UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549





FORM
      10-KSB





(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, 2007**





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)


**520
                  Broadway, Suite 350****Santa
                  Monica, CA******
              **90401**(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





Check
      whether the issuer is not required to file reports pursuant to Section 13 or
      15(d) of the Exchange Act. x





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 x





Check
      if
      no disclosure of delinquent filers in response to Item 405 of Regulation S-B
      is
      contained in this form, and no disclosure is contained, to the best of the
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB or any amendment
      to
      this Form 10-KSB. o





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





State
      issuer's revenues for its most recent fiscal year: $ 82,427





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold, or the average bid and asked price of such common equity, as of a
      specified date within the past 60 days: None.





Explanatory
      Note: Issuer’s Registration Statement on Form SB-2 was declared effective on
      August 9, 2007. Subsequent to that time, a public market has not developed
      for
      Issuer’s common stock. Issuer’s common stock is not listed, traded or quoted on
      any national or regional stock exchange, market or quotation
      system.





State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of April 8, 2008: 21,917,390 shares of common stock.





Transitional
      Small Business Disclosure Format (check one) Yes o No x







**TABLE
      OF CONTENTS**


PART
                  I
              
              
              PageItem
                  1.
              Description
                  of Business
              2Item
                  2.
              Description
                  of Property
              7Item
                  3.
              Legal
                  Proceedings
              7Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              7PART
                  IIItem
                  5.
              Market
                  for Common Equity and Related Stockholder Matters
              7Item
                  6.
              Management's
                  Discussion and Analysis or Plan of Operation
              8Item
                  7.
              Financial
                  Statements
              13Item
                  8.
              Changes
                  In and Disagreements with Accountants on Accounting andFinancial
                  Disclosure
              14Item
                  8A.
              Controls
                  and Procedures
              14Item
                  8B
              Other
                  Information
              15PART
                  IIIItem
                  9.
              Directors,
                  Executive Officers, Promoters, Control Persons and CorporateGovernance;
                  Compliance with Section 16(a) of the Exchange Act
              15Item
                  10.
              Executive
                  Compensation
              16Item
                  11.
              Security
                  Ownership of Certain Beneficial Owners and Managementand
                  Related Stockholder Matters
              18Item
                  12.
              Certain
                  Relationships and Related Transactions, and Director Independence
              19Item
                  13.
              Exhibits
              19Item
                  14.
              Principal
                  Accountant Fees and Services
              21


**Forward
      Looking Statements**





This
      Form
      10-KSB contains "forward-looking" statements including statements regarding
      our
      expectations of our future operations. For this purpose, any statements
      contained in this Form 10-KSB 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.





**PART
      I**





**ITEM
      1. DESCRIPTION OF BUSINESS**





**General**




uKarma
      is
      a development stage company that plans to develop and offer products designed
      to
      appeal to customers who value healthy lifestyles and personal development.
      These
      customers are increasingly seeking ways to regain control of their health by
      reducing stress, losing weight, improving diet, enhancing their relationships,
      and becoming more fit in mind, body and spirit (“MBS”). The initial focus of our
      business is to develop and commercialize instructional and motivational yoga
      and
      fitness DVDs and other wellness videos. Ultimately, we plan to build a
      mainstream brand and lifestyle resource that provides health-conscious consumers
      with enabling products solutions including all aspects of multimedia, as well
      as, proprietary nutraceuticals and other complementary products.





**History
      and Development of the Company**




We
      were
      incorporated on June 26, 2001 as a Nevada corporation, and changed our name
      from
      Om Capital Corporation to uKarma Corporation on April 20, 2004. Since we changed
      our name, our primary business focus has been to become a brand name provider
      of
      personal health and wellness oriented products targeting consumers. The initial
      focus of the business is to develop and commercialize instructional and
      motivational fitness and wellness videos. Ultimately, we plan to build a
      mainstream brand and lifestyle resource that provides health-conscious consumers
      with appealing products and services.




**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 (www.lohas.com/about.htm) 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 $77 billion in 2002
                (http://www.mindbranch.com/listing/product/R151-121.html). 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); #10 Yoga
      Conditioning for Weight Loss: (72,000 Units).




2




**Our
      Business**




We
      intend
      to become a provider of healthy lifestyle products by providing goods and
      services to consumers who are increasingly seeking ways to regain control of
      their health by reducing stress, losing weight, improving diet, enhancing their
      relationships, and becoming more fit in body, mind and spirit. The initial
      focus
      of the business is to develop and commercialize instructional and motivational
      fitness and wellness videos.




Since
      April, 2004, we have developed our business plan and identified and developed
      ideas for products and services that would appeal to the “wellness” oriented
      consumer. In March 2006, we decided to pursue the production, distribution
      and
      marketing of yoga/fitness instructional DVDs. We believe a mass-marketed
      yoga/fitness DVD series represents an untapped opportunity due to: (1) limited
      use of infomercials for the yoga segment; (2) inferior production quality of
      many prior fitness DVDs; (3) lack of world-class charismatic teachers with
      trained acting experience; and (4) inability of prior yoga DVDs to communicate
      clinically demonstrated benefits of yoga.





To
      launch
      our brand, we are seeking to market a yoga/fitness DVD series and realize the
      success seen by DVDs such as WINSOR PILATES® or Billy Blanks TAE BO®. We intend
      to generate revenues through the sale of such fitness DVDs initially, and then
      commence sales of our proprietary and patent pending yoga mats and other
      complementary products. As of March 2006, and after gathering information on
      holistic health, exercise, nutrition, exercise video, yoga and fitness
      industries and having reviewed fitness videos and DVDs produced by our
      competitors, we identified the areas in which we intend to begin production
      of
      DVDs, which are yoga and fitness. From March 2006 to July 2006, we planned
      the
      format for our first DVDs, including the length and descriptions of various
      segments. During this time we also reviewed resumes of potential fitness
      instructors to write or star in our planned DVDs as well as reviewing resumes
      of
      potential service providers, such as directors, musicians, and production
      personnel. We hired such personnel by July 2006 and shot seven separate yoga
      and
      fitness workout DVDs in Hollywood, California during July 2006. In November
      2006, we engaged Caudill and Associates, Inc. to produce a 30-minute
      infomercial, as well as one 60-second and one 120-second television spot, to
      market our DVDs. The first version of the infomercial was completed in May
      2007.
      After test-marketing that 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 SB-2 registration was declared effective
      by the SEC in order to raise capital. Our SB-2 registration 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 early 2008.




We
      will
      launch our brand by producing and marketing a series of yoga/fitness
      instructional videos through direct response channels (i.e., infomercials)
      and
      subsequently though mass market retail. Our initial DVDs are expected to appeal
      to fitness conscious audiences, of which 16.5 million individuals practice
      yoga,
      according to Yoga Journal, and spend an estimated $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), and a significant
      portion of the 108 million Americans who are overweight and obese and seeking
      a
      healthier, more balanced lifestyle.




The
      brand
      of our DVD series is called Xflowsion for which a trademark was filed on
      November 16, 2006. Our host for the Xflowsion DVD series is Eric Paskel, an
      expert yoga/fitness instructor and former actor,. We executed an agreement
      with
      Mr. Paskel for a three-year exclusive term. Pursuant to the terms of the
      agreement Paskel is to: (1) provide consulting and advisory services; (2) appear
      in the Company’s yoga, health and/or wellness DVDs, video, television/cable,
      multimedia (including without limitation streaming video, podcasting, etc.)
      and/or other audio/visual yoga projects (collectively, “ Projects ”);
      (3)
      assist in the scriptwriting for the Projects (e.g., classes, interviews and
      introductions); (4) participate in the Projects’ rehearsals, shooting/filming
      and post-production thereof (e.g., editing, voiceovers, re-shooting, etc);
      and
      (5) assist in the promotion and marketing of the Projects as reasonably
      requested by the Company (including, without limitation, appearing in a
      long-form infomercial (30 minutes), a 2-minute and/or 30-second television
      spot,
      print advertisements and other forms of marketing. We hope to create brand
      recognition for Mr. Paskel similar to the celebrity recognition for other
      fitness such as Billy Blanks, known for the “TAE BO” videos.




Our
      Xflowsion videos are expected to be sold initially via a 30-minute infomercial
      that will feature many supporting testimonials and celebrity endorsements.
      We
      anticipate that infomercial sales will be used to generate working capital
      and
      build a community of loyal customers. Thereafter, we intend to expand our
      offerings into complementary proprietary branded products primarily within
      the
      fitness/wellness markets, including: our patent-pending yoga mats, other
      multimedia products (such as pod casting, web broadcasts, and TV production),
      and clinically tested nutraceuticals.




**Distribution,
      Sales and Marketing**




As
      we
      build our customer base through the initial infomercials, we expect to increase
      brand equity and growth through additional complementary product offerings,
      such
      as our patent-pending yoga mats and later, nutraceuticals. While infomercials
      will be the initial focus for our channel distribution strategy, we expect
      to
      early on 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. When we re-air our infomercial,
      we will also test different pricings to determine the most effective pricing.
      Up-selling, or the attempt to sell additional products and services at the
      point-of-purchase, is anticipated to be used extensively in both infomercial
      and
      web-based sales. Essential to our brand extension strategy will be to maintain
      the focus and integrity of the brand as we expand beyond our initial product
      entry.




3




Specifically,
      we expect to pursue the following brand and channel strategies:




*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 priced the Xflowsion
      continuity program at $19.95 plus $5.95 shipping and handling for each DVD.
      According to Koeppel Direct
      (http://www.koeppeldirect.com/marketing-mistakes-feb2006.htm), as a general
      guide, infomercial campaigns can expect 30-40% of consumers to enroll in a
      continuity program, with memberships averaging 3-6 months. We anticipate
      producing multiple DVDs for its continuity program every quarter. 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). We expect to drive additional traffic via the
      airings of our infomercial, additional press coverage, and via online marketing
      including SEO (search engine optimization), banner advertisements, and email
      marketing.




*Paid
      Subscription Services*




Once
      we
      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, etc. We
      anticipate this program will begin sometime in late 2008 and be priced at $9.95
      per month.




*Viral
      Marketing*




In
      order
      to grow 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 offering daily inspirational
      messages to our prospective customers who select this available service. These
      opted-in services are effective tools from which to then offer products and
      services, and also advertise third-party paid sponsors. Alternatively, for
      an
      annual membership fee, those who sign up for the service receive sponsor-free
      word-a-day emails. We plan to offer such daily email services in the second
      half
      of 2008. We also plan to engage a firm specializing in online word of mouth
      marketing to promote the Xflowsion DVD product online. We will engage a firm
      that is a member of WOMMA (word of mouth marketing association - www.womma.org).
      Such firms typically charge between $5,000 - $40,000 per month to publicize
      products in online blogs and chat rooms. We expect to engage such a firm in
      the
      second half of 2008 on a trial-basis (one month agreement) for between $10,000
      to $20.000 per month.




*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 Affiliate websites. We are expected to provide affiliates
      with a range of banners, coupons, 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). We have been in dialog with Linkshare
      (www.linkshare.com) and Pepperjam ( www.pepperjam.com )
      to set
      up and market Xflowsion to their affiliate networks. We plan to engage an
      affiliate marketing company during the second or third quarter of
      2008 **.**




*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 are expected to take our DRTV DVD products to retail 3-6 months
      after the commencement of the TV campaign or when TV sales begin to drop off.
      In
      general, retail sales for a DRTV product can ultimately amount to 5-10 times
      television sales. uKarma plans to sell to retailers that match its demographics,
      such as Whole Foods, Wild Oats, Borders, Bed Bath and Beyond, and yoga studios.
      Instead of building an internal sales force for retail sales, we will likely
      engage a distributor that specializes in fitness oriented DVDs. We expect to
      sell the Xflowsion DVD products in retail by late 2008 or early
      2009.




4




**Product
      Development**




*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; we anticipate, however, creating
      other
      DVDs related to relationships sometime in late 2008. We plan to produce and
      market a series of DVDs on developing and maintaining healthy relationships.
      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.




*Yoga
      Mats*




One
      product that we plan to launch is our series of yoga mats based on our
      patent-pending designs. These mats are currently in development and targeting
      a
      market release in 2008. Unlike yoga mats available today, we expect to offer
      a
      series of mats with features not currently offered with yoga mats currently
      being sold in the marketplace. We are currently in dialogue with manufacturers
      to develop prototypes of our proprietary yoga mats and expect to have our first
      prototype developed in the second quarter of 2008 for market introduction by
      late 2008.




*Additional
      Multimedia Offerings*




After
      we
      have built a strong customer base and establish Eric Paskel as a branded
      yoga/fitness instructor, 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 had an offer for Mr. Paskel to appear
      in the “Biggest Loser” television program airing on NBC, however declined due to
      NBC’s insistence on controlling Mr. Paskel’s name and likeness. The “Biggest
      Loser” opportunity has created other potential television opportunities that we
      are currently pursuing.




*Acquisition/Rebrandings*




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.




**Competition**




We
      believe that the “mind, body and spirit” market is comprised of very 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.




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.





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 will
      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.




5




Although
      we are entering 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. We plan to produce and sell fitness DVDs to those mass market
      and niche markets.





**Sources
      and Availability of Raw Materials**




As
      of the
      date of this annual report, we have no need for raw materials or suppliers.
      When
      we develop our yoga mats we may need raw material suppliers such as an injection
      molding company contract manufacturer. Our DVDs and CDs that are part of our
      Xflowsion product offering are replicated by a DVD/CD replication company.
      We
      engaged a company to produce an initial order of 10,000 DVD sets and CDs and
      received such shipment at a fulfillment company that we also engaged to send
      our
      product to our customers. Additionally, we engaged a printing company to print
      the 2 guidebooks and introductory letters that are included in the Xflowsion
      product. We paid for 10,000 of each printed material which were also sent to
      our
      fulfillment company.




**Customer
      Base**




As
      of the
      date of this annual report, we recently began to market and sell our Xflowsion
      DVD product. As such, our customer base is limited in size. We currently have
      approximately 2,000 customers. 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
      Property**




We
      have
      applied for copyright protection for our seven Xflowsion DVDs. We rely upon
      a
      combination of nondisclosure and other contractual arrangements and trade
      secret, copyright and trademark laws to protect our proprietary rights. We
      enter
      into confidentiality agreements with our employees and limits 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 it to spend significant sums
      in
      litigation, pay damages, develop non-infringing intellectual property or acquire
      licenses to the intellectual property, which is the subject of the asserted
      infringement.




We
      have
      filed for patent protection for our proprietary yoga mats. Unlike yoga mats
      available today, we expect to offer a series of mats with unique and proprietary
      features not currently offered with yoga mats currently being sold in the
      marketplace.




We
      have
      completed filings with the U.S. Patent and Trademark Office in order to protect
      certain marks, including “uKarma.” We have also filed for trademarks for
“Xflowision.” 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.” 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.




**Legislation
      and Government 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 which affect the business of the
      Internet.




**Environmental
      Law Compliance**




To
      the
      extent which environmental compliance may be necessary, we do not anticipate
      any
      significant compliance expense.




**Employees**




We
      have
      no full-time employees, other than our Chief Executive Officer, Bill Glaser.
      We
      have hired several consultants to assist with development and marketing of
      our
      yoga & fitness related DVDs.




6




**ITEM
      2. DESCRIPTION OF PROPERTY**





Our
      corporate office is located in approximately 400 square feet of leased office
      space in Santa Monica, CA. We lease this office space at a monthly base rent
      of
      $2,736.00 from Premier Business Centers and rental expenses include base
      telephone service, conference room access, and reception services. This lease
      is
      on a month-to-month term and has a 30-day cancellation provision. We expect
      that
      this property will be adequate for our needs for the lease term. We do not
      have
      any policies with respect to investments in real estate or interests in real
      estate, real estate mortgages or securities of or interests in persons primarily
      engaged in real estate activities.





**ITEM
      3. LEGAL PROCEEDINGS**





We
      know
      of no material, existing or pending legal proceedings against us, nor are we
      involved as a plaintiff in any material proceeding or pending litigation. There
      are no proceedings in which any of our directors, officers or affiliates, or
      any
      registered or beneficial shareholder, is an adverse party or has a material
      interest adverse to our company.





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





None.





**PART
      II**





**ITEM
      5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS
      ISSUER PURCHASES OF EQUITY SECURITIES**





**Market
      Information**





The
      Company’s common stock is not traded on any public trading market, and the
      Company is not aware of any market activity in its stock since its inception
      and
      through the date of this filing. In November 2007, Empire Financial filed a
      15c2-11 application with the Financial Industry Regulatory Authority on behalf
      of the Company to obtain a trading symbol and begin trading on the
      Over-the-Counter Bulletin Board. As of the date of this filing, that application
      is still pending.





**Holders**





As
      of
      April 8, 2008, we had approximately 131 registered holders of our common
      stock





**Dividends**





We
      have
      never paid any cash dividends. We presently intend to reinvest earnings, if
      any,
      to fund the development and expansion of our business and, therefore, do not
      anticipate paying cash dividends on our common stock in the foreseeable future.
      The declaration of cash dividends will be at the discretion of our board of
      directors and will depend upon our earnings, capital requirements, financial
      position, general economic conditions and other pertinent factors.





**Securities
      Authorized for Issuance under Equity Compensation Plans**





Set
      forth
      in the table below is information regarding awards made through compensation
      plans or arrangements through December 31, 2007, the most recently completed
      fiscal year.




7




**Equity
                Compensation Plan Information****Plan
                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 the Company’s 2006 Stock Option,
                Deferred Stock and Restricted Stock Plan.(2)
            Includes
                shares remaining available for future issuance under the Company’s 2006
                Stock Option, Deferred Stock and Restricted Stock
                Plan.




**Recent
      Sales of Unregistered Securities**





In
      October 2007, we issued to Mark Abdou a 5-year warrant to purchase up to 80,000
      shares of our common stock at an exercise price of $0.25 per share in connection
      with a conversion of a Promissory Note issued to Mr. Abdou by the Company on
      June 26, 2007.





In
      October 2007, we issued to Mark Abdou 80,952 shares of our common stock in
      connection with a conversion of a Promissory Note issued to Mr. Abdou by the
      Company on June 26, 2007.





In
      October 2007, we issued to Alicia McDonald 123,199 shares of our common stock
      in
      connection with a conversion of a Promissory Note issued to Ms. McDonald by
      the
      Company on April 10, 2007.




**Purchases
      of Equity Securities by the Small Business Issuer and Affiliated
      Purchasers**





None.





**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**





The
      following discussion of our financial condition and results of operations should
      be read in conjunction with our financial statements and the notes to those
      statements included elsewhere in this annual report. In addition to the
      historical financial information, the following discussion and analysis contains
      forward-looking statements that involve risks and uncertainties. Our actual
      results may differ materially from those anticipated in these forward-looking
      statements as a result of certain factors, including those set forth under
“Risk
      Factors” and elsewhere in this annual report.




**Overview**




We
      are an
      early stage company that develops and markets proprietary branded personal
      health and wellness products, including yoga and fitness DVDs, nutraceuticals,
      and other products targeting the MBS (Mind/Body/Spirit) consumer. We have
      generated no revenues since inception through the first quarter of 2007. We
      began to generate revenue during the second quarter of 2007 and have generated
      approximately $82,427 in revenues to date. We incurred net losses of
      approximately $33,535 in 2004, $122,488 in 2005, and $1,397,922 in 2006. As
      of
      December 31, 2007, we had an accumulated deficit of $3,412,109. 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.




Since
      April, 2004, we have dedicated our resources to developing our business plan
      and
      producing items that will appeal to the “wellness” conscious consumer, such as
      yoga and fitness DVDs. **** In
      May
      2007, we began to market and sell our initial Xflowsion products. **** We
      believe that our success depends upon our ability to successfully produce,
      market and distribute such products. 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 SB-2 registration was declared effective by the SEC in order to raise
      capital. Our SB-2 registration 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 early 2008.




**Plan
      of Operation**





We
      intend
      to use our current working capital to pay our consultants and other third
      parties to market our Xflowsion DVDs. To satisfy working capital needs during
      2007, our CEO Bill Glaser loaned funds to the Company. On August 16, 2006,
      Mr.
      Glaser converted $200,000 of principal plus interest into common stock of the
      Company. The Company currently owes Mr. Glaser $183,631. To fund ongoing
      operations, we began to raise capital via the sale of our common stock pursuant
      to our SB-2 registration that was declared effective on August 9, 2007, but
      there is no guarantee that we’ll be able to meet ongoing working capital needs
      if we do not receive an adequate amount of capital from future sales of common
      stock or receive additional loans.




8




Our
      future cash requirements and the adequacy of available funds will depend on
      many
      factors, including the pace at which we are able to market, and distribute
      our
      Xflowsion DVDs, whether or not a market develops for our products and, if a
      market develops, the pace at which we are able to sell our products. It will
      also depend on our ability to raise capital through debt or equity
      financings.





Our
      ultimate existence is dependent upon management's ability to develop profitable
      operations. We are in the process of marketing our first DVD series. We have
      negotiated an infomercial production arrangement with Caudill and Associates
      to
      produce a 30 minute infomercial along with 60 second and 120 second TV
      commercials. The first version of such infomercial was completed in May 2007.
      We
      aired the infomercial for one week during May 2007 on TV stations throughout
      the
      United States. We plan to re-air the infomercial after various edits are made.
      After raising capital through the sale of common stock pursuant to our SB-2
      registered offering, we are currently paid-in-full with Caudill & Assoc. We
      shot new segments for our infomercial during the first quarter of 2008, and
      the
      infomercial is currently being edited and is expected to begin airing in May
      2008. **** We
      plan
      to test-market the infomercial during the 2-3 months following Caudill’s
      editing. During the test-marketing of the infomercial, we will test different
      pricing (the May 2007 airing of our infomercial had a pricing for the Xflowsion
      DVD series of three payments of $19.95 or $59.85 plus $12.95 shipping and
      handling), as well as continue to edit the infomercial in an effort to elicit
      the greatest response. When the infomercial for our Xflowsion DVD series begins
      airing, we plan to also initiate our online marketing strategy along with a
      public relations campaign.





During
      the next 12 months, we intend to raise capital through an offering of our
      securities or from additional loans. We cannot guarantee that financing will
      be
      available to us, on acceptable terms or at all. If we do not earn revenues
      sufficient to support our business and we fail to obtain other financing, either
      through an offering of our securities or by obtaining additional loans, we
      may
      be unable to maintain our operations.




We
      intend
      to spend approximately $1,350,000 over the course of the next year, mainly
      in
      the areas of media air time costs, administration, legal, accounting and
      marketing. However, if we are successful in raising more than our anticipated
      capital needs from the sale of common stock or by financing the cost of media
      buying expenses, we intend to increase our spending in the areas of production
      and marketing, and introduce other multimedia products. If we raise less than
      our anticipated capital needs from the sale of commons stock or other financing,
      we will decrease our spending accordingly.





**Known
      Material Trends and Uncertainties**





We
      intend
      to enter into agreement with fitness and wellness instructors to perform on
      screen for DVDs we intend to produce. In some instances, we may be required
      to
      offer these fitness instructors a royalty percentage of future sales. Because
      we
      are trying to keep our production and marketing costs at a minimum, we may
      offer
      royalty percentages of sales to such instructors as well as to other service
      providers such as telemarketing, fulfillment, and infomercial production. We
      anticipate that we may owe up to 10% of our gross revenues in royalties to
      performers, of our DVDs and other service providers involved in marketing our
      products.





**Critical
      Accounting Policies and Estimates**




Our
      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 U.S. The preparation of these
      financial statements requires us to make estimates and judgments that affect
      the
      reported amounts of assets, liabilities, revenues and expenses for each period.
      The following represents a summary of our critical accounting policies, defined
      as those policies that we believe are the most important to the portrayal of
      our
      financial condition and results of operations and that require management’s most
      difficult, subjective or complex judgments, often as a result of the need to
      make estimates about the effects of matters that are inherently uncertain.





Use
      of
      Estimates





The
      preparation of the financial statements in conformity with accounting principles
      generally accepted in the United States (U.S. GAAP) requires management to
      make
      certain estimates and assumptions that affect the reported amounts of assets
      and
      liabilities and disclosure of contingent assets and liabilities at the date
      of
      the financial statements and the reported amounts of revenues and expenses
      during the reporting period. Actual results could differ from those
      estimates.





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.




9




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, 20005, 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 $190,056 and $188,214 for
      fiscal year ended December 31, 2007 and 2006, respectively.





New
      Accounting Pronouncements





In
      February 2007, the Financial Accounting Standards Board (“FASB’) issued
      Financial Accounting Standards (“FAS”) No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      amendment of FASB Statement No. 115* ,
      which
      permits entities to choose to measure many financial instruments and certain
      other items at fair value at specified election dates. A business entity is
      required to report unrealized gains and losses on items for which the fair
      value
      option has been elected in earnings at each subsequent reporting date. This
      statement is expected to expand the use of fair value measurement. FAS No.159
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years.





In
      September 2006, the FASB issued FAS No. 157, *Fair
      Value Measurements* .
      FAS No.
      157 defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement addresses how to calculate fair value
      measurements required or permitted under other accounting pronouncements.
      Accordingly, this statement does not require any new fair value measurements.
      However, for some entities, the application of the statement will change current
      practice. FAS No. 157 is effective for the Company beginning January 1, 2008.
      The Company is currently evaluating the impact of this standard.





In
      September 2006, the Securities and Exchange Commission ("SEC") staff issued
      Staff Accounting Bulletin No. 108 ("SAB 108"), *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements.* The
      stated purpose of SAB 108 is to provide consistency between how registrants
      quantify financial statement misstatements.





Prior
      to
      the issuance of SAB 108, there have been two widely-used methods, known as
      the
      "roll-over" and "iron curtain" methods, of quantifying the effects of financial
      statement misstatements. The roll-over method quantifies the amount by which
      the
      current year income statement is misstated while the iron curtain method
      quantifies the error as the cumulative amount by which the current year balance
      sheet is misstated. Neither of these methods considers the impact of
      misstatements on the financial statements as a whole.





SAB
      108
      established an approach that requires quantification of financial statement
      misstatements based on the effects of the misstatement on each of the Company's
      financial statements and the related financial statement disclosures. This
      approach is referred to as the "dual approach" as it requires quantification
      of
      errors under both the roll-over and iron curtain methods.





SAB
      108
      allows registrants to initially apply the dual approach by either retroactively
      adjusting prior financial statements as if the dual approach had always been
      used, or by recording the cumulative effect of initially applying the dual
      approach as adjustments to the carrying values of assets and liabilities as
      of
      January 1, 2006 with an offsetting adjustment recorded to the opening balance
      of
      retained earnings.





The
      Company will apply SAB 108 using the cumulative effect transition method in
      connection with the preparation of the annual financial statements for the
      year
      ending December 31, 2007. The Company does not believe the adoption of SAB
      108
      will have a significant effect on its financial statements.




10




**Results
      of Operation**





**Comparison
      of Fiscal Year Ended December 31, 2007 and December 31,
      2006.**





The
      following table sets forth the results of our operations for the periods
      indicated:





Fiscal
                Year Ended December 31,2007
            
            2006Audited
            
            AuditedNet
                Sales
            
            $
            82,427
            
            $
            -----Cost
                of Sales
            
            
            22,967
            
            
            -----Gross
                Profit
            
            
            59,460
            
            
            -----Operating
                Expenses
            
            
            (1,781,301
            )
            
            (1,408,384
            )Operating
                Loss
            
            
            (1,721,841
            )
            
            (1,408,384
            )Interest
                Income
            
            
            -----
            
            
            12,526Interest
                Expense
            
            
            (130,274
            )
            
            (1,264
            )Net
                Loss Before Income Tax
            
            
            (1,848,836
            )
            
            (1,397,122
            )Provision
                for Income Taxes
            
            
            800
            
            
            800Net
                Loss
            
            
            (1,849,636
            )
            
            (1,397,922
            )





***Gross
      Profit.*** ** Gross
      profit was $59,460 in 2007, an increase of approximately $59,460 from $0 in
      2006, during which year we had no net sales and no cost of sales.





***Operating
      Expenses.*** Operating expenses were $1,781,301 in 2007, an increase of approximately 26%
      from $ 1,408,384 in
      2006.
      This was due to producing and test marketing an infomercial and incurring
      marketing expenses.





***Operating
      Loss.*** Operating
      losses were $1,721,841 in 2007, an increase of approximately 22% from
      $ 1,408,384
      i n
      2006.
      This was due to higher expenses relating to the initial marketing of our
      Xflowsion DVD series.





***Interest
      Income.*** **** Interest
      income was $0 in 2007, a decrease of approximately $12,526 from $ 12,526 in
      2006.





***Interest
      Expense.*** Interest
      expense was $130,274 in 2007, an increase of approximately 103% from
      $ 1,264 in
      2006.





***Net
      Loss.*** Net loss
      was $1,849,636 in 2007, an increase of approximately 32% from $ 1,397,922 in
      2006.




**Liquidity
      and Capital Resources**





As
      of **** December
      31, 2007, we had working capital of $288,351. To satisfy current working capital
      needs, our CEO Bill Glaser loaned funds to the Company. Until we raise
      sufficient capital via the sale of our common stock, there is no guarantee
      that
      we will be able to meet current working capital needs if we do not receive
      additional loans from either our CEO or other individuals. We have fully
      incurred the production cost of our Xflowsion DVD series have incurred
      approximately half of the production costs of our infomercial, and plan to
      make
      financial investments in marketing for the next six months. We expect to incur
      substantial losses over the next two years.




11




We
      estimate that our expenses over the next 12 months beginning on January 1,
      2008
      will be approximately $1,350,000 as follows:





General
                and Administrative
            
            $
            400,000Infomercial
                Production
            
            
            150,000Inventory
            
            
            100,000Media
                (Airtime)
            
            
            100,000Marketing/Publicity
            
            
            300,000Legal
            
            
            100,000DVD/CD
                Production
            
            
            100,000Accounting
            
            
            50,000Product
                Development
            
            
            50,000





As
      of
      December 31, 2007, we had cash equivalents of $562,257, which will meet our
      capital requirements for approximately the next 6 months. We believe that we
      need approximately an additional $800,000 to meet our capital requirements
      over
      the next 12 months. Our intention is to obtain this money through debt/equity
      financings. As of the date of this annual report, we have fully paid for our
      initial product inventory for 10,000 Xflowsion DVD units as well as all
      branding, web development, DVD production, editing and DVD authoring costs,
      and
      infomercial production costs.





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
      which cannot be paid in stock, such as auditors' fees, will be paid through
      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.




Our
      independent certified public accountants have stated in their report dated
      April
      12, 2008 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
      do not
      have any off-balance sheet arrangements.





12


**ITEM
      7. FINANCIAL STATEMENTS**





UKARMA
      CORPORATION


INDEX
      TO
      FINANCIAL STATEMENTS





PagesReport
                of Independent Registered Public Accounting Firm
            F-1Balance
                Sheets as of December 31, 2007 and 2006
            F-2Statements
                of Operations for the Year Ended December 31, 2007 and
                2006
            F-3Statements
                of Changes in Stockholders’ Equity
            F-4Statements
                of Cash Flows for the Year Ended December 31, 2007 and
                2006
            F-5Notes
                to Audited Financial Statements
            F-6





13






REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To
      the
      Board of Directors and stockholders of


uKarma
      Corporation





We
      have
      audited the accompanying balance sheets of uKarma Corporation, FKA, OM Capital
      Corporation, as of December 31, 2007 and 2006, and the related statements of
      operations, changes in stockholders’ equity, and cash flows for the years ended
      December 31, 2007, and 2006. These 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 positions of uKarma Corporation as of December
      31, 2007 and 2006, and the results of its operations and its cash flows for
      the
      years ended December 31, 2007, and 2006 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  to
      the
      financial statements, the Company's operating losses raise substantial doubt
      about its ability to continue as a going concern. Management’s plans regarding
      those matters are also described in Note 3. The financial statements do not
      include any adjustments that might result from the outcome of this
      uncertainty.








/s/
      Spector and Wong, LLP


Pasadena,
      California


April
      12,
      2008





**The
      accompanying notes are an integral part of these audited financial
      statements**




F-1




**UKARMA
      CORPORATION**





**BALANCE
      SHEETS**


**As
                  of****December
                  31,**
              
              December
                  31,**2007**
              
              2006ASSETSCurrent
                  AssetsCash
              
              **$**
              **483,564**
              
              $
              102,902Prepaid
                  expenses
              
              
              **55,146**
              
              
              97,513Inventory
              
              
              **23,547**
              
              
              -Available-for-sale
                  securities
              
              
              **-**
              
              
              17,000Total
                  Current Assets
              
              
              **562,257**
              
              
              217,415Property
                  and equipment, net of accumulated depreciationof
                  $1,929 for 2007, and $94 for 2006
              
              
              **10,711**
              
              
              3,836Other
                  AssetsProduction
                  costs, net of accumulated amortization of
              
              
              **594,709**
              
              
              651,228$99,393
                  for 2007, and none for 2006Deposit
              
              
              **3,734**
              
              
              3,136Patent
              
              
              **10,358**
              
              
              10,358Total
                  Other Assets
              
              
              **608,801**
              
              
              664,722TOTAL
                  ASSETS
              
              **$**
              **1,181,769**
              
              $
              885,973LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  LiabilitiesAccounts
                  payable
              
              **$**
              **56,987**
              
              
              208,419Accrued
                  expenses
              
              
              **33,288**
              
              
              11,778Notes
                  payable to related party
              
              
              **183,631**
              
              
              100,000Total
                  Current Liabilities
              
              
              **273,906**
              
              
              320,197Stockholders'
                  EquityCommon
                  stock, $0.001 par value; 100,000,000shares
                  authorized; 20,611,406 and 15,218,734 shares issuedand
                  outstanding in 2007 and 2006, respectively
              
              
              **20,611**
              
              
              15,219Preferred
                  stock, $0.001 par value; 20,000,000 shares authorized,none
                  issued
              
              
              **-**
              
              
              -Paid-in
                  capital
              
              
              **4,152,161**
              
              
              2,046,030Accumulated
                  other comprehensive income
              
              
              **-**
              
              
              12,000Stock
                  subscriptions
              
              
              **147,200**
              
              
              55,000Accumulated
                  deficit
              
              
              **(3,412,109**
              **)**
              
              (1,562,473
              )Total
                  Stockholders' Equity
              
              
              **907,863**
              
              
              565,776TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY
              
              **$**
              **1,181,769**
              
              $
              885,973




**The
        accompanying notes are an integral part of these audited financial
        statements**
  F-2
  **UKARMA
        CORPORATION**
 
 **STATEMENTS
        OF OPERATIONS**
 **For
        the year ended December 31, 2007 and 2006**




**For
                  year December 31,****2007**
              
              2006Sales
              
              **$**
              **82,427**
              
              $
              -Cost
                  of Sale
              
              
              **22,967**
              
              
              -Gross
                  Profit
              
              
              **59,460**
              
              
              -Selling,
                  General and Administrative Expenses
              
              
              **1,781,301**
              
              
              1,408,384Operating
                  Loss
              
              
              **(1,721,841**
              **)**
              
              (1,408,384
              )Other
                  Income (Expenses)Interest
                  Income
              
              
              **-**
              
              
              12,526Gain
                  on Sale of Securities
              
              
              **3,279**
              
              
              -Interest
                  Expense
              
              
              **(130,274**
              **)**
              
              (1,264
              )Total
                  Other Income (Expense)
              
              
              **(126,995**
              **)**
              
              11,262Net
                  Loss before Income Taxes
              
              
              **(1,848,836**
              **)**
              
              (1,397,122
              )Provision
                  for Income Taxes
              
              
              **800**
              
              
              800Net
                  Loss
              
              **$**
              **(1,849,636**
              **)**
              $
              (1,397,922
              )Loss
                  Per Share-Basic and Diluted
              
              **$**
              **(0.11**
              **)**
              $
              (0.10
              )Weighted
                  Average Number of Shares
              
              
              **16,943,898**
              
              
              14,002,469




**The
        accompanying notes are an integral part of these audited financial
        statements**




F-3
 
  **UKARMA
          CORPORATION**
 **STATEMENTS
          OF CHANGES IN STOCKHOLDERS’ EQUITY**
 AccumulatedOtherCommon
                    Stock
                
                
                
                Paid-in
                
                Comprehensive
                
                Stock
                
                AccumulatedShares
                
                Amount
                
                Capital
                
                Income
                
                Subscriptions
                
                Deficit
                
                TotalBalance
                    at December 31, 2005
                
                
                12,875,000
                
                $
                12,875
                
                $
                975,291
                
                $
                -
                
                $
                -
                
                $
                (164,551
                )
                $
                823,615Sale
                    of common stock underJune
                    29, 2006 plan
                
                
                982,000
                
                
                982
                
                
                244,518
                
                
                
                
                
                
                
                
                
                
                
                245,500Issuance
                    of common stock forservices
                
                
                1,361,734
                
                
                1,362
                
                
                149,853
                
                
                
                
                
                
                
                
                
                
                
                151,215Issuance
                    of stock options
                
                
                
                
                
                
                
                
                188,214
                
                
                
                
                
                
                
                
                
                
                
                188,214Issuance
                    of stock warrants
                
                
                
                
                
                
                
                
                488,154
                
                
                
                
                
                
                
                
                
                
                
                488,154Accumulated
                    Other Comprehensive Income
                
                
                
                
                
                
                
                
                
                
                
                12,000
                
                
                
                
                
                
                
                
                12,000Stock
                    subscriptions
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                55,000
                
                
                
                
                
                55,000Net
                    Loss for the year endedDecember
                    31, 2006
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,397,922
                )
                
                (1,397,922
                )Balance
                    at December 31, 2006
                
                
                15,218,734
                
                $
                15,219
                
                $
                2,046,030
                
                $
                12,000
                
                $
                55,000
                
                $
                (1,562,473
                )
                $
                565,776Stock
                    subscriptions issued
                
                
                220,000
                
                
                220
                
                
                54,780
                
                
                
                
                
                (55,000
                )
                
                
                
                
                -Sale
                    of common stock
                
                
                3,539,003
                
                
                3,539
                
                
                1,235,112
                
                
                
                
                
                
                
                
                
                
                
                1,238,651Issuance
                    of common stock forservices
                
                
                592,926
                
                
                593
                
                
                151,767
                
                
                
                
                
                
                
                
                
                
                
                152,360Issuance
                    of stock options
                
                
                
                
                
                
                
                
                190,056
                
                
                
                
                
                
                
                
                
                
                
                190,056Issuance
                    of stock warrants
                
                
                
                
                
                
                
                
                111,197
                
                
                
                
                
                
                
                
                
                
                
                111,197Accumulated
                    Other Comprehensive Income
                
                
                
                
                
                
                
                
                
                
                
                (12,000
                )
                
                
                
                
                
                
                
                (12,000
                )Conversion
                    of loans to common stock
                
                
                1,040,743
                
                
                1,040
                
                
                363,219
                
                
                
                
                
                
                
                
                
                
                
                364,259Stock
                    subscriptions
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                147,200
                
                
                
                
                
                147,200Net
                    Loss for the year endedDecember
                    31, 2007
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (1,849,636
                )
                
                (1,849,636
                )Balance
                    at December 31, 2007
                
                
                **20,611,406**
                
                **$**
                **20,611**
                
                **$**
                **4,152,161**
                
                **$**
                **-**
                
                **$**
                **147,200**
                
                **$**
                **(3,412,109**
                **)**
                **$**
                **907,863**
 **The
          accompanying notes are an integral part of these audited financial
          statements**
  F-4


**UKARMA
        CORPORATION**
 **STATEMENTS
        OF CASH FLOWS**
 **For
        the year ended December 31, 2007 and 2006**


**For
                  year ended December 31,****2007**
              
              2006Cash
                  Flow from Operating Activities:Net
                  loss
              
              **$**
              (1,849,636
              )
              $
              (1,397,922
              )Adjustment
                  to reconcile net loss tonet
                  cash used by operating activities:Depreciation
              
              
              **1,835**
              
              
              94Amortization
                  of production costs
              
              
              **99,393**
              
              
              -Issuance
                  of stock for services
              
              
              **152,360**
              
              
              151,215Stock
                  option expenses
              
              
              **190,056**
              
              
              188,214Stock
                  warrant expenses
              
              
              **111,197**
              
              
              488,154Non-cash
                  interest expense
              
              
              **104,073**
              
              
              -Gain
                  on sale of investment
              
              
              (3,279
              )
              
              -(Increase)
                  Decrease in:Prepaid
                  expenses
              
              
              **42,367**
              
              
              2,487Inventory
              
              
              (23,547
              )
              
              -Capitalized
                  production costs
              
              
              (42,874
              )
              
              (651,228
              )Deposit
              
              
              (598
              )
              
              3,664Increase
                  (Decrease) in:Accounts
                  payable
              
              
              (151,432
              )
              
              208,419Accrued
                  expenses
              
              
              **31,698**
              
              
              (13,222
              )Net
                  Cash Used by Operating Activities
              
              
              (1,338,387
              )
              
              (1,020,125
              )Cash
                  Flow from Investing Activities:Purchase
                  of property and equipment
              
              
              (8,711
              )
              
              (3,930
              )Sale
                  of investment
              
              
              **8,279**
              
              
              -Patent
              
              
              **-**
              
              
              (10,358
              )Net
                  Cash Used by Investing Activities
              
              
              (432
              )
              
              (14,288
              )Cash
                  Flow from Financing Activities:Proceeds
                  from notes payable
              
              
              **50,000**
              
              
              -Proceeds
                  from officer advances
              
              
              **308,630**
              
              
              100,000Stock
                  subscriptions
              
              
              **147,200**
              
              
              55,000Repayments
                  to officer advances
              
              
              (25,000
              )
              
              (3,028
              )Proceeds
                  from sale of stock
              
              
              **1,238,651**
              
              
              245,500Net
                  Cash Provided by Financing Activities
              
              
              **1,719,481**
              
              
              397,472Net
                  Increase in Cash
              
              
              **380,662**
              
              
              (636,941
              )Cash
                  Balance at Beginning of Period
              
              
              **102,902**
              
              
              739,843Cash
                  Balance at End of Period
              
              **$**
              **483,564**
              
              $
              102,902Supplemental
                  Disclosures:Interest
                  Paid
              
              **$**
              **26,201**
              
              $
              -Taxes
                  Paid
              
              **$**
              **800**
              
              $
              -Noncash
                  Investment and Financing Activities:Unrealized
                  gain (loss) on marketable securities
              
              **$**
              **-**
              
              $
              12,000Conversion
                  of notes payable and accrued interest intocommon
                  stock
              
              **$**
              **260,186**
              
              $
              -




**The
        accompanying notes are an integral part of these audited financial
        statements**
 F-5
  **UKARMA
        CORPORATION**
 
 **NOTES
        TO AUDITED 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.





uKarma
      Corporation 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, uKarma launched its initial
      products. The goal of the infomercials are to generate initial working capital,
      and build a community of loyal customers. From there, the company will expand
      its product offerings into proprietary branded products primarily within the
      fitness/wellbeing multimedia and nutraceutical markets. As the brand image
      builds, the company intends to extend its brand systematically to other
      complementary consumer products that meet its stringent product guidelines
      and
      are consistent with its message of “total health and happiness for oneself and
      others.”





The
      company began to generate revenue in the second quarter of 2007; accordingly,
      the Company ceased its development stage status commencing April 1,
      2007.





**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).





Reclassification :
      Certain
      reclassifications have been made to the 2006 financial statements to conform
      with the 2007 financial statements presentation. Such reclassification had
      no
      effect on net loss previously reported.





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





Revenue
      recognition :
      The
      Company generally recognizes product revenue when persuasive evidence of an
      arrangement exists, delivery has occurred, the fee is fixed or determinable,
      and
      collectability is probable. In instances where the final acceptance of the
      product is specified by the customer, revenue is deferred until all acceptance
      criteria have been met. Customers’ prepayments are deferred until products are
      shipped and accepted by the customers.





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





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





F-6


**UKARMA
        CORPORATION**
 
 **NOTES
        TO AUDITED 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 39
      years. Depreciation expense for years ended


December
      31, 2007 and 2006 was $1,929 and $94, respectively.





Available-for-sale
      securities :
      Available-for-sale securities are carried at market value and are classified
      as
      current investment.





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





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





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





Advertising
      Costs :
      All
      costs associated with advertising and promoting the Company’s products and
      services are expensed as incurred. Advertising expense for the years ended
      December 31, 2007 and 2006 was $255,651 and $72,060, 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 $190,056 and $188,214 for
      year
      ended December 31, 2007 and 2006, respectively.





F-7


**UKARMA
        CORPORATION**
 
 **NOTES
        TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**  **(continued)**





New
      Accounting Pronouncements :
      In May
      2007, the Financial Accounting Standards Board (“FASB’) issued FASB Staff
      Position No. FIN 48-1 (“FSP 48-1”), *Definition
      of Settlement in FASB Interpretation No. 48* .  FSP
      48-1 amended FIN 48 to provide guidance on how an enterprise should determine
      whether a tax position is effectively settled for the purpose of recognizing
      previously unrecognized tax benefits.  FSP 48-1 required application
      upon the initial adoption of FIN 48.  The adoption of FSP 48-1 did not
      affect the Company’s financial statements.





In
      February 2007, the FASB issued Financial Accounting Standards (“FAS”) No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      amendment of FASB Statement No. 115* ,
      which
      permits entities to choose to measure many financial instruments and certain
      other items at fair value at specified election dates. A business entity is
      required to report unrealized gains and losses on items for which the fair
      value
      option has been elected in earnings at each subsequent reporting date. This
      statement is expected to expand the use of fair value measurement. FAS No.159
      is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years.





In
      June
      2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
      No. 48, *Accounting
      for Uncertainty in Income Taxes* ,
      (“FIN
      48”). This Interpretation clarifies the accounting for uncertainty in income
      taxes recognized in an enterprise’s financial statements in accordance with FASB
      Statement No. 109, *Accounting
      for Income Taxes.* This
      Interpretation prescribes a recognition threshold and measurement attribute
      for
      the financial statement recognition and measurement of a tax position taken
      or
      expected to be taken in a tax return. This Interpretation also provides guidance
      on derecognition, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. FIN 48 is effective for fiscal years
      beginning after December 15, 2006. The Company does not expect the adoption
      of
      FIN 48 to have a material impact on its financial statements.





In
      September 2006, the FASB issued FAS No.
      157, *Fair
      Value Measurements* .
      FAS No.
      157 defines fair value, establishes a framework for measuring fair value in
      generally accepted accounting principles, and expands disclosures about fair
      value measurements. This statement addresses how to calculate fair value
      measurements required or permitted under other accounting pronouncements.
      Accordingly, this statement does not require any new fair value measurements.
      However, for some entities, the application of the statement will change current
      practice.





FAS
      No.
      157 is effective for the Company beginning January 1, 2008. The Company is
      currently evaluating the impact of this standard.





In
      September 2006, the Securities and Exchange Commission ("SEC") staff issued
      Staff Accounting Bulletin No. 108 ("SAB 108"), *Considering
      the Effects of Prior Year Misstatements when Quantifying Misstatements in
      Current Year Financial Statements.* The
      stated purpose of SAB 108 is to provide consistency between how registrants
      quantify financial statement misstatements.





Prior
      to
      the issuance of SAB 108, there have been two widely-used methods, known as
      the
      "roll-over" and "iron curtain" methods, of quantifying the effects of financial
      statement misstatements. The roll-over method quantifies the amount by which
      the
      current year income statement is misstated while the iron curtain method
      quantifies the error as the cumulative amount by which the current year balance
      sheet is misstated. Neither of these methods considers the impact of
      misstatements on the financial statements as a whole.





F-8





**UKARMA
        CORPORATION**
 
 **NOTES
        TO AUDITED FINANCIAL STATEMENTS**




**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**  **(continued)**





SAB
      108
      established an approach that requires quantification of financial statement
      misstatements based on the effects of the misstatement on each of the Company's
      financial statements and the related financial statement disclosures. This
      approach is referred to as the "dual approach" as it requires quantification
      of
      errors under both the roll-over and iron curtain methods.





SAB
      108
      allows registrants to initially apply the dual approach by either retroactively
      adjusting prior financial statements as if the dual approach had always been
      used, or by recording the cumulative effect of initially applying the dual
      approach as adjustments to the carrying values of assets and liabilities as
      of
      January 1, 2006 with an offsetting adjustment recorded to the opening balance
      of
      retained earnings.





The
      Company will initially apply SAB 108 using the cumulative effect transition
      method in connection with the preparation of the annual financial statements
      for
      the year ending December 31, 2007. The Company does not believe the adoption
      of
      SAB 108 will have a significant effect on its financial statements.





The
      FASB
      has also issued FAS 155, *Accounting
      for Certain Hybrid Financial Instruments-an amendment of FASB Statements No.
      133
      and 140* ,
      FAS
      156, *Accounting
      for Servicing of Financial Assets-an amendment of FASB Statement No.
      140* ,
      and FAS
      158, *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement
      Plans* ,
      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.





**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 the funds generated from its
      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 - AVAILABLE-FOR-SALE SECURITIES**





In
      June
      2007, the Company sold its minority equity investment in a publicly traded
      company and recognized a gain of $3,279.





The
      aggregate fair market value of the securities was $17,000 as of December 31,
      2006. The gross unrealized holding gains related to the investment as of
      December 31, 2006 was $12,000.





F-9





**UKARMA
        CORPORATION**
 
 **NOTES
        TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      5 - PREPAID EXPENSES**





Prepaid
      expenses consisted of the following:


December
                  31,
              
              December
                  31,2007
              
              2006Prepaid
                  Royalties
              
              $
              55,146
              
              $
              30,000Legal
                  Retainer
              
              
              -
              
              
              67,513$
              55,146
              
              $
              97,513


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 Company1s
      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 is to pay a royalty of 8% on the first $300,000 and
      10%
      on above $300,000 on gross revenue reduced by net of returns, refunds,
      charge-backs, taxes, and shipping and handling charges. As of December 31,
      2007,
      there is a balance of $55,146 after advancing $60,000 and deducting royalties
      related to the 2007 sales. Future royalty obligations will be deducted from
      the
      current balance.





**NOTE
      6 - PRODUCTION COSTS**





The
      Company capitalized costs incurred for recording seven fitness videos’ master
      copies. As of December 31, 2007, total costs of $694,102 were capitalized.
      All
      costs consisted of in-production costs only.





Commenced
      on the second quarter of 2007, the costs were amortized on a straight-line
      method over the estimated life of the recorded performances, which is five
      years. The Company recorded an amortization expense of $99,393 for the year
      ended December 31, 2007.





**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 December 31, 2007, the patent is still pending for approval.





**NOTE
      8 - ACCRUED EXPENSES**





Accrued
      expenses consisted of the following:


December
                  31,
              
              December
                  31,2007
              
              2006Accrued
                  Interest
              
              $
              10,488
              
              $
              978Accrued
                  Professional Fees
              
              
              15,000
              
              
              10,000Employee
                  Reimbursable
              
              
              6,955
              
              
              -Accrued
                  Sales Tax
              
              
              45
              
              
              -Accrued
                  Income Tax
              
              
              800
              
              
              800Total
                  Accrued Expenses
              
              $
              33,288
              
              $
              11,778


F-10




**UKARMA
          CORPORATION**
 
 **NOTES
          TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      9 - NOTES PAYABLE**





During
      the year ended December 31, 2007, **** the
      Company entered into debt agreement with two unrelated parties and received
      an
      aggregate amount of $50,000 at an interest rate of 7% per annum payable on
      demand.





On
      August
      14, 2007, all the notes payable and related accrued interest of $1,038 was
      converted into common shares (See note 11).





**NOTE
      10 - OTHER COMPREHENSIVE INCOME (LOSS)**





The
      Company’s accumulated other comprehensive income (loss) consists of the
      unrealized gain on available-for-sale securities only. The components of
      comprehensive loss were as follows:


For
                  year ended
              
              For
                  year endedDecember
                  31,
              
              December
                  31,2007
              
              2006Net
                  Loss
              
              $
              (1,834,636
              )
              $
              (1,397,922
              )Other
                  Comprehensive Income:Unrealized
                  gain on available-for-sale securities
              
              
              -
              
              
              12,000Comprehensive
                  Loss
              
              $
              (1,834,636
              )
              $
              (1,385,922
              )




The
      Company did not have other comprehensive income for the year ended December
      31,
      2007.





**NOTE
      11 - STOCKHOLDERS’ EQUITY**





During
      the year ended December 31, 2007, the Board of Directors of the Company approved
      the issuance aggregate of 592,926 shares of Company’s common stocks to various
      providers in consideration of their services to the Company. The shares were
      valued and charged to operations at a price of $0.25 to $0.35 per share or
      $152,360 of total. The valuation was based on the 2006 private placement
      offering price of $0.25 per share, and the current selling price of the stock
      at
      $0.35 per common share.





On
      August
      14, 2007, the CEO agreed to convert $209,148 worth of his loans to the Company
      ($200,000 principal plus $9,148 accrued interest) into 836,592 shares of the
      Company’s Common Stock. In addition, on August 14, 2007, two unrelated parties
      agreed to convert $51,038, including accrued interest, worth of their notes
      payable into 204,151 shares of the Company’s Common Stock. The Board of
      Directors of the Company approved such conversions on August 14, 2007. The
      conversion was based on $0.25 per share; however, since the selling price of
      each share of the Company’s common stock was being sold at $0.35 per share, the
      difference, for an aggregate of $104,073, was charged against interest expense.





On
      August
      6, 2007, the Company offered to sell up to 7,147,857 shares of common stock
      in a
      direct public offering, at $0.35 per share. As of December 31, 2007, the Company
      received $1,238,651 and sold 3,539,003 shares of the Company’s common stock. As
      of December 31, 2007, there was a $147,200 stock subscriptions to be issued
      in
      2008.





F-11


**UKARMA
          CORPORATION**
 
 **NOTES
          TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      11 - STOCKHOLDERS’ EQUITY (continued)**





On
      June
      29, 2006, the Board of Directors approved a private placement offering. Pursuant
      to this offering the Company is to offer up to $2 million of its common stock
      to
      accredited investors. The shares were sold at $0.25 per unit. Each unit consists
      of one common stock and one stock warrant to purchase the Company’s common stock
      at $1 per share. The warrants expire in five years after the dare of issuance.
      As of December 31, 2007, the Company sold 1,202,000 shares of common stock
      and
      received net proceeds of $300,500 under the 2006 offering. The offering was
      closed at the end of the year.





The
      Company shall be authorized to issue 100,000,000 shares of common stock and
      20,000,000 shares of preferred stock. Each share will have a par value of $0.001
      per share. The preference of the preferred stock will be defined upon
      issuance.





For
      the
      year ended December 31, 2006, the Board of Directors of the Company approved
      the
      issuance aggregate of 1,361,734 shares of Company’s common stocks to various
      providers in consideration of their services to the Company. The shares were
      valued and charged to operations at a price ranging from $0.10 to 0.25 per
      share
      or $151,215 of total. The valuation was based on a 25% to 50% discount from
      the
      2004 private placement offering price of $0.20 per share, and the 2006 private
      placement offering price of $0.25 per share. The discount represented more
      or
      less the fair value of the services received.





**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, 2007 and 2006, respectively.





The
      Company has net operating loss carryforwards, approximately of $3,397,109 and
      $1,562,473 to reduce future federal and state taxable income as of December
      31,
      2007 and 2006, respectively. To the extent not utilized, the carryforwards
      will
      begin to expire through 2027 for federal tax purposes and through 2017 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.





The
      deferred tax asset as of December 31, 2007 and 2006 consists of the
      followings:




2007
            
            2006Tax
                Benefit on Net Operating Loss Carryforward
            
            $
            1,188,988
            
            $
            546,866Less:
                Valuation Allowance
            
            
            (1,188,988
            )
            
            (546,866
            )Net
                Deferred Tax Asset
            
            $
            -
            
            $
            -





F-12





**UKARMA
          CORPORATION**
 
 **NOTES
          TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      13 - NET LOSS PER SHARE**





The
      following table sets forth the computation of basic and diluted net loss per
      share:





For
                  year ended
              
              For
                  year endedDecember
                  31,
              
              December
                  31,Numerator:
              
              2007
              
              2006Net
                  Loss
              
              $
              (1,849,636
              )
              $
              (1,397,922
              )Denominator:Weighted
                  Average of Common Shares
              
              
              16,943,898
              
              
              14,002,469Basic
                  and Diluted Net Loss per Share
              
              $
              (0.11
              )
              $
              (0.10
              )




As
      the
      Company incurred net losses for the year ended December 31, 2007 and 2006,
      the
      effect of dilutive securities totaling 2,914,286 and 1,025,000 equivalent
      shares, respectively, has been excluded from the calculation of diluted loss
      per
      share because their effect was anti-dilutive.





There
      were also 5,827,000 shares out-of-money stock options and warrants excluded
      from
      the calculation of diluted net loss per share for the year ended December 31,
      2007 and 2006, because their exercise prices were greater than the average
      fair
      market price of the common stock.





**NOTE
      14 - 2007 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.





A
      summary
      of the status of stock options issued by the Company as of December 31, 2007
      and
      2006 is presented in the following table:


2007
              
              2006Weighted
              
              
              
              WeightedNumber
              
              Average
              
              Number
              
              Averageof
              
              Exercise
              
              of
              
              ExerciseShares
              
              Price
              
              Shares
              
              PriceOutstanding
                  at beginning of year
              
              
              5,250,000
              
              $
              0.20
              
              
              -
              
              $
              -Granted
              
              
              -
              
              
              -
              
              
              5,250,000
              
              
              0.20Exercised/Expired/Cancelled
              
              
              -
              
              
              -
              
              
              -
              
              
              -Outstanding
                  at end of period
              
              
              5,250,000
              
              $
              0.20
              
              
              5,250,000
              
              $
              0.20Exercisable
                  at end of period
              
              
              2,250,000
              
              $
              0.20
              
              
              541,667
              
              $
              0.20
 F-13
  **UKARMA
          CORPORATION**
 
 **NOTES
          TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      14 - 2007 STOCK OPTION PLAN (continued)**





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.


2007
              
              2006Weighted
                  average fair value per option granted
              
              
              N/A
              
              $
              0.17Risk-free
                  interest rate
              
              
              N/A
              
              
              4.40
              %Expected
                  dividend yield
              
              
              N/A
              
              
              0.00
              %Expected
                  lives
              
              
              N/A
              
              
              9.76Expected
                  volatility
              
              
              N/A
              
              
              100.00
              %




The
      following table sets forth additional information about stock options
      outstanding at December 31, 2007:


WeightedAverage
              
              WeightedRange
                  of
              
              
              
              Remaining
              
              AverageExercise
              
              Options
              
              Contractual
              
              Exercise
              
              OptionsPrices
              
              Outstanding
              
              Life
              
              Price
              
              Exercisable$
              0.20
              
              
              5,250,000
              
              
              8.03
              
              $
              0.20
              
              
              2,250,0005,250,000
              
              
              8.03
              
              $
              0.20
              
              
              2,250,000




As
      of December
      31 ,
      2007,
      there was $566,102 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 3.2
      years.





**NOTE
      15 - STOCK WARRANTS**





On
      October 4, 2007, the Company issued stock purchase warrants to a service
      provider for the right to purchase 80,000 shares of the Company’s common stock
      at the price of $0.25 per share. The warrants shall have a term of five years
      from the date of warrants issued. The warrants were valued at $0.19 per share
      using the Black-Scholes option pricing model.





On
      January 26, 2007, March 13, 2007, and March 29, 2007, the Company issued stock
      purchase warrants to the CEO of the Company for the right to purchase 200,000,
      250,000, and 125,000 shares of the Company, respectively, at the price of $0.25
      per share. The warrants shall have a term of five years from the date of stocks
      issued. The warrants were valued at $0.19 per share using the Black-Scholes
      option pricing model.





On
      March
      1, 2006, the Company issued stock purchase warrants to a service provider for
      the right to purchase 250,000 shares of the Company’s common stock at the price
      of $1 per share. The warrants shall have a term of five years from the date
      of
      warrants issued. The warrants were valued at $0.11 per share using the
      Black-Scholes option pricing model.





F-14





**UKARMA
          CORPORATION**
 
 **NOTES
          TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      15 - STOCK WARRANTS (continued)**





On
      April
      14, 2006, the Company issued stock purchase warrants to each of the investors
      who had participated in the Company’s 2004 private offering for the right to
      purchase an equal number of shares at the price of $1 per share with mandatory
      exercise provision when the Company’s stock trades at $1.50 or higher for five
      consecutive days. The warrants shall have a term of five years from the date
      of
      stocks issued. The warrants were valued at $0.11 per share using the
      Black-Scholes option pricing model.





The
      assumptions used in the Black-Scholes option pricing model are as follows:


Decenber
                  31,
              
              Decenber
                  31,2007
              
              2006Weighted
                  average fair value per option granted
              
              $
              0.19
              
              $
              0.11Risk-free
                  interest rate
              
              
              4.60
              %
              
              4.40
              %Expected
                  dividend yield
              
              
              0.00
              %
              
              0.00
              %Expected
                  lives
              
              
              5.00
              
              
              10.00Expected
                  volatility
              
              
              100.00
              %
              
              100.00
              %




The
      Company recognized $111,197 and $488,154 stock warrants expense for the year
      ended December 31, 2007 and 2006, respectively.





**NOTE
      16 - RELATED PARTY TRANSACTIONS**





During
      the year ended December 31, 2007, the Company entered into various debt
      agreements with the CEO of the Company, and received loans from its CEO for
      an
      aggregate amount of $308,630 at an interest rate of 7% per annum payable on
      demand. During the third quarter, the CEO converted $200,000 of principal loans
      into the Company’s common stock. As of December 31, 2007, the Company had loans
      payable to the CEO of the Company for $183,631 and accrued interest payable
      for
      the related loans of $10,488.





On
      November 10, 2006, the Company received a loan from its CEO for $100,000 at
      an
      interest rate of 7% per annum payable in full on the sixth month anniversary
      of
      the loan.





In
      2006,
      the CEO utilized one half of the Company’s office facility as his residence. The
      Company charged half of its rent expense amounted to $25,000 against the accrued
      compensation owed to him. The lease expired on September 23, 2006 and was not
      renewed. The Company relocated its office to California.





On
      January 17, 2005, an option agreement was signed between the CEO and a Director
      of the Company to purchase up to 3,000,000 shares of the Company’s common stock
      from the director at $0.20 per share. The duration of the option agreement
      is
      for ten years commencing on January 17, 2005. On July 9, 2007, the CEO and
      the
      Director exercised the option agreement whereby the CEO acquired 3,000,000
      shares of the Company’s common stock from the Director.





F-15


**UKARMA
          CORPORATION**
 
 **NOTES
          TO AUDITED FINANCIAL STATEMENTS**





**NOTE
      17 - LEASE AGREEMENTS**





On
      October 28, 2004, the Company signed a lease for its corporate office in the
      City of New York. The lease commenced on January 15, 2005 and terminated on
      January 15, 2006. The monthly lease payments were for $6,800.





On
      November 16, 2005, the lease was extended for another six months to July 31,
      2006, when it was terminated.





The
      Company entered into a month-to-month rent agreement for its corporate office
      after the Company relocated its office to California in October 2006. As of
      January 1, 2007, the rent agreement calls for $2,736 rent per month, and
      requires a 30 day notice to vacate the premise.





**NOTE
      18 - SUBSEQUENT EVENTS**





Subsequent
      to December 31, 2007, the Company has raised an additional $351,750 for
      1,005,000 shares at $0.35 per share pursuant to its registered SB-2 offering
      that was declared effective by the SEC on August 9, 2007.  In aggregate,
      the Company has raised $1,737,601 for 4,964,575 shares pursuant to its
      registered SB-2 offering. In addition, the Company paid $122,915 in finder1s
      fees related to its initial public offering.




F-16





**ITEM
      8. 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 disclosure during the last two fiscal years.








**ITEM
      8A. CONTROLS AND PROCEDURES**





**Disclosure
      Controls and Procedures**





Regulations
      under the Securities Exchange Act of 1934 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
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported,
      within the time periods specified in the Commission’s rules and forms. Our Chief
      Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) 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
      the Evaluation Date, our CEO and CFO believe 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 Securities
                Exchange Act of 1934 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 and principal financial officers 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, 2007. 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, 2007, 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 Securities and
      Exchange Commission that permit the Company to provide only management's report
      in this annual report.




14




***(b)
      Changes in internal control over financial reporting***





There
      were no significant changes in our internal controls or, to our knowledge,
      in
      other factors that could significantly affect our internal controls subsequent
      to the evaluation date.








**ITEM
      8B. OTHER INFORMATION**





None.





**PART
      III**





**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE
      GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
      ACT**





The
      names, ages and biographical information of each of our directors and executive
      officers as of December 31, 2007 are set forth below.





**Name**
            
            **Age**
            
            **Position
                Held**
            
            **Initial
                Election or Appointment Date**Bill
                Glaser
            
            41
            
            Chairman,
                Chief Executive Officer and Interim Chief Financial
                Officer
            
            June
                2001Fred
                Tannous
            
            41
            
            Director
            
            June
                2001




Mr.
      Glaser provides his services as executive officer on a full-time permanent
      basis.




There
      are
      no family relationships between any two or more of our directors or executive
      officers. Our executive officers are appointed by our board of directors and
      serve at the board’s discretion. There is no arrangement or understanding
      between any of our directors or executive officers and any other person pursuant
      to which any director or officer was or is to be selected as a director or
      officer, and there is no arrangement, plan or understanding as to whether
      non-management stockholders will exercise their voting rights to continue to
      elect the current board of directors. There are also no arrangements, agreements
      or understandings to our knowledge between non-management stockholders that
      may
      directly or indirectly participate in or influence the management of our
      affairs.




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




·
            had
                any bankruptcy petition filed by or against any business of which
                such
                person was a general partner or executive officer, either at the
                time of
                the bankruptcy or within two years prior to that time,·
            been
                convicted in a criminal proceeding and none of our directors or executive
                officers is subject to a pending criminal proceeding,·
            been
                subject to any order, judgment, or decree, not subsequently reversed,
                suspended or vacated, of any court of competent jurisdiction, permanently
                or temporarily enjoining, barring, suspending or otherwise limiting
                his
                involvement in any type of business, securities, futures, commodities
                or
                banking activities, or·
            been
                found by a court of competent jurisdiction (in a civil action), the
                Securities and Exchange Commission or the Commodity Futures Trading
                Commission to have violated a federal or state securities or commodities
                law, and the judgment has not been reversed, suspended, or
                vacated.




**Business
      Experience**




*Bill
      Glaser.* Mr.
      Glaser is currently our Chairman, Chief Executive Officer and acting Chief
      Financial Officer. Mr. Glaser began to devote his full time to uKarma Corp
      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 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.




15




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.
      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.




Our
      board
      of directors currently consists of two members. Upon completion of this
      offering, our bylaws will provide that our directors will be elected at each
      annual meeting of the stockholders. Their term of office will run until the
      next
      annual meeting of the stockholders and until their successors have been
      elected.




**Audit
      Committee**





No
      individual on our board of directors possesses all of the attributes of an
      audit
      committee financial expert and no one on our board of directors is deemed to
      be
      an audit committee financial expert. In forming our board of directors, we
      sought out individuals who would be able to guide our operations based on their
      business experience, both past and present, or their education. Mr. Glaser,
      our
      interim Chief Financial Officer, serves as our 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 or evaluating financial statements in such depth and breadth as may
      be
      required of an audit committee financial expert. However, Mr. Glaser is not
      an
      elected director of the company. We recognize that having a person who possesses
      all of the attributes of an audit committee financial expert would be a valuable
      addition to our board of directors; however, we are not, at this time, able
      to
      compensate such a person. Therefore, we may find it difficult to attract such
      a
      candidate.





**Section
      16(a) Beneficial Ownership Reporting Compliance**




Not
      applicable.





**Code
      of Ethics**





We
      have
      adopted a code of ethics that applies to our directors, officers, including
      our
      Chief Executive Officer and Chief Financial Officer, and employees. A copy
      of
      our code of ethics is filed with this report as Exhibit 14.1.





**ITEM
      10. EXECUTIVE COMPENSATION**





**Summary
      of Compensation**





The
      following executive compensation disclosure reflects all compensation awarded
      to, earned by or paid to the executive officers below, for the fiscal year
      ended
      December 31, 2007.




16





**Summary
      Compensation Table**




Name
                and principal
              position
            
            Year
            
            Salary
                ($)
            
            Bonus
                ($)
            
            Stock
                Awards
              ($)
            
            Option
                Awards ($)(1)
            
            Non-Equity
                Incentive Plan Compen-sation ($)
            
            Nonquali-fied
                Deferred Compen-sation Earnings ($)
            
            All
                Other Comp-ensation ($)(2)
            
            Total
                ($)Bill
                Glaser, Chief
              Executive
                Officer and
              President
            
            
            2007
            
            $
            250,000
            
            
            --
            
            
            --
            
            $
            178,171
            
            
            --
            
            
            ---
            
            $
            9,000
            
            $
            437,171






(1)
            The
                assumptions made in the valuation of these options can be found in
                Note 14
                to Company’s financial statements for the period ended December 31,
                2007.(2)
            Mr.
                Glaser receives a car allowance of $750 per month pursuant to his
                employment agreement


**Outstanding
      Equity Awards at Fiscal Year-End**





The
      following table sets forth certain information concerning stock option awards
      granted to our executive officers and our directors for the fiscal year ending
      December 31, 2007. No options were exercised by our executive officers or
      directors during the last fiscal year.





**OUTSTANDING
                EQUITY AWARDS AT FISCAL YEAR-END**




**OPTION
                AWARDS**
            
            **STOCK
                AWARDS**Name
            
            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
            
            
            2,000,000
            
            
            3,000,000
            
            
            --
            
            $
            0.20
            
            
            01/01/2016
            
            
            --
            
            
            --
            
            
            --
            
            
            --Fred
                Tannous
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --
            
            
            --




**Stock
      Options**





There
      were no stock options granted to executive officers during the fiscal year
      ended
      December 31, 2007, and there was no exercise of incentive stock options during
      the last completed fiscal year by the executive officers.





**Compensation
      of Directors**





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




17




**Employment
      Agreements, Termination of Employment and Change-in-Control Arrangements**





We
      have
      entered into a five-year employment agreement with our Chief Executive Officer,
      Bill Glaser dated January 1, 2006. 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 shall also be 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 exerciseable 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 will also receive a car allowance of $750 per
      month.




We
      will
      be 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. Mr. Glaser agrees that all proprietary information will be kept
      confidential and that inventions developed during the course of his employment
      will belong to us.




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





The
      following tables set forth certain information regarding beneficial ownership
      of
      our securities as of April 8, 2008 by (i) each person who is known by us to
      own
      beneficially more than five percent (5%) of the outstanding shares of each
      class
      of our voting securities, (ii) each of our directors and executive officers,
      and
      (iii) all of our directors and executive officers as a group. We believe that
      each individual or entity named has sole investment and voting power with
      respect to the securities indicated as beneficially owned by them, subject
      to
      community property laws, where applicable, except where otherwise
      noted. **** Unless
      otherwise stated, their address is c/o uKarma Corporation, 520 Broadway, Suite
      350, Santa Monica, CA 90401. As of April 8, 2008, there were 21,917,390 shares
      of common stock issued and outstanding.





**Common
      Stock**




**Name
                of Director, Officer and Beneficial Owner**
            
            **Number
                of**
              **Shares
                of**
              **Common
                Stock Beneficially**
              **Owned(1)**
            
            **Percentage
                of Outstanding Shares of**
              **Common**
              **Stock(2)**Named
                Executive Officers and Directors:Bill
                Glaser
            
            
            10,930,708
            (3)
            
            43.7%
            (4)Fred
                Tannous
            
            
            1,000,000
            
            
            4.6%All
                Officers and Directors as a Group (2 persons)
            
            
            11,933,708
            
            
            48.3%




(1)
            Beneficial
                ownership is determined in accordance with the rules of the Securities
                and
                Exchange Commission and generally includes voting or investment power
                with
                respect to securities. Shares of common stock subject to options,
                warrants, or convertible securities exercisable or convertible within
                60
                days of April 8, 2008, are deemed outstanding for computing the percentage
                of the person or entity holding such warrants or convertible securities
                but are not deemed outstanding for computing the percentage of any
                other
                person.(2)
            We
                have based our calculation of the percentage of beneficial ownership
                upon
                21,917,390 shares of common stock outstanding as of April 8, 2008
                unless
                otherwise indicated.****




18




(3)
            2,500,000
                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.(4)
            The
                number of shares of common stock outstanding as of April 8, 2008
                for the
                calculation of the percentage of beneficial ownership for Mr. Glaser
                was
                adjusted to 24,992,390 shares to include his option shares and warrant
                shares described under footnote 3 above.





**Change
      of Control**




To
      the
      knowledge of management, there are no other arrangements or pledges of
      securities of the Company that may result in a change in control of the Company.








**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





**Related
      Party Transactions**





The
      following describes all transactions since the beginning of the Company’s last
      fiscal year, and all proposed transactions, in which the Company was or is
      to be
      a participant and the amount involved exceeds the lesser of $120,000 or one
      percent of the average of the Company’s total assets at year-end for the last
      three completed fiscal years, and in which any related person had or will have
      a
      direct or indirect material interest:





On
      January 26, 2007, Mr. Glaser loaned the Company $100,000 in exchange for a
      six-month promissory note with accrued interest at the rate of 7% per year
      and a
      warrant to purchase 200,000 shares of the Company’s common stock at an exercise
      price of $0.25 per share. On March 13, 2007, Mr. Glaser loaned the Company
      an
      additional $100,000 in exchange for a six-month promissory note with accrued
      interest at the rate of 7% per year and a warrant to purchase 250,000 shares
      of
      the Company’s common stock at an exercise price of $0.25 per share. On March 29,
      2007, Mr. Glaser loaned the Company an additional $68,579.08 in exchange for
      a
      promissory note due upon demand with accrued interest at the rate of 7% per
      year
      and a warrant to purchase 125,000 shares of the Company’s common stock at an
      exercise price of $0.25 per share. On April 30, 2007, Mr. Glaser loaned the
      Company an additional $20,000 in exchange for a promissory note due upon demand
      with accrued interest at the rate of 7% per year. Between July 7, 2007 and
      July
      23, 2007, Mr. Glaser loaned an additional $20,051.34 to the Company in exchange
      for a promissory note due upon demand with accrued interest at the rate of
      7%
      per year. On August 16, 2006, Glaser converted $200,000 of principal plus
      interest into common stock of the Company. The Company repaid $25,000 on October
      12, 2007 and currently owes Mr. Glaser $183,631.





**Director
      Independence**





Our
      board
      of directors has determined that Fred Tannous qualifies as "independent" as
      the
      term is used in the listing standards of The Nasdaq Stock Market, Inc. -
      Marketplace Rule 4200.








**ITEM
      13. EXHIBITS**





**(a)
      EXHIBITS**





3.1
            
            Amended
                and Restated Certificate of Incorporation, as currently in effect
                (1)3.2
            
            Bylaws,
                as currently in effect (1)4.1
            
            Form
                of Warrant (1)10.1
            
            2006
                Stock Plan (1)10.2
            
            Employment
                Agreement between the Company and Bill Glaser dated January 1, 2006
                (1)10.3
            
            Consulting
                Agreement between the Company and Eric Paskel dated April 19, 2006
                (1)10.4
            
            Consulting
                Agreement between the Company and Craig Kulman dated February 13,
                2006
                (1)




19




10.5
            
            Consulting
                Agreement between the Company and Len Panzer dated February 28, 2006
                (1)10.6
            
            Consulting
                Agreement between the Company and Jeremy Koff dated May 5, 2006
                (1)10.7
            
            Production
                Agreement between the Company and The Tribal Vision Group, LLC d/b/a
                Yoga
                Tribe and Culture Productions dated June 15, 2006 (1)10.8
            
            Marketing
                Agreement between the Company and Synthesis Marketing dated October
                11,
                2006 (1)10.9
            
            Marketing
                Agreement between the Company and Much and House Public Relations
                dated
                October 11, 2006 (1)10.10
            
            Production
                Agreement between the Company and Caudill and Associates dated November
                13, 2006 (1)10.11
            
            Option
                Agreement between Fred Tannous and Bill Glaser dated January 17,
                2005
                (1)10.12
            
            Promissory
                Note issued to Bill Glaser dated November 10, 2006 (1)10.13
            
            Promissory
                Note issued to Bill Glaser dated January 26, 2007 (1)10.14
            
            Warrant
                issued to Bill Glaser dated January 26, 2007 (1)10.15
            
            Promissory
                Note issued to Bill Glaser dated March 13, 2007 (2)10.16
            
            Common
                Stock Warrant issued to Bill Glaser dated March 13, 2007
                (2)




10.17
            
            Demand
                Promissory Note issued to Bill Glaser dated March 29, 2007
                (2)




10.18
            
            Common
                Stock Warrant issued to Bill Glaser dated March 29, 2007
                (2)10.19
            
            Demand
                Promissory Note issued to Bill Glaser dated April 30, 2007
                (2)10.20
            
            Amendment
                to Option Agreement dated July 9, 2007 (3)10.21
            
            Notice
                of Exercise of Option dated July 9, 2007 (3)10.22
            
            Demand
                Promissory Note issued to Bill Glaser dated July 23,
                2007(3)10.23
            
            Conversion
                Agreement between the small business issuer and Bill Glaser dated
                August
                14, 2007 (4)10.24
            
            Video
                Distribution Agreement dated September 25, 2007 (5)14.1
            
            Code
                of Ethics *23.1
            
            Consent
                of Spector, Wong & Davidian, LLP *31.1
            
            Rule
                13a-14(a) / 15d-14(a)(4) Certification by the Company’s Chief Executive
                Officer *31.2
            
            Rule
                13a-14(a) / 15d-14(a)(4) Certification by the Company’s Chief Financial
                Officer *32.1
            
            Section
                1350 Certification by the Company’s Chief Executive Officer and Chief
                Financial Officer *




20




*
            Filed
                herewith.(1)
            Incorporated
                herein by reference to Form SB-2 filed with the SEC on February 12,
                2007.(2)
            Incorporated
                herein by reference to Form SB-2 Amendment No. 1 filed with the SEC
                on
                June 28, 2007.(3)
            Incorporated
                herein by reference to Form SB-2 Amendment No. 4 filed with the SEC
                on
                August 6, 2007.(4)
            Incorporated
                herein by reference to Form 10-QSB filed with the SEC on August 20,
                2007.(5)
            Incorporated
                herein by reference to Form 8-K filed with the SEC on October 4,
                2007.








**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





The
      following table sets forth fees billed to us by our auditors during the fiscal
      years ended December 31, 2006 and December 31, 2007 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. "Audit Related Fees" consisted of consulting regarding accounting
      issues. "All Other Fees" consisted of fees related to the issuance of consents
      for our SB-2 and S-8 Registration Statements and this Annual Report






December
                31, 2007
            
            December
                31, 2006(i)
            Audit
                Fees
            
            $
            32,000
            
            $
            25,000(ii)
            Audit
                Related Fees
            
            
            0
            
            
            0(iii)
            Tax
                Fees
            
            
            1,000
            
            
            1,000(iv)
            All
                Other Fees
            
            
            0
            
            
            0Total
                fees
            
            $
            33,000
            
            $
            26,000


21


**SIGNATURES**





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




**UKARMA
              CORPORATION**Dated:
              April 15, 2008
            By:
            /s/ Bill
              GlaserBill
              GlaserChief
              Executive Officer




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








**Signature**
            **Title**
            **Date**/s/
                Bill
                Glaser
            Chief
                Executive Officer (Principal
              Executive
                Officer), Interim Chief
              Financial
                Officer (Principal Financial and
            April
                15, 2008Bill
                Glaser
            Accounting
              Officer)
              and Chairman of the Board of Directors/s/ Fred
              Tannous
            Director
            April
                15, 2008Fred
                Tannous





22