Innolog 10Q 2010 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

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

Commission File No. 333-140633

UKARMA CORPORATION

(Exact name of registrant as specified in it charter)

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

499 North Canon Drive, Suite 308

Beverly Hills, CA 90210

(Address of principal executive offices)

(310) 998-8909

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x

(Do not check if a smaller reporting company)

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each issuer's classes of common stock, as of the latest practicable date: 52,794,482 issued and outstanding as of May 17 2010.

UKARMA CORPORATION

TABLE OF CONTENTS

TO QUARTERLY REPORT ON FORM 10-Q

FOR QUARTER ENDED MARCH 31, 2010

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6
Item 4.	Controls and Procedures	7

PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	7
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 3.	Defaults Upon Senior Securities	7
Item 5.	Other Information	7
Item 6.	Exhibits	7

Signatures		8

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

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

UKARMA CORPORATION

BALANCE SHEETS

	As of
	March 31,			December 31,
	2010			2009
	(Unaudited)			(Audited)
ASSETS
Current Assets
Cash	$	30,424		$	85
Due from stockholder		104,922			46,172
Merger and acquisition receivable		100,000			100,000
Prepaid expenses		67,326			67,380
Inventory		18,125			18,476
Total Current Assets		320,797			232,113

Property and equipment, net of accumulated depreciation of $11,020 for 2010, and $9,742 for 2009		16,964			18,242

Production costs, net of accumulated amortization of $366,818 for 2010, and $335,864 for 2009		252,267			283,221

TOTAL ASSETS	$	590,028		$	533,576

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable	$	260,067		$	318,396
Accrued expenses		238,740			176,546
Notes payable to unrelated parties, including accrued interest of $441 for 2010, and $319 for 2009		8,441			10,819
Total Current Liabilities		507,248			505,761

Stockholders' Equity
Common stock, $0.001 par value; 100,000,000 shares authorized; 52,794,482 shares issued and outstanding		52,795			52,795
Preferred stock, $0.001 par value; 20,000,000 shares authorized, none issued		-			-
Paid-in capital		8,078,617			7,807,670
Accumulated deficit		(8,048,632	)		(7,832,650	)
Total Stockholders' Equity		82,780			27,815

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	590,028		$	533,576

The accompanying notes are an integral part of these financial statements

F-1

UKARMA CORPORATION

STATEMENTS OF OPERATIONS (UNAUDITED)

For the three months ended March 31, 2010 and 2009

	For three months ended
	March 31,
	2010			2009
Sales	$	709		$	13,431

Cost of Sale		351			773
Gross Profit		358			12,658
Selling, General and Administrative Expenses		211,700			530,901

Operating Loss		(211,342	)		(518,243	)

Other Income (Expense)
Interest Expense		(3,840	)		(7,499	)
Total Other Income (Expense)		(3,840	)		(7,499	)

Net Loss before Income Taxes		(215,182	)		(525,742	)
Provision for Income Taxes		800			800
Net Loss	$	(215,982	)	$	(526,542	)

Loss Per Share-Basic and Diluted	$	(0.01	)	$	(0.02	)

Weighted Average Number of Shares		52,794,482			31,764,984

The accompanying notes are an integral part of these financial statements

F-2

UKARMA CORPORATION

STATEMENT OF CASH FLOWS (UNAUDITED)

For the three months ended March 31, 2010, and 2009

	For three months ended
	March 31,
	2010			2009
Cash Flow from Operating Activities:
Net loss	$	(215,982	)	$	(526,542	)
Adjustment to reconcile net loss to net cash used by operating activities:
Depreciation		1,278			1,220
Amortization of production costs		30,954			30,954
Issuance of stock for services		-			280,506
Stock option expenses		47,947			51,511
(Increase) Decrease in:
Trade accounts receivable		-			309
Employee advances		-			19,532
Prepaid expenses		54			3,054
Inventory		351			3,395
Deposit		-			6,380
Increase (Decrease) in:
Accounts payable		(58,329	)		53,292
Accrued expenses		62,316			62,288
Net Cash Used by Operating Activities		(131,411	)		(14,101	)

Cash Flow from Investing Activities:
Due from stockholder		(58,750	)		-
Purchase of property and equipment		-			(111,107	)
Net Cash Used by Investing Activities		(58,750	)		(111,107	)

Cash Flow from Financing Activities:
Proceeds from notes payable		-			15,000
Repayments to note payable		(2,500	)		(29,600	)
Proceeds from pending mergers		223,000			-
Proceeds from sale of stock		-			139,000
Net Cash Provided by Financing Activities		220,500			124,400

Net Increase (Decrease) in Cash		30,339			(808	)

Cash Balance at Beginning of Period		85			1,781

Cash Balance at End of Period	$	30,424		$	973

Supplemental Disclosures:
Interest Paid	$	3,718		$	-
Taxes Paid	$	-		$	-

The accompanying notes are an integral part of these financial statements

F-3

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 1 – NATURE OF OPERATIONS

uKarma Corporation (“the Company”) was incorporated under the name of OM Capital Corporation in the State of Nevada on June 26, 2001. On April 30, 2004, the Company changed its name to uKarma Corporation. In 2006, the Company relocated its headquarter to the State of California, and became a California foreign corporation.

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.”

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP).

Presentation of Interim Information: The financial information at March 31, 2010 and for the three months ended March 31, 2010 and 2009 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) that the Company considers necessary for a fair presentation of the financial information set forth herein, in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information. Accordingly, such information does not include all of the information and footnotes required by GAAP for annual financial statements. For further information refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2009.

The balance sheet as of December 31, 2009 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

The results for the three months ended March 31, 2010 may not be indicative of results for the year ending December 31, 2010 or any future periods.

Use of Estimates: The preparation of the accompanying financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that directly affect the results of reported assets, liabilities, revenue, and expenses. Actual results may differ from these estimates.

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

F-4

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

Property and Equipment: Property and equipment are valued at cost. Maintenance and repair costs are charged to expenses as incurred. Depreciation is computed on the straight-line method based on the estimated useful lives of the assets, generally 5 to 7 years. Depreciation expense for the three months ended March 31, 2010 and 2009 was $1,278 and $1,220, respectively.

Patents: The Company capitalizes patent costs as incurred, excluding costs associated with Company personnel, relating to patenting its technology. The majority of capitalized costs represent legal fees related to a patent application. In 2009, the Company determined that a patent application is not likely to be awarded or elects to discontinue payment of required maintenance fees for a particular patent, the Company, at that time, records as expense the capitalized amount of such patent application or patent.

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

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

Advertising Costs: All costs associated with advertising and promoting the Company’s products and services are expensed as incurred. Advertising expense for the three months ended March 31, 2010 was negligible. Advertising expense for the three months ended March 31, 2009 was $9,035.

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

Stock Based Compensation: Effective January 1, 2006, the Company adopted the fair value recognition provisions of FASB Statement No. 123(R), “Shares-Based Payment” (SFAS 123R), using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006 based of the grant date fair value calculated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). As a result of adopting SFAS 123(R) on January 1, 2006, the Company reorganized pre-tax compensation expense related to stock options of $47,947 and $51,511 for three months ended March 31, 2010 and 2009, respectively.

F-5

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company accounts for stock issued to non-employees in accordance with the provisions of SFAS No. 123R and the EITF Issue No. 00-18, “Accounting For Equity Instruments That Are Issued To Other Than Employees for Acquiring, Or In Conjunction With Selling, Goods Or Services.” SFAS No. 123R states that equity instruments that are issued in exchange for the receipt of goods or services should be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. Under the guidance in Issue 00-18, the measurement date occurs as of the earlier of (a) the date at which a performance commitment is reached or (b) absent a performance commitment, the date at which the performance necessary to earn the equity instruments is complete (that is, the vesting date).

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

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

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

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

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

F-6

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 3 – GOING CONCERN

The Company's financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. In the near term, the Company expects operating costs to continue to exceed funds generated from operations. As a result, the Company expects to continue to incur operating losses, and the operations in the near future are expected to continue to use working capital.

Management of the Company is actively increasing marketing efforts to increase revenues. The ability of the Company to continue as a going concern is dependent on its ability to meet its financing arrangement and the success of its future operations. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 4 – PREPAID EXPENSES

Prepaid expenses consisted of the following:

	March 31,		December 31,
	2010		2009
Prepaid Royalty	$	67,326	$	67,380
Total Prepaid Expenses	$	67,326	$	67,380

On April 25, 2008, the Company entered into an agreement with a coauthor for its diet and nutrition book that it is self publishing and plans to market direct to customers. Pursuant to this agreement, the Company paid the coauthor a $10,000 advance against future royalties. The Company will pay the coauthor a 5% royalty if uKarma acts as the publisher or a 2 ½% royalty if uKarma engages a third party publisher after the $10,000 advance is recouped.

On March 26, 2008, the Company entered into an agreement with an author to write a book related to diet and nutrition that the Company plans to self publish and market directly to consumers. Pursuant to the agreement, the author will be paid a $40,000 advance on royalties with the following arrangement: $15,000 payable upon execution of the agreement; $15,000 payable on or before the completion and delivery of the first 50% of the book; and $10,000 on full completion, delivery, and acceptance of the book. The $40,000 advance on royalties is based on the first 50,000 books sold. The author will receive a 5% royalty on sales above 50,000 books sold where the Company acts as the publisher and 2 1/2% royalty on sales above 50,0000 books sold if the Company engages a third party publisher. As of March 31, 2010, no advance payment has been paid.

On April 19, 2006, the Company entered into an agreement with a consultant to provide consulting and advisory services for the Company, to appear in the Company’s yoga, health, and wellness film productions, to assist in scriptwriting for the projects such as classes, interviews and introductions, to participate in the projects rehearsals, and to assist in marketing and promoting the projects. Accordingly, the Company shall pay a royalty of 8% on the first $300,000 and 10% on above $300,000 on all gross revenue, net of returns, refunds, chargebacks, taxes, and shipping and handling charges. As of March 31, 2010, there is a balance of $57,326 after advancing $70,000 and deducting royalties to the 2010 sales. Future royalty obligations will be deducted from the current balance.

F-7

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 5 – PROPERTY AND EQUIPMENT

Property and Equipment consisted of the following:

	March 31,			December 31,
	2010			2009
Furniture & Fixtures	$	15,459		$	15,459
Machinery & Equipment		12,524			12,525
		27,984			27,984
Accumulated Depreciation		(11,020	)		(9,742	)

Property and Equipment, net	$	16,964		$	18,242

NOTE 6 – PRODUCTION COSTS

The Company capitalized costs incurred for recording seven fitness videos’ master copies. As of March 31, 2010, total costs of $619,085 were capitalized. All costs consisted of in-production costs only.

Commenced on the second quarter of 2007, the costs were amortized on a straight-line method over the estimated life of the recorded performances, which is five years. The Company recorded an amortization expense of $30,954 and $30,954 for the three months ended March 31, 2010 and 2009, respectively.

NOTE 7 – ACCRUED EXPENSES

Accrued expenses consisted of the following:

	March 31,		December 31,
	2010		2009
Accrued Professional Fees	$	19,770	$	28,700
Accrued Salaries		217,370		146,246
Accrued Income Tax		1,600		1,600
Total Accrued Liabilities	$	238,740	$	176,546

NOTE 8 – NOTES PAYABLE

The notes payable to unrelated parties bear interest at 6% per annum and are due on one year anniversary of May 2009 and September 2009. As of March 31, 2010, the balance was $8,441 including accrued interest of $441.

F-8

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 9 – STOCKHOLDERS’ EQUITY

During the three months ended March 31, 2010, the Company did not issue any shares.

During the three months ended March 31, 2009, the Company received $139,000 and sold 1,288,266 shares of the Company’s common stock at a price of $0.06 to $0.15 per share in a self-private placement offering. The Board of Directors also approved the issuance aggregate of 2,425,403 shares of the Company’s common stock to various providers in consideration of their services to the Company. The shares were valued and charged to operations based on the closing trading price on the grant date or $280,506 of total.

NOTE 10 – MERGER AND ACQUISITION

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

Under the Agreement, Merger Sub would merge with GCC such that following the merger (“Merger” or “Transaction”), GCC would be a wholly owned subsidiary of the Company. As consideration for the transaction, the Company would issue to GCC security holders that number of shares of common stock on a fully diluted basis (“Common Shares”) such that following such issuance, GCC security holders would hold 95% of the outstanding Company Common Shares on a fully diluted basis. GCC common stock would be exchanged for the Company Common Shares. GCC’s convertible preferred stock, options, and warrants would be exchanged for equivalent the Company’s preferred stock, options, and warrants. In addition, GCC agreed to pay the Company an amount equal to $275,000.

On December 22, 2009, the Company amended the Merger Agreement with GCC. Under the amended agreement, the closing date has changed to May 15, 2010. GCC has also agreed to pay the Company an amount equal to $475,000 (“Cash Payment”) and replaced the previous agreement amount of $275,000. As of March 31, 2010, $375,000 of the Cash Payment has been paid to uKarma as a non-refundable deposit along with $23,500 of expenses. The Company recorded a receivable of $100,000 for the installment that was due on March 31, 2010.

F-9

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 11 – NET LOSS PER SHARE

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

	For three months ended
	March 31,
Numerator:	2010			2009
Net Loss	$	(215,982	)	$	(526,542	)
Denominator:
Weighted Average of Common Shares		52,794,482			31,764,984

Basic and Diluted Net Loss per Share	$	(0.01	)	$	(0.02	)

There were no dilutive securities for the three months ended March 31, 2010 and March 31, 2009.

There were also 11,777,000, 11,777,000 shares out-of-money stock options and warrants excluded from the calculation of diluted net loss per share for the three months ended March 31, 2010 and 2009, because their exercise prices were greater than the average fair market price of the common stock.

NOTE 12 – 2006 STOCK OPTION PLAN

On January 1, 2006, the Board of Directors approved and adopted the 2006 Stock Option, Deferred Stock and Restricted Stock Plan (the “Plan”) to provide the issuance of non-qualified and/or incentive stock options to employees, officers, directors and consultants and other service providers. Generally, all options granted expire ten years from the date of grant. All options have an exercise price equal to or higher than the fair market value of the Company’s stock on the date the options were granted. It is the policy of the Company to issue new shares for stock option exercised and restricted stock, rather than issued treasury shares. Options generally vest over ten years. The Plan reserves 7,500,000 shares of common stock under the Plan and shall be effective through December 31, 2015.

A summary of the status of stock options issued by the Company as of March 31, 2010 and 2009 is presented in the following table:

	2010				2009
	Number of Shares		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
Outstanding at beginning of year		5,295,000	$	0.20		5,295,000	$	0.20
Granted		-		-		-		-
Exercised/Expired/Cancelled		-		-		-		-
Outstanding at end of period		5,295,000	$	0.20		5,295,000	$	0.20

Exercisable at end of period		4,765,000	$	0.20		3,708,334	$	0.20

F-10

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 12 – 2006 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.

	2010		2009
Weighted average fair value per option granted		N/A		N/A
Risk-free interest rate		N/A		N/A
Expected dividend yield		N/A		N/A
Expected lives		N/A		N/A
Expected volatility		N/A		N/A

The following table sets forth additional information about stock options outstanding at March 31, 2010:

Range of Exercise Prices	Options Outstanding		Weighted Average Remaining Contractual Life		Weighted Average Exercise Price		Options Exercisable
$0.20–$0.35		5,295,000		5.51	$	0.20		4,765,000
		5,295,000		5.51	$	0.20		4,765,000

As of March 31, 2010, there was $49,627 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 0.29 years.

As of March 31, 2009, there was $241,415 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.24 years.

NOTE 13 – STOCK WARRANTS

As of March 31, 2010, the Company had warrants to purchase 6,482,000 shares of the Company’s common stocks. The warrants are exercisable from $0.25 to $1.00 and will expire through October 2012.

No stock warrant expense was recognized for the three ended March 31, 2010 and March 31, 2009.

NOTE 14 – RELATED PARTY TRANSACTIONS

As of March 31, 2008, the Company had an advance of $104,923 due from the Company’s CEO. The Company also had accrued salary of $201,923 payable to the CEO. The advance will be netted against the accrued salary payable when it is reported to the Internal Revenue Service.

F-11

UKARMA CORPORATION

NOTES TO FINANCIAL STATEMENTS

NOTE 15 – LEGAL DISPUTE

On June 17, 2009, Jeffrey Fischer (the “Landlord”) filed a complaint against uKarma Corporation and Bill Glaser, our Chief Executive Officer, in the Los Angeles Superior Court in Los Angeles, California. The Landlord claimed that we owe back rent on the lease of our yoga and fitness studio in Sherman Oaks, California and sought to recover $222,859.97 and evict us from the subject property. We denied liability and contend that the Landlord never reimbursed us for a tenant improvement allowance of $165,000 pursuant to the lease along with other breaches by the Landlord. The judge in the cased denied a writ of attachment motion that was submitted by the Landlord. A settlement could not be reached between the parties, and as such the Company vacated the property on September 30, 2009. On December 2, 2009, the Landlord filed a First Amended complaint naming the Company, Mr. Glaser, and Fred Tannous, a director of the Company, and a number of unrelated parties and adding additional causes of actions and damages totaling $1,066,660.00. The Company filed a demurer that was heard and sustained by the court on March 2, 2010. The judge provided the Landlord with the right to amend the complaint within 45 days from March 2, 2010. The Landlord filed a Second Amended Complaint on April 23, 2010, one week after the judge’s allowed timeframe. The Company filed a demurer and Motion to Strike that will be heard by the court on July 15, 2010. If any part of the complaint survives the judge’s ruling to our demurer and Motion to Strike, we plan to defend such claims that we believe are false and frivolous along with initiating legal action against the Landlord for full recovery of all tenant improvements it incurred to date along with other damages.

F-12

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

The following discussion and analysis of the results of operations and financial condition of uKarma Corporation should be read in conjunction with our financial statements as of and for the quarter ended March 31, 2010 and the notes to those financial statements that are included elsewhere in this report. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Forward-Looking Information and Business sections in this report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Overview

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

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

In May 2007, we began to market and sell our initial Xflowsion yoga/fitness DVD products. We believe that our success depends upon our ability to successfully produce, market, and distribute such products along with having the necessary capital to operate and grow our business. After test-marketing the initial version of our infomercial, we recognized the need to shoot additional footage and to reedit it before airing it again. Due to capital constraints, we had to wait until our registration statement was declared effective by the Securities and Exchange Commission in order to raise capital. Our registration statement was declared effective on August 9, 2007, and we focused the remainder of 2007 raising capital and preparing to update our infomercial and implement our marketing strategy in 2008.

We began airing the reedited version of our Xflowsion infomercial nationally on June 27, 2008. Infomercials typically go through a period of on-air testing and other means such as focus groups to obtain feedback that can be used to make edits designed to elicit the greatest consumer response. We went through such a process and conducted a focus group during the 3 rd quarter of 2008. We had a very high percentage (approximately 80%) of participants who were interested in buying our Xflowsion DVD series. Overall, the focus group feedback revealed a strong interest in the Xflowsion workout and instructor Eric Paskel and confirmed our potential for Xflowsion to be a big seller. We also previously received strong media coverage regarding our Xflowsion brand. Xflowsion has been profiled in People Magazine, People.com, Fitness Magazine, TMZ, The National Enquirer, and many other publications. We have been encouraged by the response to our Xflowsion DVD series in the media and with consumers and via our past marketing efforts, and, when in a better capital position, we plan to reinstitute our marketing initiatives. It has also been indicated to us by executives of our competitors and other industry contacts that most successful fitness DVD infomercials take many incarnations before they become successful.

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

The personality of our Xflowsion DVD series, Eric Paskel, appeared on the CBS reality show, The Amazing Race, which started airing in September 2009. Prior to the airing of the first episode of that season, we engaged an online marketing firm to market our Xflowsion DVD series on a CPA (Cost per Acquisition) basis. We also explored and planned many other marketing initiatives in order to leverage the large audience that was going to be exposed to Eric Paskel. While it was possible that Mr. Paskel could have been eliminated on the first show, the audience of millions was a big opportunity to leverage into potential Xflowsion DVD sales. Unfortunately, Mr. Paskel was eliminated at the beginning of the first episode and, as such, our marketing initiatives relating to that exposure were put on hold, which affected our sales. During the first quarter of 2010, we did not initiate any marketing for our products due to capital constraints.

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

In addition, we entered into an amendment to the merger agreement in which Galen has agreed to pay the Company an amount equal to $475,000 (“Cash Payment”). As of March 31, 2010, $375,000 of the Cash Payment had already been paid to the Company as a non-refundable deposit along with $23,500 worth of expenses.

Our obligations to close the Transaction will be subject to certain conditions of the other party that must be satisfied or waived, including, among other things, Galen shall pay the remaining portion of the Cash Payment and Galen shareholders shall vote to approve the merger transaction. Galen’s obligations to close the Transaction will be subject to certain conditions of the other party that must be satisfied or waived, including, among other things, Galen shall have certain persons appointed as Company officers and directors. The Agreement may be terminated by any party if the Closing does not occur by May 15, 2010 provided such terminating party is not in breach of this Agreement. The Company has been informed by Galen’s management that their audit is approximately 2-4 weeks away from being completed. As such, we are in negotiations with Galen to extend the timeframe of the Closing along with negotiating other terms that we expect to be favorable to our shareholders.. However, there can be no assurance that Galen will complete their audit in a timely fashion, pay the remaining cash balance currently due, or that the transaction will close by a certain date.

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

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

Critical Accounting Policies and Estimates

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

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

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.

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

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

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

Results of Operations

Net sales. For the three months ended March 31, 2010, net sales decreased 95% relative to the three months ended March 31, 2009, from $13,341 to $709. The decrease from the first quarter of 2009 to the first quarter of 2010 is primarily attributable to capital constraints that have caused us not to market and promote our products.

Cost of sales. Cost of sales for the three months ended March 31, 2010 was $351 compared to $773 for the three months ended March 31, 2009, a decrease of approximately 55%. The decrease in our cost of sales is attributable to lower sales with constant fixed costs.

Gross profit. Gross profit for the three months ended March 31, 2010 was $358 compared to $12,658 for the three months ended March 31, 2009, representing gross margins of approximately 50% and 94%, respectively. The decrease is attributable to lower sales with constant fixed costs.

Operating expenses. For the three months ended March 31, 2010, total operating expenses were $211,790, while total operating expenses for the three months ended March 31, 2009 were $530,901, representing a decrease of approximately 60%. The decrease in operating expenses is due to a lack of marketing expenses and costs related to the construction of a fitness studio in 2009.

Net income (loss). We had net loss of $215,982 for the three months ended March 31, 2010 compared to a net loss of $526,542 for the three months ended March 31, 2009.

LIQUIDITY

Cash Flows

Net cash used in operating activities was $131,411 for the three months ended March 31, 2010 while net cash used in operating activities was $14,101 for the three months ended March 31, 2009. The decrease in net cash flow from operating activities between the two quarters was mainly due to a decrease in Accounts Payable and stock issued for services along with a lower net loss.

Net cash used in investing activities was $58,750 for the three months ended March 31, 2010 while net cash used in investing activities was $111,107 for the three months ended March 31, 2009. The increase in net cash flow from investing activities between the periods was due to no property and equipment expense in 2010 and a note due from a shareholder.

Net cash provided by financing activities was $220,500 for the three months ended March 31, 2010 while net cash provided by financing activities was $124,400 for the three months ended March 31, 2009. The increase in net cash flow from financing activities was mainly due to proceeds from our pending merger in 2010 compared to capital raised in 2009.

CAPITAL RESOURCES

As of March 31, 2010, we had working capital of $(186,451). To satisfy current working capital needs, our CEO, Bill Glaser, loaned funds to the Company along with raising capital via the sale of common stock as well as receiving capital from its planned merger with Galen Capital. Until we raise sufficient capital via the sale of our common stock, there is no guarantee that we will be able to meet current working capital needs if we do not receive additional infusions of cash via loans, stock sales, revenues, or other sources. We have fully incurred the production cost of our Xflowsion DVD series and last version of our infomercial, and plan to make financial investments in marketing of our Xflowsion DVD series for the next six months. We expect to incur substantial losses over the next two years.

We estimate that our expenses over the next 12 months beginning on April 1, 2010 will be approximately $860,000 as follows:

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

As of March 31, 2010, we had cash equivalents of $30,424. We believe that we need approximately an additional $830,000 to meet our capital requirements over the next 12 months. Our intention is to obtain this money through debt and/or equity financings.

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

Our independent certified public accountants have stated in their report dated April 9, 2010 included with our financial statements as of and for the fiscal year ended December 31, 2009 filed with our Annual Report on Form 10-K with the Commission on April 15, 2010 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.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations

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

The following table summarizes our contractual obligations as of March 31, 2010, and the effect these obligations are expected to have on our liquidity and cash flows in future periods.

Payments Due by Period

Total

Less than

1 year

1-3 Years

3-5 Years

5 years +

Contractual Obligations:

Bank Indebtedness

―

Other Indebtedness

8,441

―

Operating Leases

―

Totals:

8,441

8.441

―

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls and Procedures

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

Changes in Internal Control over Financial Reporting

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

On June 17, 2009, Jeffrey Fischer (the “Landlord”) filed a complaint against uKarma Corporation and Bill Glaser, our Chief Executive Officer, in the Los Angeles Superior Court in Los Angeles, California. The Landlord claimed that we owe back rent on the lease of our yoga and fitness studio in Sherman Oaks, California and sought to recover $222,859.97 and evict us from the subject property. We denied liability and contend that the Landlord never reimbursed us for a tenant improvement allowance of $165,000 pursuant to the lease along with other breaches and interferences by the Landlord. The judge in the case denied a writ of attachment motion that was submitted by the Landlord. A settlement could not be reached between the parties, and as such the Company vacated the property on September 30, 2009. On December 2, 2009, the Landlord filed a First Amended complaint naming the Company, Mr. Glaser, and Fred Tannous, a director of the Company, and a number of unrelated parties and adding additional causes of actions and damages totaling $1,066,660.00. The Company filed a demurer that was heard and sustained by the court on March 2, 2010. The judge provided the Landlord with the right to amend the complaint within 45 days from March 2, 2010. The Landlord filed a Second Amended Complaint on April 23, 2010, one week after the judge’s allowed timeframe. We filed a demurer and Motion to Strike that will be heard by the court on July 15, 2010. If any part of the complaint survives the judge’s ruling to our demurer and Motion to Strike, we plan to defend such claims that we believe are false and frivolous along with initiating legal action against the Landlord for full recovery of all tenant improvements it incurred to date along with other damages.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 5. Other Information.

(a)

None.

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

Item 6. Exhibits.

Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation, as currently in effect (1)

3.2		Bylaws, as currently in effect (1)

31.1		Section 302 Certification by the Corporation’s Chief Executive Officer *

31.2		Section 302 Certification by the Corporation’s Chief Financial Officer *

32.1		Section 906 Certification by the Corporation’s Chief Executive Officer *

32.2		Section 906 Certification by the Corporation’s Chief Financial Officer *

*	Filed herewith.

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

SIGNATURES

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

	UKARMA CORPORATION
	(Registrant)

Date: May 17, 2010	By:	/s/ Bill Glaser
		Bill Glaser
		Chief Executive Officer and President (Principal Executive Officer) and Interim Chief Financial Officer (Principal Financial and Accounting Officer)

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	8th grade Avg

Innolog (INHC) Inactive 10-Q2010 Q1 Quarterly report

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