Summary of Significant Accounting Policies:

Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation.

Translation of Foreign Currency Statements

The Company translates the financial statements of its foreign entities by using the current exchange rate. For assets and liabilities, the exchange rate at the balance sheet date is used. For any investment in subsidiaries and retained earnings, the historical exchange rate is used. For revenue, expenses, gains, and losses, an appropriately weighted average exchange rate for the period is used.

Currency translation gains and losses on intercompany balances denominated in a foreign currency are recorded as other income (expense), net. A net foreign currency loss of $379,000 and $926,000 is recorded in other income (expense), net for the three and nine months ended March 31, 2013, respectively. A net foreign currency gain of $3,000 and loss of $24,000 is recorded for the three and nine months ended March 31, 2012, respectively.

Derivative Instruments and Hedging Activities

The Company's subsidiaries enter into transactions with each other which may not be denominated in the respective subsidiaries' functional currencies. The Company seeks to reduce its exposure to fluctuations in foreign exchange rates through the use of derivatives. The Company does not use such derivative financial instruments for trading or speculative purposes.

To hedge risks associated with the foreign-currency-denominated intercompany transactions the Company entered into a forward foreign exchange contract which was settled in March 2013 and was not designated for hedge accounting. For the three and nine months ended March 31, 2013, a realized gain of $112,000, related to the forward contract, is recorded in other income (expense), net. The Company did not hold any derivative instruments at March 31, 2013.

Use of Estimates

Management 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.

Cash and Cash Equivalents

The Company considers only its monetary liquid assets with original maturities of three months or less as cash and cash equivalents.

Accounts Receivable

The Company’s accounts receivable for the periods ended March 31, 2013 and June 30, 2012 consist primarily of credit card receivables. Based on the Company’s verification process for customer credit cards and historical information available, management has determined that an allowance for doubtful accounts on credit card sales related to its direct and independent distributor sales as of March 31, 2013 is not necessary. No bad debt expense has been recorded for the periods ended March 31, 2013 and June 30, 2012.

Inventory

Inventory is stated at the lower of cost or market value. Cost is determined using the first-in, first-out method. The Company has capitalized payments to our contract product manufacturer for the acquisition of raw materials and commencement of the manufacturing, bottling and labeling of our product. As of March 31, 2013 and June 30, 2012, inventory consisted of (in thousands):



	March 31, 2013		June 30, 2012
Finished goods	$	3,093	$	5,964
Raw materials	4,932		5,389
Total inventory	$	8,025	$	11,353

We wrote down $3.7 million of inventory in December 2012 related to our voluntary recall.

Other Accrued Expenses

As of March 31, 2013 and June 30, 2012 other accrued expenses included accrued operating liabilities of $2.3 million and $939,000, respectively.

Revenue Recognition

The Company ships the majority of its product directly to the consumer and receives substantially all payment for these sales in the form of credit card receipts. 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. Estimated returns are recorded when product is shipped. The Company’s return policy is to provide a full refund for product returned within 30 days if the returned product is unopened or defective. After 30 days, the Company generally does not issue refunds to direct sales customers for returned product. The Company allows terminating distributors to return unopened, unexpired product that they have purchased within the prior twelve months, subject to certain consumption limitations, for a full refund, less a 10% restocking fee. The Company establishes the returns reserve based on historical experience. The returns reserve is evaluated on a quarterly basis. As of March 31, 2013 and June 30, 2012, the Company’s reserve balance for returns and allowances was approximately $821,000 and $863,000, respectively.

Income per share

Basic income or loss per share is computed by dividing the net income or loss by the weighted average number of common shares outstanding during the period. Diluted income or loss per common share is computed by dividing net income by the weighted average common shares and potentially dilutive common share equivalents. For the three month period ended March 31, 2013 the effects of approximately 710,000 common shares issuable upon exercise of options granted pursuant to the Company’s 2010 Long-Term Incentive Plan are not included in computations because their effect was anti-dilutive. For the three month period ended March 31, 2012 the effects of approximately 120,000 common shares issuable upon exercise of options granted pursuant to the Company’s 2007 and 2010 Long-Term Incentive Plans are not included in computations because their effect was anti-dilutive.

The following is a reconciliation of earnings per share and the weighted-average common shares outstanding for purposes of computing basic and diluted net income per share (in thousands except per share amounts):



	Three Months Ended March 31,					Nine Months Ended March 31,
	2013		2012			2013		2012
Numerator:
Net income (loss)	$	3,416	$	(4,846	)	$	7,790	$	7,637
Denominator:
Basic weighted-average common shares outstanding	112,806		103,016			112,203		100,451
Effect of dilutive securities:
Stock awards and options	3,802		—			4,586		4,772
Warrants	8,377		—			8,582		10,009
Diluted weighted-average common shares outstanding	124,985		103,016			125,371		115,232
Net income (loss) per share, basic	0.03		(0.05		)	0.07		0.08
Net income (loss) per share, diluted	0.03		(0.05		)	0.06		0.07

Segment Information

The Company operates in a single operating segment by selling products to a global network of independent distributors that operates in an integrated manner from market to market. Selling expenses are the Company’s largest expense comprised of the commissions paid to its worldwide independent distributors. The Company manages its business primarily by managing its global network of independent distributors. The Company reports revenue in two geographic regions: Americas and Asia/Pacific. As of March 31, 2013 long-lived assets were $5.6 million in the U.S. and $3.2 million in Japan. As of June 30, 2012 long-lived assets were 3.8 million in the U.S. and 0 in Japan. Revenues by geographic area are as follows (in thousands):



	Three Months Ended March 31,				Nine Months Ended March 31,
	2013		2012		2013		2012
Americas	$	33,098	$	25,746	$	97,720	$	59,612
Asia/Pacific	17,272		10,466		58,947		21,967
Total revenues	$	50,370	$	36,212	$	156,667	$	81,579

Additional information as to the Company’s revenue from operations in the most significant geographical areas is set forth below (in thousands):



	Three Months Ended March 31,				Nine Months Ended March 31,
	2013		2012		2013		2012
United States	$	32,721	$	25,478	$	96,779	$	58,952
Japan	15,284		10,466		55,080		21,968

Research and Development Costs

We expense all costs related to research and development activities as incurred. Research and development expenses for the nine month periods ended March 31, 2013 and 2012 were approximately $2.1 million and $924,000, respectively.

Shipping and Handling

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.

Stock-Based Compensation

In certain circumstances, we issued common stock for invoiced services and in other similar situations to pay contractors and vendors. Payments in equity instruments to non-employees for goods or services are accounted for using the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued.

Other Income (Expense), net

Other income (expense), net for the three and nine months ended March 31, 2013 and March 31, 2012 was as follows:



	Three Months Ended March 31,						Nine Months Ended March 31,
	2013			2012			2013			2012
Business development incentive, net	$	363		$	—		$	363		$	—
Foreign currency gain (loss), net	(379		)	3			(926		)	(24		)
Gain on settlement of forward contract	112			—			112			—
Change in fair value of derivative liabilities	—			(10,687		)	—			(6,741		)
Other income, net	26			18			25			33
Total other income (expense), net	$	122		(10,666		)	(426		)	(6,732		)

In January 2013, the Company began operations of a foreign subsidiary that qualifies for a government-sponsored business development incentive. Under the incentive program, the Company's foreign subsidiary is allowed to retain certain non-income based taxes during the twelve month period ending December 31, 2013, rather than remit such taxes to the government.

Income Taxes

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.

For the nine months ended March 31, 2013 the Company has recognized income tax expense of $3.6 million which is the Company’s estimated federal and state income tax liability for the nine months ended March 31, 2013. Realization of deferred tax assets is dependent upon future earnings in specific tax jurisdictions, the timing and amount of which are uncertain. The Company continues to evaluate the realizability of the deferred tax asset based upon achieved and estimated future results. The difference between the effective rate of 35.36% and the Federal statutory rate of 34.38% is due to state income taxes (net of federal benefit), and certain permanent differences between taxable and book income.

Concentration of Credit Risk

The Company discloses significant concentrations of credit risk regardless of the degree of such risk. Financial instruments with significant credit risk include cash and investments. At March 31, 2013, the Company had $17.5 million in cash accounts that were held primarily at one financial institution and $10.0 million in an account at another financial institution. As of March 31, 2013 and June 30, 2012 the Company’s cash balances exceeded federally insured limits.

Effect of New Accounting Pronouncements

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.