
strategy, finance, and marketing services for both public and private
companies.  Prior, Mr. Glaser was a registered principal of a regional
stock brokerage firm where he gained diverse experience in finance, management,
marketing, sales, and public company relations.  Previously, he was a
registered representative at Drexel Burnham Lambert and Smith
Barney.  Mr. Glaser holds a Bachelor’s degree in finance and economics
from the Ithaca College - School of Business.




Fred
Tannous.  Mr. Tannous is currently our director.  He
had been the co-Chairman, Chief Executive Officer, and Treasurer of Health
Sciences Group from October 2000 to May 2007. He was also a director of
Health Sciences from December 2000 to May 2007 during which time the company was
publicly traded.  Previously, Mr. Tannous was employed at DIRECTV,
Inc. where he was involved in various capacities including valuing, structuring,
and executing strategic investments.  Prior to joining DIRECTV, a
wholly owned subsidiary of Hughes Electronics Corporation, Mr. Tannous was with
the corporate treasury organization of Hughes where he assisted in conducting
valuations and effectuating financing transactions for the company’s satellite
and network communication units.  From February 1996 to May 1999, Mr.
Tannous served as Treasurer and Chief Financial Officer of Colorado Casino
Resorts, Inc., a gaming and lodging concern with operations in
Colorado.  In addition to overseeing the company’s finance and
accounting operations, he was accountable for all corporate finance and treasury
activities.  Previously, as principal of his own consulting firm, Mr.
Tannous consulted to several start-up ventures in various industries where he
was instrumental in developing business plans, advising on business strategy and
capital structure, and arranging venture financings.  Mr. Tannous
received an MBA in finance and accounting from the University of Chicago,
Graduate School of Business.  He also holds a Masters and Bachelors
degree in Electrical Engineering from the University of Southern
California.





Family
Relationships





There are
no family relationships among our directors and executive officers.




Involvement
in Certain Legal Proceedings





None of
our directors or executive officers has, during the past ten years:




·
            Had
      any petition under the federal bankruptcy laws or any state insolvency law
      filed by or against, or had a receiver, fiscal agent, or similar officer
      appointed by a court for the business or property of such person, or any
      partnership in which he was a general partner at or within two years
      before the time of such filing, or any corporation or business association
      of which he was an executive officer at or within two years before the
      time of such filing;




16




·
            Been
      convicted in a criminal proceeding or a named subject of a pending
      criminal proceeding (excluding traffic violations and other minor
      offenses);





·
            Been
      the subject of any order, judgment, or decree, not subsequently reversed,
      suspended, or vacated, of any court of competent jurisdiction, permanently
      or temporarily enjoining him from, or otherwise limiting, the following
      activities:





(i)
            Acting
      as a futures commission merchant, introducing broker, commodity trading
      advisor, commodity pool operator, floor broker, leverage transaction
      merchant, any other person regulated by the Commodity Futures Trading
      Commission, or an associated person of any of the foregoing, or as an
      investment adviser, underwriter, broker or dealer in securities, or as an
      affiliated person, director or employee of any investment company, bank,
      savings and loan association or insurance company, or engaging in or
      continuing any conduct or practice in connection with such
      activity;





(ii)
            Engaging
      in any type of business practice;
or





(iii)
            Engaging
      in any activity in connection with the purchase or sale of any security or
      commodity or in connection with any violation of federal or state
      securities laws or federal commodities
laws;





·
            Been
      the subject of any order, judgment, or decree, not subsequently reversed,
      suspended, or vacated, of any federal or state authority barring,
      suspending, or otherwise limiting for more than 60 days the right of such
      person to engage in any activity described in (i) above, or to be
      associated with persons engaged in any such
  activity;





·
            Been
      found by a court of competent jurisdiction in a civil action or by the SEC
      to have violated any federal or state securities law, where the judgment
      in such civil action or finding by the SEC has not been subsequently
      reversed, suspended, or vacated; or





·
            Been
      found by a court of competent jurisdiction in a civil action or by the
      Commodity Futures Trading Commission to have violated any federal
      commodities law, where the judgment in such civil action or finding by the
      Commodity Futures Trading Commission has not been subsequently reversed,
      suspended, or vacated.





·
                    Been
      the subject of, or a party to, any federal or state judicial or
      administrative order, judgment, decree, or finding, not subsequently
      reversed, suspended or vacated, relating to an alleged violation
      of:(i)
                    Any
      federal or state securities or commodities law or regulation;
      or(ii)
                    Any
      law or regulation respecting financial institutions or insurance companies
      including, but not limited to, a temporary or permanent injunction, order
      of disgorgement or restitution, civil money penalty or temporary or
      permanent cease-and-desist order, or removal or prohibition order;
      or(iii)
                    Any
      law or regulation prohibiting mail or wire fraud or fraud in connection
      with any business entity;
or





·
            Been
      the subject of, or a party to, any sanction or order, not subsequently
      reversed, suspended or vacated, of any self-regulatory organization (as
      defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any
      registered entity (as defined in Section 1(a)(29) of the Commodity
      Exchange Act), or any equivalent exchange, association, entity or
      organization that has disciplinary authority over its members or persons
      associated with a member.





Compliance
with Section 16(a) of the Securities Exchange Act of 1934





Our
executive officers, directors, and persons who beneficially own more than 10% of
a registered class of our equity securities are not currently subject to Section
16(a) of the Exchange Act.





Code
of Ethics




We have
adopted a code of ethics that applies to our directors, executive officers,
including our Chief Executive Officer and Interim Chief Financial Officer, and
employees.  A copy of our code of ethics is filed as Exhibit 14.1 with
our annual report on Form 10-KSB filed with the SEC on April 15,
2008.




17





Recommendation
of Nominees to the Board





There
were no changes to the procedures by which our stockholders may recommend
nominees to our board of directors.





Diversity





The
Company does not currently have a policy regarding diversity of its board
members.





Audit
Committee; Audit Committee Financial Expert





We do not
have a separately designated standing audit committee or a committee performing
similar functions.  We do, however, consider Mr. Glaser, our Interim
Chief Financial Officer, a financial expert regarding generally accepted
accounting principals and general application of such principles in connection
with the accounting for estimates and accruals, including an understanding of
internal control procedures and policies over financial reporting, and maintains
sufficient experience preparing, auditing, analyzing, and evaluating financial
statements in such depth and breadth as may be required of an audit committee
financial expert.





ITEM
11.  EXECUTIVE COMPENSATION





The
following summary compensation table indicates the cash and non-cash
compensation earned during the years ended December 31, 2009, 2008, and
2007 by (i) our Chief Executive Officer (principal executive officer), (ii) our
Interim Chief Financial Officer (principal financial officer), (iii) the three
most highly compensated executive officers other than our CEO and CFO who were
serving as executive officers at the end of our last completed fiscal year,
whose total compensation exceeded $100,000 during such fiscal year ends, and
(iv) up to two additional individuals for whom disclosure would have been
provided but for the fact that the individual was not serving as an executive
officer at the end of our last completed fiscal year, whose total compensation
exceeded $100,000 during such fiscal year ends.





SUMMARY COMPENSATION TABLE





Name and
                  Principal Position
                
                Year
                
                Salary
                  ($)
                
                Bonus
                  ($)
                
                Stock
                  Awards
                  ($)
                
                Option
                  Awards
                  ($)(1)
                
                Non-
                  Equity
                  Incentive
                  Plan
                  Compen-
                  sation
                  ($)
                
                Non-
                  qualified
                  Deferred
                  Compen-
                  sation
                  Earnings
                  ($)
                
                All
                  Other
                  Comp-
                  ensation
                  ($)
                
                Total
                  ($)Bill
      Glaser,
                
                2009
                
                $
                144,231
                (2)
                —
                
                —
                
                $
                190,108
                
                —
                
                —
                
                $
                9,000
                (3)
                $
                343,339CEO
      and Interim CFO
                
                2008
                
                $
                211,538
                
                —
                
                —
                
                $
                190,110
                
                —
                
                —
                
                $
                9,000
                (3)
                $
                410,6482007
                
                $
                250,000
                
                —
                
                —
                
                $
                178,171
                
                —
                
                —
                
                $
                9,000
                (3)
                $
                437,171








(1)
            The
      assumptions made in the valuation of these options can be found in Note 2
      to our financial statements for the period ended December 31,
      2009.(2)
            This
      amount was paid in the form of 7,211,535 shares of our common
      stock.





(3)
            This
      compensation consists of a car allowance of $750 per month pursuant to Mr.
      Glaser’s employment agreement.





Grants
of Plan-Based Awards





We made
no grants of an award to a named executive officer during the year ended
December 31, 2008 under any plan.





Employment
Agreements





On
January 1, 2006, we entered into a five-year employment agreement with our Chief
Executive Officer, Bill Glaser.  This employment agreement provides
him with a salary of $180,000 per year.  The salary increases to
$250,000, $360,000 and $500,000 per year if we either (i) raise $1.0 million,
$2.5 million or $5 million in debt or equity financing in the aggregate,
respectively, or (ii) recognize $1.0 million, $2.5 million or $5 million in
cumulative gross revenues (i.e., the sum of all revenues recognized since
commencement of operations), respectively.  During 2007, pursuant to
the milestones met, Mr. Glaser’s salary was increased to $250,000 per
year.   He is also eligible for a performance bonus in an amount
equal to 5% of “Adjusted EBITDA” for each fiscal year.  “Adjusted
EBITDA” is earnings before interest, taxes, depreciation and amortization, but
adjusted to account for non-cash expenses and calculated from financial
statements in accordance with generally accepted accounting
principles.  He also received options to purchase 5,000,000 shares of
our common stock at $0.20 per share. These options are exercisable at the rate
of 500,000 on July 1, 2006, 1,000,000 on January 1, 2007, and 500,000 every six
months thereafter. These options were granted to Mr. Glaser based on the Board’s
view that they provided an appropriate incentive and compensation.  He
is entitled to participate in all medical, pension, dental, and life insurance
benefits that are in effect from time to time.  He also receives a car
allowance of $750 per month.




18





We are
required to pay Mr. Glaser the greater of the remainder of his salary or
$250,000 if we enter into a change of control transaction within a month after
his termination.  All of his options will accelerate their vesting
upon such an event.





Upon
termination without cause, we are required to pay Mr. Glaser the lesser of his
salary for the remainder of the term of the agreement and one-year’s
salary.  In addition, all five million options would automatically
vest. Mr. Glaser has agreed not to solicit any employee to terminate his
employment relationship with us during the term of Mr. Glaser’s employment
agreement or a 12-month period thereafter.  Pursuant to the terms of
his employment agreement, all proprietary information will be kept confidential
by Mr. Glaser, and inventions developed during the course of his employment will
belong to the Company.




Outstanding
Equity Awards at December 31, 2009





OPTION
      AWARDS
            
            STOCK
      AWARDSName
            
            Number of
              securities
              underlying
              unexercised
              options (#)
              Exercisable
            
            Number of
              securities
              underlying
              unexercised
              options (#)
              Unexercis-
              able
            
            Equity
              Incentive
              Plan
              Awards:
              Number of
              Securities
              underlying
              unexercised
              unearned
              options (#)
            
            Option
              exercise
              price ($)
            
            Option
              expiration
              date
            
            Number
              of shares
              or units
              of stock
              that
              have not
              vested
              (#)
            
            Market
              value
              of
              shares
              or units
              of
              stock
              that
              have
              not
              vested
              ($)
            
            Equity
              incentive
              plan
              awards:
              number
              of
              unearned
              shares,
              units or
              other
              rights
              that have
              not
              vested
              (#)
            
            Equity
              incentive
              plan
              awards:
              Market
              or payout
              value of
              unearned
              shares,
              units or
              other
              rights
              that have
              not
              vested
              (#)Bill
      Glaser
            
            4,000,000
            
            
            1,000,000
            
            —
            
            $
            0.20
            
            01/01/2016
            
            
            —
            
            —
            
            
            —
            
            —Fred
      Tannous
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            —
            
            —




Option
Exercises and Stock Vested





There
were no exercises of stock options, SARs, and similar instruments, or vesting of
stock, during our fiscal year ended December 31, 2009 for any of our named
executive officers.





Director
Compensation





Directors
do not currently receive compensation for their services as directors, but we
plan to reimburse them for expenses incurred in attending board
meetings.





Compensation
Committee Interlocks and Insider Participation





We do not
currently have a compensation committee.  During our fiscal year ended
December 31, 2009, our entire Board of Directors participated in deliberations
concerning executive officer compensation.





During
the fiscal year ended December 31, 2009:





(i) none
of our executive officers served as a member of the compensation committee (or
other board committee performing equivalent functions or, in the absence of any
such committee, the entire board of directors) of another entity, one of whose
executive officers served on our compensation committee;




19





(ii) none
of our executive officers served as a director of another entity, one of whose
executive officers served on our compensation committee; and





(iii)
none of our executive officers served as a member of the compensation committee
(or other board committee performing equivalent functions or, in the absence of
any such committee, the entire board of directors) of another entity, one of
whose executive officers served as a member of our board of
directors.





ITEM
12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS





Securities
Authorized for Issuance under Equity Compensation Plans





Please
see the section titled “Securities Authorized for Issuance under Equity
Compensation Plans” under Item 5 above.





Security
Ownership of Certain Beneficial Owners and Management





The
following table sets forth information regarding the beneficial ownership of our
common stock as of April 14, 2010 for each of our directors and officers; all
directors and officers as a group; and each person known by us to beneficially
own five percent or more of our common stock.  Beneficial ownership is
determined in accordance with SEC rules.  Unless otherwise indicated
in the table, the persons and entities named in the table have sole voting and
sole investment power with respect to the shares set forth opposite the
shareholder’s name.




Name and Address of Beneficial Owner (1)
            
            Number of
              Shares of
              Common Stock
              Beneficially
              Owned (2)
            
            Percentage of
              Outstanding
              Shares of
              Common
              Stock (2)(3)Named
      Executive Officers and Directors:Bill
      Glaser
            
            
            29,781,979
            (4)
            56.4
            %Fred
      Tannous
            
            
            1,714,250
            
            3.2
            %All
      Officers and Directors as a Group (2 persons)
            
            
            31,496,229
            
            59.6
            %







(1)
            Unless
      otherwise indicated, the address of each beneficial owner listed below is
      499 North Canon Drive, Suite 308, Beverly Hills, CA
      90210.





(2)
            Under
      Rule 13d-3, a beneficial owner of a security includes any person who,
      directly or indirectly, through any contract, arrangement, understanding,
      relationship, or otherwise has or shares: (i) voting power, which includes
      the power to vote, or to direct the voting of shares; and (ii) investment
      power, which includes the power to dispose or direct the disposition of
      shares.  Certain shares may be deemed to be beneficially owned
      by more than one person (if, for example, persons share the power to vote
      or the power to dispose of the shares).  In addition, shares are
      deemed to be beneficially owned by a person if the person has the right to
      acquire the shares (for example, upon exercise of an option) within 60
      days of the date as of which the information is provided.  In
      computing the percentage ownership of any person, the amount of shares
      outstanding is deemed to include the amount of shares beneficially owned
      by such person (and only such person) by reason of these acquisition
      rights.  As a result, the percentage of outstanding shares of
      any person as shown in this table does not necessarily reflect the
      person's actual ownership or voting power with respect to the number of
      shares of common stock actually
outstanding.





(3)
            The
      percentage of class beneficially owned is based on 52,794,482 shares of
      common stock outstanding on April 14,
2010.




(4)
            4,000,000
      of these shares represent the number of shares of common stock that Mr.
      Glaser has the right to purchase upon exercise of options, and 575,000 of
      these shares represent the number of shares of common stock issuable upon
      exercise of warrants held by Mr.
Glaser.





Change
of Control




On
October 19, 2009, the Company and its wholly owned subsidiary, GCC Merger Sub
Corporation (“Merger Sub”), entered into a Merger Agreement with Galen Capital
Corporation (“GCC”) dated as of  October 15, 2009.  This
followed a previously executed Letter of Intent between the Company and GCC
dated June 11, 2009.




Under the
agreement, Merger Sub would merge with GCC such that following the merger
(“Merger” or “Transaction”), GCC would be a wholly owned subsidiary of the
Company.  As consideration for the transaction, the Company would
issue to GCC security holders that number of shares of common stock on a fully
diluted basis (“Common Shares”) such that following such issuance, GCC security
holders would hold 95% of the outstanding Company Common Shares on a fully
diluted basis.  GCC common stock would be exchanged for Company Common
Shares.  GCC convertible preferred stock, options, and warrants would
be exchanged for equivalent Company preferred stock, options, and
warrants.




20





On
December 22, 2009, the Company amended the Merger Agreement with GCC. Pursuant
to the terms of the amended agreement, the closing date was changed to on or
before May 15, 2010. GCC has also agreed to pay Company an amount equal to
$475,000 (“Cash Payment”) and replaced the previous agreement amount of
$275,000. Through the date of this report, $375,000 of the Cash Payment has
already been paid to the Company as a non-refundable deposit along with $23,500
of expenses. In addition, GCC must pay Company a final payment of $100,000 along
with other expenses related to the filing of the Form 10-K on or before the
latest of March 31, 2010 or the date the Company files its Form
10-K.





ITEM
13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE





Transactions
with Related Persons





There are
no reportable transactions since the beginning of our last fiscal year in which
we were or are to be a participant and the amount involved exceeds $120,000, and
in which any related person had or will have a direct or indirect material
interest.





Director
Independence





Our board
of directors has determined that it currently has 1 member who
qualifies as "independent" as the term is used in the listing standards of the
NASDAQ Stock Market.  The independent director is Fred
Tannous.





ITEM
14.  PRINCIPAL ACCOUNTING FEES AND SERVICES





The
following table sets forth fees billed to us by our auditors during the fiscal
years ended December 31, 2009 and 2008 for: (i) services rendered for the audit
of our annual financial statements and the review of our quarterly financial
statements, (ii) services by our auditor that are reasonably related to the
performance of the audit or review of our financial statements and that are not
reported as Audit Fees, (iii) services rendered in connection with tax
compliance, tax advice and tax planning, and (iv) all other fees for services
rendered.




December 31,
              2009
            
            
            December 31,
              2008(i)
            Audit
      Fees
            
            $
            27,000
            
            
            $
            33,000(ii)
            Audit
      Related Fees
            
            
            0
            
            
            
            0(iii)
            Tax
      Fees
            
            
            1,200
            
            
            
            1,000(iv)
            All
      Other Fees
            
            
            0
            
            
            
            0Total
      fees
            
            $
            28,200
            
            
            $
            34,000





Pre-Approval
Policies and Procedures of the Audit Committee





We do not
currently have an audit committee of our board of directors.




PART
IV




ITEM
15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES





Financial
Statements; Schedules





Our
financial statements for the years ended December 31, 2009 and 2008 begin
on page F-1 of this annual report on Form 10-K.  We are not required
to file any financial statement schedules.





Exhibits





The
Exhibit Table below lists those documents that we are required to file with this
annual report on Form 10-K.




Exhibit No.
            
            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)




21




10.1
            
            Employment
      Agreement between the Company and Bill Glaser, dated January 1, 2006
      (1)10.2
            
            Consulting
      Agreement between the Company and Eric Paskel, dated April 19, 2006
      (1)10.3
            
            Warrant
      issued to Bill Glaser, dated January 26, 2007 (1)10.4
            
            Common
      Stock Warrant issued to Bill Glaser, dated March 13, 2007
    (2)10.5
            
            Common
      Stock Warrant issued to Bill Glaser, dated March 29, 2007
    (2)





10.6
            
            Paskel
      Book Agreement, dated April 25, 2008 (5)10.7
            
            Glaser
      Book Agreement, dated April 25, 2008 (5)10.8
            
            Aronson
      Book Agreement, dated March 26, 2008 (5)10.9
            
            Lease,
      dated April 25, 2008 (4)10.10
            
            First
      Amendment to Lease, dated October 31, 2008 (6)10.11
            
            Conversion
      Agreement between the Registrant and Bill Glaser, dated June 8, 2009
      (7)10.12
            
            Letter
      of Intent between Galen Capital Corporation and uKarma Corporation, dated
      June 11, 2009 (8)10.13
            
            Amendment
      to Letter of Intent between Galen Capital Corporation and uKarma
      Corporation, dated August 18, 2009 (8)10.14
            
            Merger
      Agreement between Galen Capital Corporation, GCC Merger Sub Corporation,
      and uKarma Corporation, dated October 15, 2009 (9)10.15
            
            First
      Amendment to Merger Agreement between Galen Capital Corporation, GCC
      Merger Sub Corporation, and uKarma Corporation, dated December 18, 2009
      *14.1
            
            Code
      of Ethics (3)31.1
            
            Rule
      13a-14(a) / 15d-14(a)(4) Certification by the Chief Executive Officer
      *31.2
            
            Rule
      13a-14(a) / 15d-14(a)(4) Certification by the Chief Financial Officer
      *32.1
            
            Section
      1350 Certification by the 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.(2)
            Incorporated
      herein by reference to our Form SB-2 Amendment No. 1 filed with the SEC on
      June 28, 2007.(3)
            Incorporated
      herein by reference to our Form 10-KSB filed with the SEC on April 15,
      2008.(4)
            Incorporated
      herein by reference to our Form 8-K filed with the SEC on May 1,
      2008(5)
            Incorporated
      herein by reference to our Form 10-Q filed with the SEC on August 19,
      2008.(6)
            Incorporated
      herein by reference to our Form 10-K filed with the SEC on May 14,
      2009.(7)
            Incorporated
      herein by reference to our Form 10-Q filed with the SEC on June 12,
      2009.(8)
            Incorporated
      herein by reference to our Form 10-Q filed with the SEC on August 19,
      2009.(9)
            Incorporated
      herein by reference to our Form 10-Q filed with the SEC on November 23,
      2009.





22


SIGNATURES





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





UKARMA
      CORPORATION/s/
      Bill GlaserBill
      Glaser
              Chief
      Executive OfficerDate:
      April 14, 2010





In
accordance with the Securities Exchange of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.





NAME
            
            TITLE
            
            DATE/s/
      Bill Glaser
            
            Chairman of the Board, Chief Executive Officer (Principal Executive
            
            April
      14, 2010Bill
      Glaser
            
            Officer), and Interim Chief Financial Officer (Principal Financial andAccounting
      Officer)/s/
      Fred Tannous
            
            Director
            
            April
      14, 2010Fred
      Tannous





23