This Report on Form 10-Q contains certain “forward-looking statements” (as such term is defined in section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). These statements, which involve risks and uncertainties, reflect our current expectations, intentions or strategies regarding our possible future results of operations, performance, and achievements. Forward-looking statements in this report include, without limitation: statements regarding future products or product development; statements regarding future selling, including our expectations regarding the success of our network marketing sales channel, general and administrative costs and research and development spending; statements regarding our product development strategy; statements regarding the legal complaint filed against the company; and statements regarding future capital expenditures and financing requirements. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and applicable common law and SEC rules.

          These forward-looking statements are identified in this report by using words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “plan”, “predict”, “project”, “should” and similar terms and expressions, including references to assumptions and strategies. These statements reflect our current beliefs and are based on information currently available to us. Accordingly, these statements are subject to certain risks, uncertainties, and contingencies, which could cause our actual results, performance, or achievements to differ materially from those expressed in, or implied by, such statements.

          The following factors are among those that may cause actual results to differ materially from our forward-looking statements:

          When considering these forward-looking statements, you should keep in mind the cautionary statements in this report and the documents incorporated by reference. We have no obligation and do not undertake to update or revise any such forward-looking statements to reflect events or circumstances after the date of this report.

          These unaudited Condensed Consolidated Financial Statements and Notes should be read in conjunction with the audited financial statements and notes of LifeVantageLifevantage Corporation as of and for the year ended June 30, 2008 included in our Annual Report on Form 10-KSB.

          The condensed consolidated financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). In the opinion of the management of Lifevantage Corporation (“LifeVantage”Lifevantage” or the “Company”), these interim Financial Statements include all adjustments, consisting of normal recurring adjustments, that are considered necessary for a fair presentation of the Company’s financial position as of DecemberMarch 31, 2008,2009, and the results of operations for the three and sixnine month periods ended DecemberMarch 31, 20082009 and 20072008 and the cash flows for the sixnine month periods ended DecemberMarch 31, 20082009 and 2007.2008. Interim results are not necessarily indicative of results for a full year or for any future period. Certain prior period amounts have been reclassified to conform to our current period presentation.

          The condensed consolidated financial statements and notes included herein are presented as required by Form 10-Q, and do not contain certain information included in the Company’s audited financial statements and notes for the fiscal year ended June 30, 2008 pursuant to the rules and regulations of the SEC. For further information, refer to the financial statements and notes thereto as of and for the year ended June 30, 2008, and included in the Annual Report on Form 10-KSB on file with the SEC.

          On SeptemberMarch 16, 2009 and March 26, 2007 and October 31, 20072009, the Company issued debentures convertible into the Company’s common stock in a private placement offering. The netgross proceeds received by the Company from the offering of approximately $1,328,000$2,608,000 are being used to expand marketing efforts, scientific studies and intellectual property protection. While the 2007 funding improved the Company’s liquidity position, the Company is seeking to raise up to an additional $2,000,000 for its entry into the Network Marketing Sales Channelnetwork marketing sales channel and to increase the Company’s working capital. Subsequent to March 31, 2009, the Company raised an additional $892,000 for a total of $3,500,000. The Company anticipates raising additional capital for entry into the network marketing sales channel. However, there can be no assurance that any additional funds can be raised or that revenue generated from this new sales channel will result in positive cash flow.

          The accompanying financial statements include the accounts of the Company and its wholly-owned subsidiary Lifeline Nutraceuticals Corporation (“LNC”). All inter-company accounts and transactions between the entities have been eliminated in consolidation.

          Management of the Company has made a number of estimates and assumptions relating to the reporting of revenues, expenses, assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. Actual results could differ from those estimates.

          The Company ships the majority of its product directly to the consumer via United Parcel Service (“UPS”) and receives substantially all payment for these sales in the form of credit card charges. Revenue from direct product sales to customers is recognized upon passage of title and risk of loss to customers when product is shipped from the fulfillment facility. Sales revenue and estimated returns are recorded when product is shipped. The Company’s direct to customer and independent distributor return policy is to provide a 30-day money back guarantee on orders placed by customers. After 30 days, the Company does not issue refunds to direct sales customers or distributors for returned product. To date, the Company has experienced monthly returns of approximately 1 percent of sales. As of DecemberMarch 31, 20082009 and June 30, 2008, the Company’s reserve balance for returns and allowances was approximately $92,000$81,000 and $97,700, respectively.

          For retail customers, the Company analyzes its contracts to determine the appropriate accounting treatment for its recognition of revenue on a customer by customer basis.

          In July 2005, LifeVantageLifevantage entered into an agreement with General Nutrition Distribution, LP (“GNC”) for the sale of Protandim^®, pursuant to which GNC has the right to return any and all product shipped to GNC, at any time, for any reason. Beginning July 1, 2008, the Company had sufficient history to develop reliable estimates of product returns, and accordingly, recognized all previously deferred revenue net of estimated returns and expenses, and began recognizing sales to all third party distributors net of estimated returns, as product ships.

The table below shows the effect of the change in the Company’s deferred revenue and expense for the sixnine months ended DecemberMarch 31, 2008:2009:

          Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. TheAs of March 31, 2009, the Company has capitalized payments tooffset its raw materials deposit held by the contract product manufacturer in exchange for the acquisition of raw materials and commencement ofmoved the manufacturing,raw materials to a new manufacturer for the bottling and labeling of the Company’s product. The cost of manufacturing, bottling and labeling are capitalized into finished goods as product is completed. As of DecemberMarch 31, 20082009 and June 30, 2008, inventory consisted of:

Based upon the mostagreement to expand the line of credit to approximately 80%, management will have access to 80% of its ARPS through borrowing in the current information,year. Accordingly, management believes that these securities will redeem within the next twelve months, asclassified 80% or $580,000 of the Company’s ARPS continue to redeem and approximately $300,000marketable securities as short term. The remaining 20% or $145,000 of the ARPS redeemed duringCompany’s marketable securities that may not be available in the three month period ended December 31, 2008. As such, these securities have been classified as current. However, future economic events could cause a portion of these to becurrent year is classified as long-term.

          As of DecemberMarch 31, 2008,2009, in light of the plan for repurchase, management believes that there has not been a change in the fair value of the securities owned. The Company is currently taking advantage of higher interest yields as a result of the failed auctions. The Company has not recorded any impairment related to these investments as management does not believe that the underlying credit quality of the assets has been impacted by the reduced liquidity of these investments.

          The Company established a line of credit to borrow against marketable securities so that sales of these securities would not have to occur in order to fund operating needs of the Company. The interest rate on amounts borrowed was slightly less thanhas been approximately the same as the interest being earned.earned from the underlying securities.

          Shipping and handling costs associated with inbound freight and freight out to customers including independent distributors are included in cost of sales. Shipping and handling fees charged to all customers are included in sales.

          The Company has adopted the provisions of Statement of Financial Accounting Standards No. 142,Goodwill and Other Intangible Assets,(“SFAS 142”). SFAS 142 establishes standards for accounting for goodwill and other intangibles acquired in business combinations. Goodwill and other intangibles with indefinite lives are not amortized.

          We analyze convertible debentures under the guidance provided by Emerging Issues Task Force Issue No. 00-19,Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,(“EITF 00-19”) and Emerging Issues Task Force Issue No. 05-02,Meaning of “Conventional Convertible Debt Instrument” in Issue No. 00-19, (“EITF 05-02”) and review the appropriate classification under the provisions of Statement of Financial Accounting Standards No.SFAS 133Accounting for Derivative Instruments and Hedging Activities, (“SFAS 133”), and EITF 00-19.

Convertible Debt Instruments: We issued convertible debt in September and October 2007. We review the terms of convertible debt and equity instruments that we issue to determine whether there are embedded derivative instruments, including the embedded conversion options, that are required to be bifurcated and accounted for separately as derivative instrument liabilities. Also, in connection with the sale of convertible debt and equity instruments, we may issue freestanding options or warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. For option-based derivative financial instruments, we use the Black-Scholes option pricing model to value the derivative instruments.

          Certain instruments, including convertible debt and equity instruments and the freestanding warrants issued in connection with those convertible instruments, may be subject to registration rights agreements, which impose penalties for failure to register the underlying common stock by a defined date. These potential penalties are accounted for in accordance with Statement of Financial Accounting Standards No. 5,Accounting for Contingencies, (“SFAS 5”).

          When the embedded conversion option in a convertible debt instrument is not required to be bifurcated and accounted for separately as a derivative instrument, we review the terms of the instrument to determine whether it is necessary to record a beneficial conversion feature, in accordance with Emerging Issues Task Force Issue No. 98-05,Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios,(“EITF 98-05”), and Emerging Issues Task Force Issue No. 00-27,Application of Issue No. 98-5 to Certain Convertible Instruments, (“EITF 00-27”). When the effective conversion rate of the instrument at the time it is issued is less than the fair value of the common stock into which it is convertible, we recognize a beneficial conversion feature, which is credited to equity and reduces the initial carrying value of the instrument.

          When convertible debt is initially recorded at less than its face value as a result of allocating some or all of the proceeds received in accordance with Accounting Principles Board Opinion No. 14,Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, (“APB 14”), to

from the face amount, together with the stated interest on the convertible debt, is amortized over the life of the instrument through periodic charges to income, using the effective interest method.

          Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using statutory tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in income in the period that includes the effective date of the change.

          Statement of Financial Accounting Standards No. 105,Disclosure of Information About Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit RisRisk,k, (“SFAS 105”), requires disclosure of significant concentrations of credit risk regardless of the degree of such risk. Financial instruments with significant credit risk include cash and marketable securities. At DecemberMarch 31, 2008,2009, the Company had approximately $750,000 with$2,083,000 in cash accounts at one financial institution, and $725,000 in an investment management account.account at another financial institution.

          We have reviewed recently issued, but not yet effective, accounting pronouncements and do not believe any such pronouncements will have a material impact on our financial statements.

          Long-lived assets of the Company are reviewed at least annually as to whether their carrying value has become impaired, pursuant to guidance established in Statement of Financial Accounting Standards No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, (“SFAS 144”). The Company assesses impairment whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset may not be recoverable. When an assessment for impairment of long-lived assets, long-lived assets to be disposed of, and certain identifiable intangibles related to those assets is performed, the Company is required to compare the net carrying value of long-lived assets on the lowest level at which cash flows can be determined on a consistent basis to the related estimates of future undiscounted net cash flows for such properties. If the net carrying value exceeds the net cash flows, then impairment is recognized to reduce the carrying value to the estimated fair value, generally equal to the future discounted net cash flow.

term and at maturity, at the Company’s option, may be repaid in full or converted into common stock at the lower of $0.20 per share or the average trading price for the 10 days immediately prior to the maturity date.

          Gross proceeds of $1,490,000 were distributed to the Company pursuant to the issuance of convertible debentures in the private placement offering. The Company also issued warrants to purchase shares of the Company’s common stock at $0.30 per share in the private placement offering.

          Prior to conversion or repayment of the convertible debentures, if (i) the Company fails to remain subject to the reporting requirements under the Exchange Act for a period of at least 45 consecutive days, (ii) the Company fails to materially comply with the reporting requirements under the Exchange Act for a period of 45 consecutive days, (iii) the Company’s common stock is no longer quoted on the Over the Counter Bulletin Board or listed or quoted on a securities exchange, or (iv) a Change of Control (as defined in the convertible debentures) is consummated, the Company will be required upon the election of the holder to redeem the convertible debentures in an amount equal to 150 percent of the principal amount of the convertible debenture plus any accrued or unpaid interest.

          The Company determined that the convertible debentures did not satisfy the definition of a conventional convertible instrument under the guidance provided in EITF Issues 00-19 and 05-02, as an anti-dilution provision in the convertible debentures reduces the conversion price dollar for dollar if the Company issues common stock with a price lower than the conversion price of the convertible debentures. However, the Company has reviewed the requirements of EITF Issue 00-19 and concluded that the embedded conversion option in the convertible debentures qualifies for equity classification under EITF Issue 00-19, and thus, is not required to be bifurcated from the host contract. The Company also determined that the warrants issued in the private placement offering qualify for equity classification under the provisions of SFAS 133 and EITF Issue 00-19.

          In addition, the Company has reviewed the terms of the convertible debentures to determine whether there are any other embedded derivative instruments that may be required to be bifurcated and accounted for separately as derivative instrument liabilities. Certain events of default associated with the convertible debentures, including the holder’s right to demand redemption in certain circumstances, have risks and rewards that are not clearly and closely associated with the risks and rewards of the debt instruments in which they are embedded. The Company has reviewed these embedded derivative instruments to determine whether they should be separated from the convertible debentures. However, at this time, the Company does not believe that the value of these derivative instrument liabilities is material.

          In accordance with the provisions of APB Opinion No. 14, the Company allocated the proceeds received in the private placement to the convertible debentures and warrants to purchase common stock based on their relative estimated fair values. In accordance with EITF Issues 98-5 and 00-27,

$54,320 and $46,938$101,258, respectively. Effective interest is accreted to the balance of convertible debt until maturity. A total of $256,568 was paid for commissions and expenses incurred in the 2007 private placement offering which is being amortized into interest expenses over the term of the convertible debentures on a straight-line basis. As of DecemberMarch 31, 20082009 the Company has recorded accumulated amortization of 2007 deferred offering costs of $106,158.$127,226.

          The Company established a line of credit to borrow against its marketable securities. Under an agreement to expand the line of credit the Company can borrow upfrom 50% to 50%80% of the face value of its marketable securities, $375,000 at December 31, 2008.the Company may borrow up to 580,000. The line is collateralized by the Company’s marketable securities. The interest rate charged through DecemberMarch 31, 2008,2009, 4.47 percent, is 1.22 percentage points above the published Wall Street Journal Prime Rate, which was 3.25 percent as of DecemberMarch 31, 2008.2009. As of DecemberMarch 31, 2008,2009, the Company has borrowed approximately $250,000$325,000 including accrued interest from the line.

          As of March 31, 2009, the Company issued common stock and warrants in a private offering, resulting in gross proceeds to the Company of approximately $2,608,000. As of March 31, 2009, 13,040,000 shares of common stock and warrants to purchase 13,040,000 shares of stock for three years at $0.50 per share were issued to participants in the offering.

In accordance with SFAS 123(R), and EITF 96-18, payments in equity instruments for goods or services are accounted for by the fair value method. For the three and sixnine months ended DecemberMarch 31, 2008,2009, stock based compensation of $90,064$352,132 and $216,087$568,219 respectively, was reflected as an increase to additional paid in capital. Of the $90,064$352,132 stock based compensation for the three months ended DecemberMarch 31, 2008, $62,7972009, $202,609 was employee related and $27,267$149,523 was non-employee related. For the sixnine months ended DecemberMarch 31, 2008,2009, stock based compensation of $150,797$353,406 was employee related and $65,290$214,813 was non-employee related.

          WarrantsCompensation based warrants for the purchase of 240,000300,000 and 520,000820,000 shares of the Company’s common stock were granted to consultants for services rendered during the three and sixnine month periods ended DecemberMarch 31, 2008,2009, respectively. The value of the warrants granted werewas estimated at $25,148$60,008 and $74,383$134,391 for the three and sixnine month periods ended DecemberMarch 31, 2008,2009, respectively. No options were granted to employees during the same periods.

          The Company’s Articles of Incorporation authorize the issuance of preferred shares. However, as of DecemberMarch 31, 2008,2009, none have been issued nor have any rights or preferences been assigned to the preferred shares by the Company’s Board of Directors.

          This discussion and analysis should be read in conjunction with the accompanying Financial Statements and related notes, as well as the section entitled “Cautionary Note Regarding Forward-Looking Statements” in this report, as well as the Financial Statements and related notes in our Annual Report on Form 10-KSB for the fiscal year ended June 30, 2008 and the risk factors discussed therein. The statements contained in this report that are not purely historical are forward-looking statements. “Forward-looking statements” include statements regarding our expectations, hopes, intentions, or strategies regarding the future. Forward-looking statements include statements regarding future products or product development; statements regarding future selling, general and administrative costs and research and development spending, and our product development strategy; statements regarding future capital expenditures and financing requirements; and similar forward-looking statements. It is important to note that our actual results could differ materially from those contained in such forward-looking statements.

          This management’s discussion and analysis discusses the financial condition and results of operations of Lifevantage Corporation (the “Company”, “LifeVantage”“Lifevantage”, or “we”, “us” or “our”) and its wholly-owned subsidiary, Lifeline Nutraceuticals Corporation (“LNC”).

          At present, we primarily sell a single product, Protandim^®. We developed Protandim^®, a proprietary blend of ingredients that has (through studies on animals and humans) demonstrated the ability to increase the production of antioxidant enzymes including superoxide dismutase (“SOD”) and catalase (“CAT”) in brain, liver, and blood, the primary battlefields for oxidative stress. Protandim^® is designed to induce the human body to produce more of its own catalytic antioxidants, and to decrease the process of lipid peroxidation, an indicator of oxidative stress. Each component of Protandim^® has been selected for its ability to meet these criteria. Low, safe doses of each component help prevent unwanted additional effects that might be associated with one or another of the components, none of which have been seen in the formulation.

          We commenced sales of an Omega 3 fish oilhave developed a skin care product containing EPAProtandim^® that we will begin selling and DHA during fiscal 2008, butshipping in the fourth quarter 2009. We intend to date, sales have been negligible. We expect to explore additional naturaldevelop and market other products that fit within our business model.

          We sell Protandim^® directly to individuals as well asthrough direct to retail stores.consumer sales and sales by our independent distributors. We currently sell Protandim^® to General Nutrition Centers (“GNC”). We began significant sales of Protandim^® in the fourth quarter ended June 30, 2005. SinceFrom June 2005 to 2008, sales of Protandim^® generally have declined on a monthly basis as we havedid not been successful in developing a traditional marketing message that has resonated withsuccessfully market the target audience.product through internet and retail channels. During the three months ended March 31, 2009, sales trends began to increase over the prior three month period. Net revenue from Protandim^® sales totaled approximately $578,000$655,000 and $1,852,000$2,507,000 for the three and sixnine month periods ended DecemberMarch 31, 2008,2009, respectively, including $511,000 of previously deferred revenue recognized during the sixnine month period ended DecemberMarch 31, 2008.2009.

          During the sixnine months ended DecemberMarch 31, 2008,2009, the Company has recognized all deferred revenue and expenses from GNC and Vitamin Cottage,its retailers, as the Company has determined it has sufficient history to reasonably estimate returns and meets the retail sales recognition requirements pursuant to Staff Accounting Bulletin No. 104,Revenue Recognition, corrected copy(“SAB 104”). Excluding the recognition of prior period deferred revenue of approximately $511,000 from GNC and Vitamin Cottage, net revenue from sales for the sixnine months ended DecemberMarch 31, 2008 were2009 totaled approximately $1,341,000.$1,996,000.

          Our research efforts to date have been focused on investigating various aspects and consequences of the imbalance of oxidants and antioxidants, an abnormalitya condition resulting in what is known as oxidative stress and which is a central underlying feature in manyhealth problems and disorders. We intend to continue our research, development, and documentation of the efficacy of Protandim^® to provide credibility to the market. We also anticipate undertakingcontinuing our research and development, testing, and licensing efforts to be able to introduce additional products in the future.

          The primary manufacturing, fulfillment, and shipping components of our business are outsourced to companies we believe possess a high degree of expertise. Through outsourcing, we hope to achieve a more direct correlation between the costs we incur and our level of product sales, versus the relatively high fixed costs of building our own infrastructure to accomplish these same tasks. Outsourcing also helps to minimize our commitment of resources to the human capital required to manage these operational components successfully. Outsourcing also provides additional capacity without significant advance notice and often at an incremental price lower than the unit prices for the base service.

          Our expenditures have consisted primarily of marketing expenses, operating expenses, payroll and professional fees, customer service, research and development and product manufacturing for the marketing and sale of Protandim^®.

          We have taken steps that have caused us to incur significant costs which we believe will help increase sales, including the additionlaunch of our Network Marketing Sales Channelnetwork marketing sales channel announced in October 2008. We believe that sales of the Company’s main product, Protandim^®, areis well-suited for and will benefit from the Network Marketing Sales Channelnetwork marketing sales channel based upon numerousits unique, patented status and strength of the scientific studies behind Protandim® which are best communicated in a face to face environment. In addition to the independent distributorships, the Company will continue to sell Protandim^® through its retail and direct to consumer channels.product.

          The Company commencedissued common stock and warrants in a private placement offering with aggregate gross proceeds to the Company of equity in January 2009$3,500,000. The Company sold an aggregate of up to $2 million with an option to issue an additional $0.5 million at the Company’s discretion. The offering is for $10,000 units which include 50,00017,500,000 shares of common stock of the Company at a purchase price of $0.20 per share and a warrant to purchase 50,000issued warrants exercisable for 17,500,000 shares of common stock atof the Company. The warrants have an exercise price of $0.50 per share forand may be exercised at any time following issuance during the three years (the “Units”). Thereyear exercise period.

          Pursuant to the launch of the Company’s network marketing sales strategy, the Company recently hired approximately 50 sales, marketing operations, finance and accounting personnel. These individuals, all of whom had been successful in their other network marketing endeavors, were highly sought after in the network marketing arena, due to their successful track record and chose to join the Company based upon their belief in its ability to be successful in the network marketing sales channel. The Company believes that through the experience of the newly hired team the speed which the Company’s new sales strategy can be no assurance thatsuccessfully deployed will be greatly increased. As of May 14, 2009 the Company had approximately

2,000 enrolled distributors and effective May 19, 2009, the Company will be successfulofficially launch its network marketing sales channel. The Company’s recent hiring of additional personnel for its network marketing sales channel will result in raising capital at all or on terms acceptable tosubstantial additional costs and expenses for the Company. TheIn order to meet these increased expense requirements, the Company’s sales must increase substantially or the Company has not yet sold any Units in the private placement.must raise sufficient amounts of additional capital, and there is no guarantee that either of these events will occur.

          Sales We generated net revenue from the sale of our product, Protandim®Protandim^®, of approximately $578,000$655,000 during the three months ended DecemberMarch 31, 20082009 and approximately $796,000$784,000 during the three months ended DecemberMarch 31, 2007.2008. We generated net revenues of approximately $1,852,000$2,507,000 during the sixnine months ended DecemberMarch 31, 20082009 and approximately $1,604,000$2,388,000 during the sixnine months ended DecemberMarch 31, 2007.2008. Included in net revenue for the sixnine months ended DecemberMarch 31, 2008 are2009 is approximately $511,000 of previously deferred revenue from its retail sales. During the three month period ended March 31, 2009, most of our marketing effort was directed toward building the network marketing sales channel in anticipation of our May 18, 2009 launch.

March 31, 20082009 due to an increase in research and development expenses related to the development and documentation of the efficacy of Protandim^®. For the sixnine months ended DecemberMarch 31, 2008,2009, our research and development expenditures of approximately $119,000$153,000 remain below the research and development expenditures of approximately $219,000$244,000 for the sixnine months ended DecemberMarch 31, 2007.2008.

          Depreciation and Amortization Expense Depreciation and amortization expense decreasedincreased from approximately $40,000 during the three months ended DecemberMarch 31, 20072008 to approximately $39,000$41,000 in the three months ended DecemberMarch 31, 2008.2009. Depreciation and Amortization expenses increased from approximately $78,000$118,000 during the sixnine months ended DecemberMarch 31, 20072008 to approximately $79,000$120,000 during the sixnine months ended DecemberMarch 31, 2008.2009.

          Net Other Income and Expense We recognized net other expenses of approximately $93,000$650,000 during the three months ended DecemberMarch 31, 20082009 as compared to net other expenses of approximately $76,000$89,000 during the three months ended DecemberMarch 31, 2007.2008. During the sixnine months ended DecemberMarch 31, 2008,2009, the Company recognized approximately $170,000$820,000 net other expense as compared to net other expenses of approximately $76,000$165,000 during the sixnine months ended DecemberMarch 31, 2007.2008. This changeincrease is largely the result of increasednon-cash derivative expense from the change in fair value of the Company’s derivative liability related to the 2009 private placement of common stock and warrants as well as the interest expenses from the 20072008 private placement of convertible debentures.

classified as restricted cash. As of April 6, 2009, the Company has not yet sold any of the equityraised an additional $892,000 in the private placement.offering, including $770,000 previously escrowed, for total gross proceeds to the Company of $3,500,000.

          At DecemberMarch 31, 2008,2009, our available liquidity was approximately $849,000,$1,568,000, including available cash and cash equivalents and marketable securities. This represented a decreasean increase of approximately $448,000$438,000 from the approximately $1,297,000$1,130,000 in cash and cash equivalents and marketable securities as of June 30, 2008. During the sixnine months ended DecemberMarch 31, 2008,2009, our net cash used by operating activities was approximately $503,000$1,585,000 as compared to net cash providedused by operating activities of approximately $152,000$169,000 during the sixnine months ended DecemberMarch 31, 2007.2008. The Company’s cash used by operating activities during the sixnine month period ended DecemberMarch 31, 20082009 increased primarily as a result of increased advertising, marketing and other general and administrative expenditures.expenditures related to the rollout of the network marketing sales channel.

          During the sixnine months ended DecemberMarch 31, 2008,2009, our net cash provided by investing activities was approximately $323,000,$222,000, due to the redemption of marketable securities. During the sixnine months ended DecemberMarch 31, 2007,2008, our net cash used by investing activities was approximately $1,509,000,$1,431,000, primarily due to the purchase of marketable securities.

          Cash provided by financing activities during the sixnine months ended DecemberMarch 31, 20082009 was approximately $83,000,$2,479,000, compared to approximately $1,337,000$1,627,000 during the sixnine months ended DecemberMarch 31, 2007.2008. Cash provided from financing activities during the sixnine month period ended DecemberMarch 31, 2009 was due to proceeds from the 2009 equity offering of common stock and warrants. Cash provided from financing activities during the nine months ended March 31, 2008 was due to proceeds from the revolving line of credit. Cash provided from financing activities during the six months ended December 31, 2007 was due to proceeds from the 2007 private placement.placement of convertible securities.

          We maintain an investment portfolio of marketable securities that is managed by a professional financial institution. The portfolio includes ARPS of AA and AAA rated closed-end funds. These marketable securities which historically have been extremely liquid have been adversely affected by the broader national liquidity crisis.

          Based upon recent redemptionsan agreement to expand the Company’s line of credit to approximately 80%, which were $300,000 during the three

          We prepare our financial statements in conformity with accounting principles generally accepted in the United States of America. As such, we are required to make certain estimates, judgments, and assumptions that we believe are reasonable based upon the information available. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results could differ from these estimates. Our significant accounting policies are described in Note 2 to our financial statements. Certain of these significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. We consider an accounting estimate to be critical if (1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

          There are other items within our financial statements that require estimation, but are not deemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. Management has discussed the development and selection of these critical accounting estimates with our board of directors, and the audit committee has reviewed the foregoing disclosure.

          Allowances for Product Returns We record allowances for product returns at the time we ship the product. We base these accruals on the historical return rate since the inception of our selling activities, and the specific historical return patterns of the product. Our return rate is approximately 1% of sales.

          We offer a 30-day, money back unconditional guarantee to all direct and network marketing customers. As of DecemberMarch 31, 2008,2009, our December 2008March 2009 direct sales shipments of approximately $167,000$140,000 were subject to the money back guarantee. We also replace product returned due to damage during shipment wholly at our cost, the total of which historically has been negligible.

          Distributors can return product within 30 days pursuant to the Company’s 30-day money back guarantee, however, distributors who resign may return product or marketing materials purchased within the last 12 months prior to the distributor’s resignation, subject to certain restrictions, for a full refund, less a 10% restocking fee and shipping costs. The Company expects costs related to refunds to resigning distributors to be negligible because in most cases orders are placed directly through distributor websites and the Company does not expect distributors to purchase significant inventory outside normal consumption from the Company.

We monitor our return estimate on an ongoing basis and may revise the allowances to reflect our experience. Our allowance for product returns was approximately $92,000$81,000 on DecemberMarch 31, 2008,2009, compared with approximately $98,000 on June 30, 2008. The reduction in the reserve is primarily due

back guarantee on direct and network marketing sales orders placed by customers.customers and distributors. After 30 days, we do not refund direct sales customers or distributors for returned product. We have experienced monthly returns on direct sales orders approximating less than 1 percent of sales. Sales revenue and estimated returns are recorded when the merchandise is shipped and title and risk of loss passes to the customer.

          For retail customers, the Company analyzes its distributor contracts to determine the appropriate accounting treatment for its recognition of revenue on a customer by customer basis. Where the right of return exists beyond 30 days, revenue and the related cost of sales is deferred until sufficient sell-through data is received to reasonably estimate the amount of future returns. As of March 31, 2009, the Company had one retail distributor.

          The Company recognized previously deferred retail revenue and its related costs during the three month period ended September 30, 2008, as it had sufficient information to reasonably estimate future returns. Prior to July 2008, the Company recognized retail revenue from its largest retail distributor on a sell-through basis as product was sold by that distributor to its customer.

          Derivative Instruments In connection with the sale of debt or equity instruments, we may sell options or warrants to purchase our common stock. In certain circumstances, these options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as conversion options, which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.

          The identification of, and accounting for, derivative instruments is complex. For options, warrants and any bifurcated conversion options that are accounted for as derivative instrument liabilities, we determine the fair value of these instruments using the Black-Scholes option pricing model. That model requires assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the instruments. Because of the limited trading history for our common stock, we have estimated the future volatility of our common stock price based on not only the history of our stock price but also the experience of other entities considered comparable to us. The identification of, and accounting for, derivative instruments and the assumptions used to value them can significantly affect our financial statements.

and evaluated by the Company’s management to allow management to make timely decisions regarding required disclosure.

Members of the Company’s management, including our Chief Executive Officer, David Brown, and Chief Financial Officer, Bradford Amman, have evaluated the effectiveness of our disclosure controls and procedures, as defined by Exchange Act Rules 13a-15(e) or 15d-15(e), as of DecemberMarch 31, 2008,2009, the end of the period covered by this report. Based upon that evaluation, Messrs. Brown and Amman concluded that our disclosure controls and procedures were effective as of DecemberMarch 31, 2008.2009.

          There have been no changes in ourWith the addition of new employees for the entry and rollout of the Company’s network marketing sales strategy, internal control over financial reporting that occurred duringcontrols are being analyzed and modified where necessary for effectiveness within the three or six months ended December 31, 2008 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.expanded corporate structure.

During the three months ended DecemberMarch 31, 2008,2009, the Company sold unregistered common stock to accredited investors pursuant to an exemption under Rule 506 Securities Act of 1933, as amended (the “Securities Act”). Approximately 13,040,000 unregistered shares of common stock were sold at a price of $0.20 per share and a warrant to purchase the same number of shares at an exercise price of $0.50 per share. Effective April 6, 2009, an additional 4,460,000 unregistered shares of common stock were sold at a price of $0.20 per share (including a warrant to purchase the same number of shares at an exercise price of $0.50 per share) for a total issuance of 17,500,000 shares of common stock or $3,500,000 of gross proceeds.

          During the three and nine month periods ended March 31, 2009, the Company issued warrants to purchase 240,000300,000 and 820,000 shares of the Company’s common stock, respectively, to consultants of the Company in exchange for services rendered at an exercise price of $0.21 and $0.11 per share and a term of three (3) years (see Notes 2 and 6 to the Condensed Consolidated Financial Statements included in this report). For these compensatory warrants, there was no underwriter involved in the transactions, and the warrants were issued pursuant to the exemption from registration contained in Section 4(2) of the Securities Act of 1933, as amended.Act.

None.

None.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.