**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-KSB**




(Mark
      One)




x Annual
      Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
      1934




For
      the
      fiscal year end **March
      31, 2007**




 ̈ Transition
      Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of 1934




For
      the
      transition period from _____ to _____




**COMMISSION
      FILE NUMBER** **033-24138-D**




**IMAGENETIX,
      INC.**


(Name
      of
      small business issuer in its charter)




**NEVADA**
            
            **87-043772**(State
                or other jurisdiction of incorporation or organization)
            
            (I.R.S.
                Employer Identification No.)





**10845
                Rancho Bernardo Road, Suite 105****San
                Diego, California**
            
            **92127**(Address
                of principal executive offices)
            
            (Zip
                Code)




Issuer's
      telephone number **(858)
      674-8455**




Securities
      registered under Section 12(b) of the Exchange Act: **NONE.** ****




Securities
      registered under Section 12(g) of the Exchange Act:




**COMMON
      STOCK, $0.001 PAR VALUE PER SHARE.** ****




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




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




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B is not contained in this form, and no disclosure will be
      contained, to the best of registrant's knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. x




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**




Revenues
      for the fiscal year ended March 31, 2007 were **:
      $5,596,725.**




The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      sold as of **June
      25, 2007**  **was**  **$7,639,000** . ****




State
      the
      number of shares outstanding of each of the issuer's classes of common equity,
      as of the latest practicable date. **As
      of June 25, 2007 the issuer had 10,871,400**  **shares
      of Common Stock outstanding.**




Transitional
      Small Business Disclosure Format (Check one): Yes  ̈  **** No **** **x**









**Annual
      Report on Form 10-KSB**


**For
      the Year Ended March 31, 2007**





**TABLE
      OF CONTENTS**


PagePART
                  IITEM
                  1.
              
              Description
                  of Business
              
              3ITEM
                  2.
              
              Description
                  of Property
              
              10ITEM
                  3.
              
              Legal
                  Proceedings
              
              10ITEM
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              10PART
                  IIITEM
                  5.
              
              Market
                  for Common Equity, Related Stockholder Matters and Small Business
                  Issuer
                  Purchases of Equity Securities
              
              11ITEM
                  6.
              
              Management's
                  Discussion and Analysis or Plan of Operation
              
              12ITEM
                  7.
              
              Financial
                  Statements
              
              20ITEM
                  8.
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              20ITEM
                  8A.
              
              Controls
                  and Procedures
              
              20ITEM
                  8B.
              
              Other
                  Information
              
              21PART
                  IIIITEM
                  9.
              
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance With
                  Section
                  16(a) of the Exchange Act
              
              21ITEM
                  10.
              
              Executive
                  Compensation
              
              23ITEM
                  11.
              
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              
              25ITEM
                  12.
              
              Certain
                  Relationships and Related Transactions
              
              26ITEM
                  13.
              
              Exhibits
              
              26ITEM
                  14.
              
              Principal
                  Accountant Fees and Services
              
              27




2




**DISCLOSURE
      REGARDING FORWARD-LOOKING STATEMENTS**




Certain
      statements contained in this Annual Report on Form 10-KSB constitute
      "forward-looking statements". These statements, identified by words such as
      “plan”, "anticipate", "believe", "estimate", "should," "expect" and similar
      expressions, include our expectations and objectives regarding our future
      financial position, operating results and business strategy. These statements
      reflect the current views of management with respect to future events and are
      subject to risks, uncertainties and other factors that may cause our actual
      results, performance or achievements, or industry results, to be materially
      different from those described in the forward-looking statements. Such risks
      and
      uncertainties include those set forth under the caption "Management's Discussion
      and Analysis or Plan of Operation" and elsewhere in this Form 10-KSB. We advise
      you to carefully review the reports and documents we file from time to time
      with
      the Securities and Exchange Commission (“SEC”), particularly our quarterly
      reports on Form 10-QSB and our current reports on Form 8-K.




As
      used
      in this annual report, the terms "we", "us", "our", and “Imagenetix” mean
      Imagenetix, Inc., unless otherwise indicated.




**PART
      I**




**ITEM
      1.     DESCRIPTION OF
      BUSINESS.**




**The
      Company**




We
      were
      organized as a Nevada corporation in March 1988 under the name Capital Growth,
      Inc. and completed an initial public offering of our securities in 1989.
      Imagenetix, Inc. was incorporated in Colorado in July 1996 under the name
      Internet International Business Management, Inc. and changed its name to
      Imagenetix, Inc. in April 1999. In October 2000 we merged with Imagenetix,
      Inc.
      Under the terms of the merger, we issued 6,550,000 shares of our common stock
      and 3,315,000 common stock purchase warrants and stock options to the Imagenetix
      security holders to acquire all 6,550,000 shares of Imagenetix Inc.'s
      outstanding common stock, along with all of its stock options and common stock
      purchase warrants. After the merger we had 8,550,000 shares of common stock
      and
      3,708,750 common stock purchase warrants and stock options outstanding. Our
      principal executive offices are located at 10845 Rancho Bernardo Road, Suite
      105, San Diego, California 92127, and our telephone number is (858) 674-8455.
      Our home page can be located on the World Wide Web at http://www.imagenetix.net .





We
      develop, formulate and market over-the-counter, natural-based nutritional
      supplements and skin care products. Our products are proprietary, often
      supported by scientific studies which we request and are offered through
      multiple channels of distribution, including direct marketing companies, also
      known as network marketing or multi-level marketing companies, and chain store
      retailers. Our primary product is Celadrin® a product formulation which we sell
      to the mass market through retailers and on a private label basis to wholesale
      customers.





A
      key
      part of our marketing strategy is to provide to our wholesale customers a
      "turnkey" approach to the marketing and distribution of our products. This
      turnkey approach provides these customers with all the services necessary to
      market our products, including developing specific product formulations,
      providing supporting scientific studies regarding the effectiveness of the
      product and arranging for the manufacture and marketing of the product.





We
      sell
      directly to the mass markets through retailers InflameAway, our own Celadrin®
branded product. We also develop and sell products and formulations to
      businesses and organizations that market these products through multiple
      channels of distribution, including direct marketing companies, mass marketing
      companies, medical, health and nutritional professionals, medical newsletters
      and direct response radio and television. We also offer Celadrin® products
      through wholesale customers that in turn offer their products containing
      Celadrin® to mass market retailers.





3




**Our
      Business**





We
      develop, formulate and market over-the-counter, natural-based nutritional
      supplements and skin care products. Our products are proprietary, often
      supported by scientific studies which we request and are offered through
      multiple channels of distribution including direct sales to the mass market
      through retailers, direct marketing companies, medical, health and nutritional
      professionals, medical newsletters and direct response radio and television.





A
      key
      part of our marketing strategy is to provide a "turnkey" approach to the
      marketing and distribution of our products. Our "turnkey" approach provides:


· Specific
        product formulations requested by our customers;
 
 · Scientific
        studies to support claims made for our products;
 
 · Assistance
        in complying with U.S. laws and regulations;
 
 · Assistance
        in obtaining foreign country regulatory approval for sale of our products;
 
 · Marketing
        materials and marketing assistance to support product sales; and
 
 · Manufacture
        of products with delivery directly to the customer.
 
 Following
        development of a new product, and on behalf of our customers, we:
 
 · Conduct
        and complete any scientific studies necessary for regulatory compliance;
 
 · Arrange
        for the manufacture of finished products to our specifications; and
 
 · Develop
        marketing tools and plans to promote product sales, including labels and
        graphic
        designs, promotional brochures and providing speakers to promote the products.





Our
      management and key personnel have many years experience in developing and
      selling nutritional products to domestic and international marketers, including
      direct marketers, health food stores and mass market merchandisers.





Our
      largest customers accounted for 23% and 15% of our net sales for the year ended
      March 31, 2007 and 22%, 16%, 13% and 11% for the year ended March 31, 2006.





**Our
      Strategy**





We
      are a
      developer, formulator and supplier of natural-based products, designed to
      enhance human and animal health. We develop, formulate over-the-counter topical
      creams, nutritional and skin care products marketed globally through multiple
      channels of distribution. Our strategy involves:


·
              Continuingto
                  develop innovative and proprietary nutritional and skin care products;
 
 ·
              Continuing
                  to offer "turnkey" services, including product development, regulatory
                  compliance, manufacturing and marketing services, to assist our
                  customers
                  in quickly bringing new products to market;
  ·
              Marketing
                  our products internationally by assisting our customers in registering
                  their products for sale in foreign countries.





4




To
      date,
      we have completed the registration of over 25 products in foreign countries,
      including Japan, Australia, Norway, Venezuela, Germany, India and Canada. Most
      of the products registered contain our proprietary Celadrin® compound.





**Industry
      Overview**





The
      dietary supplement industry is highly diversified and intensely competitive.
      It
      includes companies that manufacture, distribute and sell products that are
      generally intended to supplement our daily diets with nutrients that may enhance
      the body's performance and well-being. Dietary supplements include vitamins,
      minerals, herbs, botanicals, amino acids and compounds. Specific statutory
      provisions governing the dietary supplement industry were codified in the
      Dietary Supplement Health and Education Act. This act provides new statutory
      protections for dietary supplements and allows for statements that inform
      consumers of the effect dietary supplements have upon the structure or functions
      of the body.





We
      expect
      that the following factors will contribute to the ongoing growth of the domestic
      nutritional supplement industry:


·
            The
                aging of the American population, which is likely to cause increased
                consumption ofnutritional
                supplements; 
 ·
            New
                product introductions in response to new research supporting the
                positive
                health effects of certain nutrients; 
 ·
            The
                nationwide trend toward preventative medicine resulting from rising
                health
                care costs; 
 ·
            Increased
                consumer interest in alternative health products such as herb-based
                nutritional supplements; 
 ·
            A
                heightened awareness of the connection between diet and health. 
 Nutritional
        supplements are sold primarily through:
 
 ·
            Mass
                market retailers, including mass merchandisers, drug stores, supermarkets
                and discount stores; 
 ·
            Health
                food stores; 
 ·
            Mail
                order companies; and 
 ·
            Direct
                sales organizations, including network marketing companies.




**Products**





We
      offer
      a variety of specialized proprietary nutritional formulations, over-the-counter
      topical creams, and skin care products. Since beginning operations in February
      1999, we have developed and sold over 90 products and formulations to businesses
      and organizations that market these products through multiple channels of
      distribution, including direct selling, sales to mass market retailers, direct
      response radio, nutritional newsletters and medical care professionals. Our
      product formulations may be developed by our customers, co-developed by us
      and
      our customers or developed exclusively by us for the customer.





Our
      leading product is Celadrin®, a nutritional supplement compound comprised of a
      complex of fatty acid esters which plays a role in human and animal joint health
      and scientifically supported by our clinical studies. For the year ended March
      31, 2007, approximately 75% of our revenue, was generated from the sale of
      various formulations containing Celadrin®. We offer Celadrin® as part of a
      formulated branded or private label product and also as a branded ingredient
      to
      be used by our wholesale customers in their own product formulations.





5


A
      number
      of safety and efficacy studies have been conducted on Celadrin®'s principal
      composition, cetylated fatty acids. Studies have been presented at international
      scientific conferences, with two studies having been published in the Journal
      of
      Rheumatology and one study published in the Journal of Strength and Conditioning
      Research. We are continuing research to determine Celadrin®'s effects on the
      body, including any role it may play in providing support for the normal
      functioning of muscles and joints. We produce a wide range of formulas using
      the
      Celadrin® compounds and market these formulations through multiple distribution
      channels. Our wholesale customers resell Celadrin® and other formulated products
      under their own labels and trade names. We do not own or have any ownership
      interest in the labels or trade names under which these products are sold.
      Using
      multiple manufacturing processes to produce Celadrin®, we offer the product to
      our customers in soft gel capsule, tablet, two-piece capsules and topical cream
      forms.





In
      January 2005 our Celadrin® compound was approved by the government of India as a
      prescription drug for treating joint pain. Previously, in August 2002 we entered
      into an exclusive purchase and supply agreement with Cymbiotics to distribute
      Celadrin® to hospitals and clinics in India and certain other countries. The
      agreement expired on December 31, 2005 and was replaced by a letter agreement
      in
      February 2006.





In
      June
      2004 we entered into an agreement with Proprietary Nutritionals Inc. to globally
      promote and market our Celadrin® compound on a non-exclusive basis throughout
      the world, except India and China. In 2007, we renegotiated the agreement as
      part of a legal settlement. See Legal Proceedings.





We
      use
      paid consultants who are medical doctors, scientific research consultants,
      independent scientific researchers and laboratories and universities to assist
      us in the development and testing of our products. We believe Celadrin® will
      continue to be our principal compound. We intend to expand the number of
      customers who use this compound in formulas and to develop other formulas for
      new customers.





In
      addition to Celadrin®, which we sell in many formulations including an oral
      product, a cream, and as a pet product, we have also developed other natural
      based products designed to address specific health issues, including compounds
      and formulations involving a proprietary blend of fruit and vegetable extracts
      which represented approximately 15% of our sales and a weight loss product
      which
      represented approximately 10% of our sales for the year ended March 31, 2007.





We
      also
      are at the early stage of developing therapies for the treatment of inflammatory
      conditions, such as periodontal disease. We have conducted in-vivo and in-vitro
      efficacy and safety studies on our drug compound for the treatment of gum
      disease including periodontitis.





**Raw
      Materials and Manufacturing**





We
      develop and formulate proprietary, natural based, nutritional supplements,
      over-the-counter topical creams and skin care products but do not manufacture
      any of these products. We currently purchase ingredients from suppliers for
      delivery to manufacturers chosen by us. We have an agreement with our sole
      supplier of Celadrin® to purchase sufficient quantities of the compound to meet
      our anticipated needs through January 2012. We believe this agreement can be
      extended although we can give no such assurance. All other ingredients can
      be
      obtained from a number of suppliers, although the loss of any supplier could
      adversely affect our business.





We
      use a
      number of manufacturers to combine ingredients furnished by our suppliers into
      our nutritional and skin care products. By outsourcing product manufacture,
      we
      eliminate the capital required to manufacture our own products and increase
      the
      flexibility of our manufacturing resources. We have written confidentiality
      and
      exclusivity agreements with key manufacturers and believe suitable replacement
      manufacturers are available. However, the loss of a manufacturer could adversely
      affect our business.





**Marketing
      and Distribution.**





We
      market
      our products to customers in multiple channels of distribution. Our marketing
      strategy consists of:


·
              Continuing
                  to offer our proprietary products to existing customers while seeking
                  new
                  customers, emphasizing those engaged in the direct selling and
                  mass
                  marketing of nutraceutical supplements and other nutraceutical
                  products;
  6
  ·
              Continuing
                  to assist our customers in designing new nutritional, topical,
                  and skin
                  care products using our formulations;
 
 ·
              Continuing
                  to design marketing materials, provide marketing spokespersons
                  and
                  offering other value added services to assist customers in expanding
                  their
                  sales of our product;
 
 ·
              Developing
                  and offering new products to direct marketing and mass marketing
                  companies;
 
 ·
              Offering
                  products for distribution through medical and nutritional oriented
                  professionals;
 
 ·
              Offering
                  products for distribution through direct response radio and television.





We
      will
      continue to offer our customers a turn key approach to their product needs.
      This
      approach emphasizes providing the customer with the support necessary to allow
      them to sell our products, including providing the scientific studies required
      by U.S. and foreign regulators, tailoring our product formulations specifically
      for each customer, obtaining approvals in foreign countries for our customers
      to
      market there, providing full marketing support for the products, including
      product information, product descriptions and speakers to discuss products
      at
      customer conventions and seminars and arranging for manufacture and shipment
      of
      the products according to customer instructions.





Approximate
      sales by principal geographic area (as a percentage of sales) for fiscal years
      ended March 31 were as follows:


2007
              
              2006Domestic
                  sales
              
              
              96.9
              %
              
              96.6
              %Foreign
                  sales:India
              
              
              2.2
              
              
              1.8Canada
              
              
              0.5
              
              
              0.7Australia
              
              
              0.3
              
              
              0.6Korea
              
              
              -
              
              
              0.1Taiwan
              
              
              0.1
              
              
              0.2Total
                  foreign sales
              
              
              3.1
              
              
              3.4Total
                  sales
              
              
              100.0
              %
              
              100.0
              %
  All
      of
      our operating assets are located within the United States. While sales to
      certain geographic areas generally vary from year to year, we do not expect
      that
      changes in the geographic composition of sales will have a material adverse
      effect on operations .





**Competition**





The
      nutritional supplement and skin care industries are large and intensely
      competitive. We compete generally with companies that manufacture and market
      competitive nutritional products in each of our product lines, including
      companies such as Twin Labs, Weider Nutrition, IVC Industries and Perrigo.
      We
      also compete with companies that supply nutritional products to direct
      distribution companies, such as Leiner Health, Natural Alternatives and
      Vitatech. We also compete with companies that develop and sell skin care
      products, such as West Coast Cosmetics, CA Botana and Cosmetic Products
      International.





Competitive
      factors in the nutritional supplement and skin care markets include product
      effectiveness, scientific validation, proprietary formulations, price, quality
      of products, reliability of product delivery and marketing services offered
      to
      customers. We believe we compete favorably with respect to each of these
      factors. Nevertheless, most of our competitors have longer operating histories,
      wider product offerings, greater name recognition and financial resources than
      do we. However, we believe our turnkey approach of offering our customers
      significant regulatory and marketing support, as well as unique, scientifically
      validated products, improves our competitive position.





7


**Government
      Regulation**





In
      both
      the United States and foreign markets, we are subject to extensive laws and
      governmental regulations at the federal, state and local levels. For example,
      we
      are subject, directly or indirectly, to regulations pertaining to:


·
              Dietary
                  ingredients;
 
 ·
              The
                  manufacturing, packaging, labeling, promotion, distribution, importation,
                  sale and storage of our products;
 
 ·
              Product
                  claims, labeling and advertising (including direct claims and advertising
                  by us as well as claims in labeling and advertising by others,
                  for which
                  we may be held responsible);
 
 ·
              Transfer
                  pricing and similar regulations that affect the level of foreign
                  taxable
                  income and customs duties; and
 ·
                Taxation,
                    which in some instances may impose an obligation on us to collect
                    taxes
                    and maintain appropriate
                    records.


The
      dietary ingredients, manufacturing, packaging, storing, labeling, advertising,
      promotion, distribution and sale of our products are subject to regulation
      by
      one or more governmental agencies, including the Food and Drug Administration,
      the Federal Trade Commission, the Consumer Product Safety Commission, the
      Department of Agriculture, the Department of Customs, the Patent and Trademark
      Office, and the Environmental Protection Agency. Our activities are, or may
      be,
      regulated by various agencies of the states, localities and foreign countries
      in
      which our products are manufactured, distributed and/or sold. The FDA, in
      particular, regulates the ingredients, manufacture, packaging, storage,
      labeling, promotion, distribution and sale of foods, dietary supplements and
      over-the-counter drugs, such as those we distribute. We and our suppliers are
      required by FDA regulations to meet relevant current good manufacturing practice
      guidelines for the preparation, packing and storage of foods and drugs. The
      FDA
      has also published proposed rules for the establishment of good manufacturing
      practices for dietary supplements, but it has not yet issued a proposal rule.
      The FDA conducts unannounced inspections of companies that manufacture,
      distribute and sell dietary supplements, issues warning letters for rule
      violations found during these inspections and refers matters to the U.S.
      Attorney and Justice Department for prosecution under the Federal Food, Drug
      and
      Cosmetic Act. There can be no assurance that the FDA will not question our
      labeling or other operations in the future.





The
      Dietary Supplement Health and Education Act revised the provisions governing
      dietary ingredients and labeling of dietary supplements. The legislation created
      a new statutory class of "dietary supplements." This new class includes
      vitamins, minerals, herbs, botanicals, other dietary substances to supplement
      the daily diet, and concentrates, metabolites, constituents, extracts and
      combinations thereof. The legislation requires no federal pre-market approval
      for the sale of dietary ingredients that were on the market before October
      15,
      1994. Since cetylated fatty acids, the primary ingredient in Celadrin®, was on
      the market prior to October 15, 1994, we have not been required to provide
      the
      FDA with any proof as to safety or efficacy of Celadrin®. Dietary ingredients
      first marketed after October 15, 1994 may not be distributed or marketed in
      interstate commerce unless:


·
              The
                  manufacturer has proof that the dietary ingredient has been present
                  in the
                  food supply as an article used for food and in a form in which
                  the food
                  has not been chemically altered, or
 
 ·
              The
                  manufacturer supplies the FDA with proof to the FDA's satisfaction
                  of the
                  dietary ingredient's safety.





Manufacturers
      and distributors of dietary supplements may include statements of nutritional
      support, including structure and function claims, on labels and in advertising
      if:


·
              The
                  claims are corroborated by "competent and reliable scientific evidence"
                  consistent with FTC standards for advertising review;
  8
  ·
              The
                  claims for labels and labeling are filed in a certified notice
                  with the
                  FDA no later than 30 days after first market use of the claims;
 
 ·
              The
                  manufacturer retains substantiation that the claims are truthful
                  and
                  non-misleading;
 
 ·
              Each
                  claim on labels and in labeling is cross-referenced by an asterisk
                  to a
                  mandatory FDA disclaimer.





The
      majority of the products marketed, or proposed to be marketed, by us are
      classified as dietary supplements. In September 1997, the FDA issued regulations
      governing the labeling and marketing of dietary supplement products. The
      regulations cover:


·
              The
                  identification of dietary supplements and their nutrition and ingredient
                  labeling;
 
 ·
              The
                  terminology to be used for nutrient content claims, health claims
                  and
                  statements of nutritional support, including structure and function
                  claims;
 
 ·
              Labeling
                  requirements for dietary supplements for which "high potency" and
                  "antioxidant" claims are made;
 
 ·
              Notification
                  procedures for statements of nutritional support, including structure
                  and
                  function claims, on dietary supplement labels and in their labeling;
 
 ·
              Pre-market
                  notification procedures for new dietary ingredients in dietary
                  supplements.





Dietary
      supplements are subject to federal laws dealing with drugs and regulations
      imposed by the FDA. Those laws regulate, among other things, health claims,
      ingredient labeling and nutrition content claims characterizing the level of
      nutrient in the product. They also prohibit the use of any health claim for
      dietary supplements, unless the health claim is supported by significant
      scientific agreement and is pre-approved by the FDA. A federal court has ruled
      that the FDA must authorize health claims presented to the agency in health
      claims petitions unless they are inherently misleading and must rely on
      disclaimers to eliminate any potentially misleading connotation conveyed by
      a
      claim. The court also held that even claims not supported by significant
      scientific agreement must be allowed if disclaimers can correct misleading
      connotations.





Prior
      to
      permitting sales of our products in foreign markets, we may be required to
      obtain an approval, license or certification from the country's ministry of
      health or comparable agency. The approval process generally would require us
      to
      present each product and product ingredient to appropriate regulators and,
      in
      some instances, arrange for testing of products by local technicians for
      ingredient analysis. These approvals may be conditioned on reformulation of
      our
      products or may be unavailable with respect to certain products or certain
      ingredients. We must also comply with product labeling and packaging regulations
      that vary from country to country.





The
      Federal Trade Commission, which exercises jurisdiction over the marketing
      practices and advertising of products similar to those we offer, has in the
      past
      several years instituted enforcement actions against several dietary supplement
      companies for deceptive marketing and advertising practices. These enforcement
      actions have frequently resulted in consent orders and agreements. In certain
      instances, these actions have resulted in the imposition of monetary redress
      requirements. Importantly, the commission requires that "competent and reliable
      scientific evidence" corroborate each claim of health benefit made in
      advertising before the advertising is first made. A failure to have that
      evidence on hand at the time an advertisement is first made violates federal
      law. While we have not been the subject to enforcement action for the
      advertising of its products, there can be no assurance that this agency will
      not
      question our advertising or other operations in the future.





We
      believe we are in compliance with all material government regulations which
      apply to our products. However, we are unable to predict the nature of any
      future laws, regulations, interpretations or applications, nor can we predict
      what effect additional governmental regulations or administrative orders, when
      and if promulgated, would have on our business in the future. These future
      changes could, however, require the reformulation or elimination of certain
      products; imposition of additional record keeping and documentation
      requirements; imposition of new federal reporting and application requirements;
      modified methods of importing, manufacturing, storing or distributing certain
      products; and expanded or different labeling and substantiation requirements
      for
      certain products and ingredients. Any or all of these requirements could harm
      our business.





9




**Trademarks
      and Patents**





We
      received a trademark for "Celadrin" in February 2002.





In
      March
      2003 we filed a patent application for Genepril, seeking approval of claims
      for
      the prevention and treatment of various types of arthritis and other
      inflammatory joint diseases, as well as periodontal, psoriasis, lupus and
      cardiovascular conditions. In June 2005 we received notification that the
      application had been approved and that a patent could be issued. Subsequent
      to
      the notification, we requested additional claims be added to the application.
      Accordingly, the patent office is continuing its review of our application.
      There can be no assurance that others may not develop compounds superior to
      Genepril.





**Employees**





At
      March
      31, 2007, we had seven full-time employees and four part-time consultants,
      including our executive officers.




**ITEM
      2.**  **DESCRIPTION
      OF PROPERTY.**




We
      conduct our corporate functions and manufacturing, product development, sales
      and marketing activities in San Diego, California. We rent 5,426 square feet
      of
      office space at 10845 Rancho Bernardo Road, Suite 105, San Diego, California
      92127 under a seven-year lease ending December 2012 for a monthly rent ranging
      from a current level of $10,670 increasing annually to $12,673 for the seventh
      year. The average monthly rent for the seven-year period is $11,212. In addition
      we rent 4,575 square feet of distribution and storage space at 1420 Decision
      Street, Suite B, Vista, California 92083 under a three-year lease ending August
      31, 2009 for a monthly rent of $3,889. This space is intended to meet our needs
      for the foreseeable future.




**ITEM
      3.     LEGAL PROCEEDINGS.**




Effective
      September 30, 2006, Imagenetix terminated its agreement with Proprietary
      Nutritionals, Inc., for marketing of its product Celadrin. TM On
      September 28, 2006, we received a copy of a Complaint filed by Proprietary
      Nutritionals, Inc. (PNI), *Proprietary Nutritionals, Inc. V. Imagenetix, Inc., Thomas Hall and Frank
      Sajovic* ,
      No.
      06CV2091 L POR (U.S. District Court, S.D. Cal.).   The Complaint
      alleged breach of contract by Imagenetix with respect to Imagenetix’s
      termination of the agreement, tortious interference with PNI’s business
      relations and economic advantages and quantum meruit claims.  We believed
      the allegations lacked merit and the termination was proper under the terms
      of
      the agreement providing for termination upon a material breach including failure
      to meet sales goals.  In March 2007, we entered into a Purchase and
      Marketing Agreement (Agreement) with PNI which resolved all of the claims and
      counterclaims in the above action. As a result of the Agreement, the parties
      agreed to a Stipulation and Order of Dismissal, with prejudice. Under the terms
      of the Agreement, in addition to other items, we may sell our InflameAway
      product to the mass market and PNI may buy Celadrin from us.




We
      are
      not aware of any other legal proceedings, pending or threatened, to which we
      are
      a party.




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




None.




10




**PART
      II**




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




Our
      Common Stock is traded in the over-the-counter market and is quoted on the
      NASD
      OTC Bulletin Board system maintained by the National Association of Securities
      Dealers, Inc. Prices reported represent prices between dealers, do not include
      markups, markdowns or commissions and do not necessarily represent actual
      transactions. The market for our shares has been sporadic and at times very
      limited.





The
      following table sets forth the high and low closing price for the Common Stock
      for the fiscal years ended March 31, 2007 and 2006.




**Closing
                  Price****High**
              
              **Low**Fiscal
                  Year Ended March 31, 2007First
                  Quarter
              
              $
              1.25
              
              $
              0.85Second
                  Quarter
              
              $
              1.13
              
              $
              0.80Third
                  Quarter
              
              $
              0.83
              
              $
              0.59Fourth
                  Quarter
              
              $
              1.17
              
              $
              0.61Fiscal
                  Year Ended March 31, 2006First
                  Quarter
              
              $
              2.40
              
              $
              1.80Second
                  Quarter
              
              $
              2.75
              
              $
              2.00Third
                  Quarter
              
              $
              2.90
              
              $
              2.30Fourth
                  Quarter
              
              $
              2.25
              
              $
              1.14





We
      had
      approximately 314 shareholders of record as of June 28, 2007. Because most
      of
      our common stock is held by brokers and other institutions on behalf of
      stockholders, we are unable to estimate the total number of beneficial owners
      represented by these record holders. We have never paid a cash dividend on
      our
      common stock and do not expect to pay one in the foreseeable
      future.





**Recent
      Sale of Unregistered Securities**





During
      March 2007, we issued common stock and warrants to an individual in exchange
      for
      services as follows:





Common
      Stock


Date
                  Stock
              
              Number
                  of
              
              Price
                  perStockholder
              
              Issued
              
              Shares
              
              ShareDonald
                  Radcliffe
              
              
              2/1/2007
              
              
              150,000
              
              $
              0.94
              
              
              Services


**** Common
      Stock Purchase Warrants


Name
              
              Date
                  of Issuance
              
              Number
                  of Shares
              
              Exercise
                  Price
              
              Expiraton
                  DateDonald
                  Radcliffe
              
              
              2/1/2007
              
              
              250,000
              
              $
              1.00
              
              
              2/1/2012
              
              
              Services


With
      respect to the above securities issuances, the Registrant relied on exemptions
      provided by Section 4(2) of the Securities Act of 1933, as amended (the
“Securities Act”) and Rule 506 under the Securities Act. No advertising or
      general solicitation was employed in offering the securities. The securities
      were issued to a limited number of persons all of whom were accredited investors
      as that term is defined in Rule 501 of Regulation D under the
      Securities Act. All were capable of analyzing the merits and risks of their
      investment, acknowledged in writing that they were acquiring the securities
      for
      investment and not with a view toward distribution or resale, and understood
      the
      speculative nature of their investment. All securities issued contained a
      restrictive legend prohibiting transfer of the shares except in accordance
      with
      federal securities laws.




11




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




**Overview**




We
      develop, formulate and market over-the-counter, natural-based nutritional
      supplements and skin care products. Our products are proprietary, often
      supported by scientific studies which we request and are offered through
      multiple channels of distribution, including direct marketing companies, also
      known as network marketing or multi-level marketing companies, and chain store
      retailers. Our primary product is Celadrin® a product formulation which we sell
      to the mass market through retailers and on a private label basis to wholesale
      customers.





A
      key
      part of our marketing strategy is to provide to our wholesale customers a
      "turnkey" approach to the marketing and distribution of our products. This
      turnkey approach provides these customers with all the services necessary to
      market our products, including developing specific product formulations,
      providing supporting scientific studies regarding the effectiveness of the
      product and arranging for the manufacture and marketing of the product.





We
      sell
      directly to the mass markets through retailers InflameAway, our own Celadrin®
branded product. We also develop and sell products and formulations to
      businesses and organizations that market these products through multiple
      channels of distribution, including direct marketing companies, mass marketing
      companies, medical, health and nutritional professionals, medical newsletters
      and direct response radio and television. We also offer Celadrin® products
      through wholesale customers that in turn offer their products containing
      Celadrin® to mass market retailers.





Management's
      discussion and analysis of results of operations and financial condition are
      based upon the Company's financial statements. These statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. These principles require management to make certain
      estimates, judgments and assumptions that affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosure of contingent assets
      and liabilities. On an on-going basis, we evaluate our estimates based on
      historical experience and various other assumptions that are believed to be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources. Actual results may differ from these
      estimates under different assumptions or conditions .





**Critical
      Accounting Policies and Estimates**





We
      have
      identified eight accounting principles that we believe are key to an
      understanding of our financial statements. These important accounting policies
      require management's most difficult, subjective judgments .





*1.
      Cash and Cash Equivalents.*




For
      purposes of the financial statements, we consider all highly liquid debt
      investments purchased with a maturity of three months or less to be cash
      equivalents.





*2.
      Accounts receivable* .




Accounts
      receivable are carried at the expected net realizable value. The allowance
      for
      doubtful accounts is based on management’s assessment of the collectibility of
      specific customer accounts and the aging of the accounts receivable. If there
      were a deterioration of a major customer’s creditworthiness, or actual defaults
      were higher than historical experience, our estimates of the recoverability
      of
      amounts due to us could be overstated, which could have a negative impact on
      operations.





*3.
      Inventory*




Inventory
      is carried at the lower of cost or market. Cost is determined by the first-in
      first-out method.





*4.
      Property and Equipment*





Property
      and equipment are stated at cost. Expenditures for major renewals and
      betterments that extend the useful lives of property and equipment are
      capitalized, upon being placed in service. Expenditures for maintenance and
      repairs are charged to expense as incurred. Depreciation is computed over the
      estimated useful life of three to seven years, except leasehold improvements
      which are depreciated over the lesser of the remaining lease life or the life
      of
      the asset, using the straight-line method. We follow the provisions of the
      Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
      Standards ("SFAS") No. 144, "Accounting for the Impairment of Long-lived
      Assets." Long-lived assets and certain identifiable intangibles to be held
      and
      used by us are reviewed for impairment whenever events or changes in
      circumstances indicate that the carrying amount of an asset may not be
      recoverable. We continuously evaluate the recoverability of our long-lived
      assets based on estimated future cash flows and the estimated fair value of
      such
      long-lived assets, and provide for impairment if such undiscounted cash flows
      are insufficient to recover the carrying amount of the long-lived
      asset.





12


*5.
      Trademarks and Patents*





Patents
      and trademarks are carried at cost less accumulated amortization and are
      amortized over their estimated useful lives of from 8 to 17 years for patents
      and 10 years for trademarks. The carrying value of patents and trademarks is
      periodically reviewed and impairments, if any, are recognized when the expected
      future benefit to be derived from individual intangible assets is less than
      its
      carrying value determined based on the provisions of SFAS No. 144 as discussed
      above.





*6.*  *Stock
      Based Compensation*





We
      adopted SFAS No.123R effective January 1, 2006, which requires that share-based
      payments be reflected as an expense based upon the grant-date fair value of
      those awards. The expense is recognized over the remaining vesting periods
      of
      the awards. The Company estimates the fair value of these awards, including
      stock options and warrants, using the Black-Scholes model. This model requires
      management to make certain estimates in the assumptions used in this model,
      including the expected term the award will be held, volatility of the underlying
      common stock, discount rate and forfeiture rate. We develop our assumptions
      based on our past historical trends as well as consider changes for future
      expectations.





*7.
      Revenue Recognition*




We
      recognize revenue in accordance with the SEC’s Staff Accounting Bulletin
      No. 104, “Revenue Recognition in Financial Statements” (SAB104), Statement
      of Financial Accounting Standards No. 48, “Revenue Recognition When Right
      of Return Exists” (SFAS 48), and Emerging Issues Task Force Abstract (EITF)
      No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer
      (Including a Reseller of the Vendor’s Products.” SAB 104 requires that four
      basic criteria be met before revenue can be recognized: 1) there is evidence
      that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or
      determinable; and 4) collectibility is reasonably assured. SFAS 48 states that
      revenue from sales transactions where the buyer has the right to return the
      product shall be recognized at the time of sale only if (1) the seller’s
      price to the buyer is substantially fixed or determinable at the date of sale;
      (2) the buyer has paid the seller, or the buyer is obligated to pay the
      seller and the obligation is not contingent on


resale
      of
      the product; (3) the buyer’s obligation to the seller would not be changed
      in the event of theft or physical destruction or damage of the product;
      (4) the buyer acquiring the product for resale has economic substance apart
      from that provided by the seller; (5) the seller does not have significant
      obligations for future performance to directly bring about resale of the product
      by the buyer; and (6) the amount of future returns can be reasonably
      estimated. We recognize revenue upon determination that all criteria for revenue
      recognition have been met. The criteria are usually met at the time title passes
      to the customer, which usually occurs upon shipment. Revenue from shipments
      where title passes upon delivery is deferred until the shipment has been
      delivered.




We
      account for payments made to customers in accordance with EITF 01-09, which
      states that cash consideration (including a sales incentive) given by a vendor
      to a customer is presumed to be a reduction of the selling prices of the
      vendor’s products or services and, therefore, should be characterized as a
      reduction of revenue when recognized in the vendor’s income statement, rather
      than a sales and marketing expense. We have various agreements with customers
      that provide for discounts and rebates. These agreements are classified as
      a
      reduction of revenue. Certain other costs associated with customers that meet
      the requirements of EITF 01-09 are recorded as sales and marketing expense.
      Vendor considerations recorded as a reduction of sales were $232,000 for the
      year ended March 31, 2007.




We
      guarantee customer satisfaction. Our policy requires the customer to return
      the
      unused product to the retailer from whom they originally purchased it. We pay
      the retailer for the returned product plus a handling cost. We periodically
      assess the adequacy of this policy and will record a liability as necessary.
      For
      the year ended March 31, 2007, there were no returns that would suggest a
      liability needed to be recorded.




13


We
      review
      gross revenue for estimated returns of private label contract manufacturing
      products and direct-to-consumer products. The estimated returns are based upon
      the trailing six months of private label contract manufacturing gross sales
      and
      our historical experience for both private label contract manufacturing and
      direct-to-consumer product returns. However, the estimate for product returns
      does not reflect the impact of a large product recall resulting from product
      nonconformance or other factors as such events are not predictable nor is the
      related economic impact estimable. For the year ended March 31, 2007 there
      were
      no returns that would suggest a liability needed to be recorded.




As
      part
      of the services we provide to our private label contract manufacturing
      customers, we may perform, but are not required to perform, certain research
      and
      development activities related to the development or improvement of their
      products. While our customers typically do not pay directly for this service,
      the cost of this service is included as a component of the price we charge
      to
      manufacture and deliver their products.





*8.
      Income Taxes*




We
      account for income taxes in accordance with Statement of Financial Accounting
      Standards No. 109, “Accounting for Income Taxes.” This statement requires an
      asset and liability approach for accounting for income taxes.




**Selected
      Financial Information**




**Results
      of Operations**




*Year
      Ended March 31, 2007 Compared to Year Ended March 31, 2006*


Year
                  Ended
              
              Increase3/31/07
              
              3/31/06
              
              (Decrease)
              
              %Statements
                  of OperationsNet
                  sales
              
              $
              5,596,725
              
              $
              7,649,941
              
              $
              (2,053,216
              )
              
              -26.8
              %Cost
                  of goods sold
              
              
              2,969,002
              
              
              4,134,645
              
              
              (1,165,643
              )
              
              -28.2
              %%
                  of net sales
              
              
              53
              %
              
              54
              %
              
              -1
              %
              
              -1.8
              %Gross
                  profit
              
              
              2,627,723
              
              
              3,515,296
              
              
              (887,573
              )
              
              -25.2
              %%
                  of net sales
              
              
              47
              %
              
              46
              %
              
              1
              %
              
              2.2
              %Operating
                  expensesGeneral
                  and administrative
              
              
              1,407,996
              
              
              2,995,917
              
              
              (1,587,921
              )
              
              -53.0
              %Payroll
                  expense
              
              
              712,945
              
              
              674,344
              
              
              38,601
              
              
              5.7
              %Consulting
                  expense
              
              
              1,339,515
              
              
              1,072,391
              
              
              267,124
              
              
              24.9
              %Total
                  operating expenses
              
              
              3,460,456
              
              
              4,742,652
              
              
              (1,282,196
              )
              
              -27.0
              %Interest
                  expense
              
              
              (6,791
              )
              
              (25,728
              )
              
              (18,937
              )
              
              -73.6
              %Other
                  income
              
              
              32,885
              
              
              35,906
              
              
              (3,021
              )
              
              -8.4
              %Income
                  tax benefit
              
              
              139,000
              
              
              623,800
              
              
              (484,800
              )
              
              -77.7
              %Net
                  (loss)
              
              
              (667,639
              )
              
              (593,378
              )
              
              74,261
              
              
              12.5
              %Net
                  (loss) per share basic
              
              
              (0.06
              )
              
              (0.06
              )
              
              -
              
              
              0.0
              %Net
                  (loss) per share diluted
              
              
              (0.06
              )
              
              (0.06
              )
              
              -
              
              
              0.0
              %




Net
      Sales




Net
      sales
      for the year ended March 31, 2007 decreased $2,053,216, 26.8%, to $5,596,725
      compared to $7,649,941 for the year ended March 31, 2006. The primary reason
      for
      the sales decrease was that, during the year ended March 31, 2007, sales to
      one
      of our major distributors of Celadrin â were
      approximately $1,679,000 less than the previous fiscal year. In addition, a
      second major customer had a reduction of approximately $331,000 of revenue
      during the current fiscal year compared to the previous fiscal year. During
      the
      current fiscal year, we started to address this reduction in sales by embarking
      on a direct mass market strategy with our own product, Inflame Away, that will
      be identified to Celadrin â as its
      marquee ingredient. The strategy consists of a nationwide launch supported
      by a
      commensurate advertising campaign that will start in June 2007. We anticipate,
      if the new marketing program begins to successfully penetrate the market, that
      the Inflame Away product launch will result in improved sales during our next
      fiscal year.




14




Cost
      of Goods Sold




Cost
      of
      goods sold as a percentage of net sales decreased from 54% for the year ended
      March 31, 2006 to 53% for the year ended March 31, 2007. This decrease was
      primarily due to a decrease in commissions payable to one distributor partially
      offset by a smaller sales base available to absorb overhead costs such as
      packaging, containers and freight and mass market stocking charges and initial
      product introduction discounts.




General
      and Administrative




General
      and administrative expenses decreased by $1,587,921, a 53% decrease, to
      $1,407,996 for the year ended March 31, 2007 from $2,995,917 for the year ended
      March 31, 2006. The primary reasons for the decrease were costs incurred in
      the
      previous fiscal year were not repeated in the current fiscal year for
      approximately $1,220,000 related to the issuance and extension of stock options
      and the issuance of warrants and approximately $474,000 increase in commissions
      associated with a media campaign to brand Celadrin â were
      offset by approximately $85,000 increase in research and development costs
      during the current fiscal year.




Payroll
      Expense




Payroll
      expense increased to $712,945 for the year ended March 31, 2007, an increase
      of
      5.7% or $38,601, compared to $674,344 for the year ended March 31, 2006. This
      increase was a result of normal salary increases during the current fiscal
      year.




Consulting
      Expenses




Consulting
      expenses increased to $1,339,515 for the year ended March 31, 2007, an increase
      of 24.9% or $267,124, compared to $1,072,391 for the year ended March 31, 2006.
      This increase was a result of the introduction of Inflame Away as our own
      branded product contributing approximately $435,000 partially offset by a
      decrease in accounting and legal expenses during the current fiscal year of
      approximately $237,000.




Provision
      for Income Taxes




As
      a
      result of the loss during the year ended March 31, 2007, we reflected an income
      tax benefit of $139,000 compared to income tax benefit of $623,800 for the
      year
      ended March 31, 2006. Since we have used up our federal and state tax loss
      carry-forwards, we anticipate income tax expense to increase in the future
      relative to income before taxes.




15




**Capital
      Resources**




Year
                  Ended
              
              Increase3/31/07
              
              3/31/06
              
              (Decrease)Working
                  CapitalCurrent
                  assets
              
              $
              4,583,149
              
              $
              5,293,199
              
              $
              (710,050
              )Current
                  liabilities
              
              
              650,602
              
              
              870,104
              
              
              (219,502
              )Working
                  capital
              
              $
              3,932,547
              
              $
              4,423,095
              
              $
              (490,548
              )Long-term
                  debt
              
              $
              37,239
              
              $
              68,873
              
              $
              (31,634
              )Stockholders'
                  equity
              
              $
              4,572,762
              
              $
              4,955,097
              
              $
              (382,335
              )Statements
                  of Cash Flows Select InformationNet
                  cash provided (used) by:Operating
                  activities
              
              $
              (819,292
              )
              $
              3,758
              
              $
              (823,050
              )Investing
                  activities
              
              $
              (51,838
              )
              $
              (290,172
              )
              $
              238,334Financing
                  activities
              
              $
              22,010
              
              $
              62,944
              
              $
              (40,934
              )Balance
                  Sheet Select InformationCash
                  and cash equivalents
              
              $
              958,896
              
              $
              1,808,016
              
              $
              (849,120
              )Accounts
                  receivable, net
              
              $
              1,576,641
              
              $
              811,198
              
              $
              765,443Inventory,
                  net
              
              $
              1,284,458
              
              $
              1,741,468
              
              $
              (457,010
              )Accounts
                  payable and accrued expenses
              
              $
              432,354
              
              $
              792,410
              
              $
              (360,056
              )




**Liquidity**




We
      have
      historically financed our operations internally and through debt and equity
      financings. At March 31, 2007, we had cash holdings of $958,896, a decrease
      of
      $849,120 compared to March 31, 2006. Our net working capital position at March
      31, 2007, was $3,932,547 compared to $4,423,095 as of March 31, 2006. We believe
      that our cash position is sufficient to fund our operating activities for at
      least the next 12 months.





**New
      Accounting Pronouncements**





In
      February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
      Financial Assets and Financial Liabilities”. This Statement permits entities to
      choose to measure many financial assets and financial liabilities at fair value.
      Unrealized gains and losses on items for which the fair value option has been
      elected are reported in earnings. SFAS No. 159 is effective for fiscal years
      beginning after November 15, 2007. We are currently assessing the impact of
      SFAS No. 159 on our financial position and results of operations.





16




In
      September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
      Benefit Pension and Other Postretirement Plans.” This Statement requires an
      employer to recognize the over funded or under funded status of a defined
      benefit post retirement plan (other than a multiemployer plan) as an asset
      or
      liability in its statement of financial position, and to recognize changes
      in
      that funded status in the year in which the changes occur through comprehensive
      income.  SFAS No. 158 is effective for fiscal years ending after December
      15, 2006. The adoption of SFAS No. 158 had no impact on our financial position
      and results of operations.





In
      September 2006, the FASB issued SFAS No. 157, “Fair Value Measures”.
      This Statement defines fair value, establishes a framework for measuring fair
      value in generally GAAP, expands disclosures about fair value measurements,
      and
      applies under other accounting pronouncements that require or permit fair value
      measurements. SFAS No. 157 does not require any new fair value
      measurements. However, the FASB anticipates that for some entities, the
      application of SFAS No. 157 will change current practice. SFAS No. 157
      is effective for financial statements issued for fiscal years beginning after
      November 15, 2007, which for us would be the fiscal year beginning April 1,
      2008. We are currently evaluating the impact of SFAS No. 157 but do
      not expect that it will have a material impact on our financial statements.





In
      September 2006, the SEC issued Staff Accounting Bulletin
      (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements
      when Quantifying Misstatements in Current Year Financial Statements.” SAB
      No. 108 addresses how the effects of prior year uncorrected misstatements
      should be considered when quantifying misstatements in current year financial
      statements. SAB No. 108 requires companies to quantify misstatements using
      a balance sheet and income statement approach and to evaluate whether either
      approach results in quantifying an error that is material in light of relevant
      quantitative and qualitative factors. SAB No. 108 is effective for periods
      ending after November 15, 2006.  The adoption of SAB No. 108 had no
      impact on our financial position and results of operations.





In
      June
      2006, the FASB issued FASB Interpretation Number 48, "Accounting for Uncertainty
      in Income Taxes - an interpretation of FASB Statement No. 109."  This
      Interpretation clarifies the accounting for uncertainty in income taxes
      recognized in an enterprise's financial statements in accordance with FASB
      Statement No. 109, "Accounting for Income Taxes."  This Interpretation is
      effective for fiscal years beginning after December 15, 2006. We are currently
      assessing the effect of this Interpretation on our financial
      statements.




**Risk
      Factors**




You
      should consider the following discussion of risks as well as other information
      regarding our common stock. The risks and uncertainties described below are
      not
      the only ones. Additional risks and uncertainties not presently known to us
      or
      that we currently deem immaterial also may impair our business operations.
      If
      any of the following risks actually occur, our business could be harmed.





**There
      Is Only One Supplier for Celadrin®. If We Are Unable to Purchase Celadrin® from
      This Supplier, Our Business Would Be Harmed.**





There
      is
      only one supplier for Celadrin®, which we use in approximately 69% of our
      products and which represented approximately 75% of our sales for the year
      ended
      March 31, 2007. We will rely upon Celadrin® to expand our product lines and
      revenue in the future. If our Celadrin® supplier goes out of business or elects
      for any reason not to supply us with Celadrin®, we would have to find another
      Celadrin® supplier or suffer a significant reduction in our
      revenue.




**We
      Rely upon a Limited Number of Customers the Loss of Which Would Reduce Our
      Revenue and Any Earnings.**





Our
      largest customers accounted for 23% and 15% of our net sales for the year ended
      March 31, 2007 and 22%, 16%, 13% and 11% for the year ended March 31, 2006.
      The
      loss of any of these customers could significantly reduce our revenue and
      adversely affect our cash flow and earnings, if any.





**We
      Rely upon Other Outside Suppliers to Produce Our Products Which Could Delay
      Our
      Product Deliveries.**





All
      of
      our products are produced by outside manufacturers who process ingredients
      provided to them by our suppliers and with whom we have contracts. Our profit
      margins and our ability to deliver products on a timely basis are dependent
      upon
      these manufacturers and suppliers. Should any of these manufacturers or
      suppliers fail to provide us with product, we would be required to obtain new
      manufacturers and suppliers, which would be costly and time consuming and could
      delay our product deliveries.





17




**Product
      Liability Claims Against Us Could Be Costly.**





Some
      of
      our nutritional supplements contain newly-introduced ingredients or combinations
      of ingredients, and we have little long-term health information about
      individuals consuming those ingredients. If any of these products were thought
      or proved to be harmful, we could be subject to litigation. Although we carry
      product liability insurance in the face amount of $1,000,000 per occurrence
      and
      $2,000,000 in the aggregate and require our suppliers and manufacturers to
      include us as insured parties on their product liability insurance policies,
      our
      coverage may not be adequate to protect us from potential product liability
      claims and costs of defense.





**We
      Are Subject to Intense Competition from Other Nutritional Supplement Marketers
      Which Could Reduce Our Revenue and Profit Margins.**





Competition
      in the nutritional supplement market is intense. We compete with numerous
      companies that have longer operating histories, more products and greater name
      recognition and financial resources than we do. In order to compete, we could
      be
      forced to lower our product prices, which would reduce our revenue and profit
      margins.





**We
      Are Highly Regulated, Which Increases Our Costs of Doing Business.**





We
      are
      subject to laws and regulations which cover:


·
              the
                  formulation, manufacturing, packaging, labeling, distribution,
                  importation, sale and storage of our products;
 
 ·
              the
                  health and safety of food and drugs;
 
 ·
              trade
                  practice and direct selling laws; and
 
 ·
              product
                  claims and advertising by us; or for which we may be held
                  responsible.





Compliance
      with these laws and regulations is time consuming and expensive. Moreover,
      new
      regulations could be adopted that would severely restrict the products we sell
      or our ability to continue our business. We are unable to predict the nature
      of
      any future laws, regulations, interpretations or applications, nor can we
      predict what effect additional governmental regulations or administrative
      orders, when and if promulgated, would have on our business in the future.
      These
      future changes could, however, require the reformulation or elimination of
      certain products; imposition of additional record keeping and documentation
      requirements; imposition of new federal reporting and application requirements;
      modified methods of importing, manufacturing, storing or distributing certain
      products; and expanded or different labeling and substantiation requirements
      for
      certain products and ingredients. Any or all of these requirements could harm
      our business.





**There
      Are Limitations on the Liability of Our Officers and Directors Which May
      Restrict Our Stockholders from Bringing Claims.**





Our
      Bylaws substantially limit the liability of our officers and directors to us
      and
      our stockholders for negligence and breach of fiduciary or other duties to
      us.
      This limitation may prevent stockholders from bringing claims against our
      officers and directors in the future.





**Shares
      of Our Common Stock Which Are Eligible for Sale by Our Stockholders May Decrease
      the Price of Our Common Stock.**





We
      have
      10,871,400 common shares outstanding, of which 10,721,400 are freely tradeable
      or saleable under Rule 144. We also have outstanding common stock warrants
      and
      stock options exercisable into up to 5,486,100 shares of common stock which
      could become free trading if exercised. If our stockholders sell substantial
      amounts of our common stock, the market price of our common stock could
      decrease.





18


**There
      is a Limited but Potentially Volatile Trading Market in Our Common Stock, Which
      May Adversely Affect Our Stock Price.**





Our
      common stock trades on the Electronic Bulletin Board. The Bulletin Board tends
      to be highly illiquid, in part because there is no national quotation system
      by
      which potential investors can track the market price of shares except through
      information received or generated by a limited number of broker-dealers that
      make a market in particular stocks. There is a greater chance of market
      volatility for securities that trade on the Bulletin Board as opposed to a
      national exchange or quotation system. This volatility may be caused by a
      variety of factors, including:


·
              The
                  lack of readily available price quotations;
 
 ·
              The
                  absence of consistent administrative supervision of "bid" and "ask"
                  quotations;
 
 ·
              Lower
                  trading volume; and
 
 ·
              Market
                  conditions.





There
      could be wide fluctuations in the market price of our common stock. These
      fluctuations may have an extremely negative effect on the market price of our
      securities and may prevent you from obtaining a market price equal to your
      purchase price when you attempt to sell our securities in the open market.
      In
      these situations, you may be required to either sell our securities at a market
      price which is lower than your purchase price, or to hold our securities for
      a
      longer period of time than you planned.





**Because
      Our Common Stock May Be Classified as "Penny Stock," Trading in it Could Be
      Limited, and Our Stock Price Could Decline.**





In
      the
      future, our common stock may fall under the definition of "penny stock" if
      our
      net tangible assets decline below $2,500,000. In such event, trading in our
      common stock would be limited because broker-dealers will be required to provide
      their customers with disclosure documents prior to allowing them to participate
      in transactions involving our common stock. These disclosure requirements are
      burdensome to broker-dealers and may discourage them from allowing their
      customers to participate in transactions involving our common stock.





"Penny
      stocks" are equity securities with a market price below $5.00 per share, other
      than a security that is registered on a national exchange or included for
      quotation on the Nasdaq system, unless, as in our case, the issuer has net
      tangible assets of more than $2,000,000 and has been in continuous operation
      for
      greater than three years. Issuers who have been in operation for less than
      three
      years must have net tangible assets of at least $5,000,000.





Rules
      promulgated by the Securities and Exchange Commission under Section 15(g) of
      the
      Exchange Act require broker-dealers engaging in transactions in penny stocks,
      to
      first provide to their customers a series of disclosures and documents,
      including:


·
              A
                  standardized risk disclosure document identifying the risks inherent
                  in
                  investment in penny stocks;
 
 ·
              All
                  compensation received by the broker-dealer in connection with the
                  transaction;
 
 ·
              Current
                  quotation prices and other relevant market data; and
 
 ·
              Monthly
                  account statements reflecting the fair market value of the securities.
                  In
                  addition, these rules require that a broker-dealer obtain financial
                  and
                  other information from a customer, determine that transactions
                  in penny
                  stocks are suitable for such customer and deliver a written statement
                  to
                  such customer setting forth the basis for this determination.




19


**ITEM
      7.     FINANCIAL STATEMENTS.**




The
      financial statements required by this item begin on page F-1 with the index
      to
      consolidated financial statements.




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




On
      January 9, 2006, we notified Mayer Hoffman McCann P.C. ("MHM"), that they were
      being dismissed effective January 6, 2006, as the Company's independent
      registered accounting firm. MHM's report on the consolidated financial
      statements of the Company and its subsidiaries for the fiscal year ended March
      31, 2005, did not contain any adverse opinion or disclaimer of opinion, nor
      was
      it qualified or modified as to uncertainty, audit scope, or accounting
      principles.





On
      January 6, 2006, the Board of Directors of the Company, upon the recommendation
      of its Audit Committee, elected to engage HJ Associates & Consultants, LLP
      (“HJ Associates”) to serve as the Company's independent registered accounting
      firm.





On
      January 10, 2006, the Company was informed that it had been accepted as a client
      of HJ Associates.





Since
      March 31, 2005, (the date we retained MHM as principal accountants) and for
      the
      subsequent interim period through January 6, 2006, there were no disagreements
      between the Company and MHM on any matter of accounting principles or practices,
      financial statement disclosure, or auditing scope or procedure, which
      disagreements, if not resolved to MHM's satisfaction, would have caused them
      to
      make reference to the subject matter of the disagreement in their report on
      the
      financial statements for such year. We reported the change in accountants on
      Form 8-K on January 11, 2006. The Form 8-K contained a letter from MHM,
      addressed to the SEC, stating that it agreed with the statements concerning
      MHM
      in such Form 8-K.





Subsequent
      to January 6, 2006, the Company restated the quarterly reports for the six
      and
      nine months ended September 30 and December 31, 2005. We determined that the
      extension of the expiration date on warrants to certain shareholders should
      have
      been accounted for as a dividend to the warrant holders rather than as an
      expense. MHM believed that the extension of the warrants was the settlement
      of a
      perceived claim and, therefore, should be reflected as an expense.





During
      the Company's two fiscal years ended March 31, 2005, and the subsequent interim
      period through January 6, 2006, the Company did not consult HJ Associates with
      respect to the application of accounting principles to a specific transaction,
      either completed or contemplated, or the type of audit opinion that might be
      rendered on the Company's consolidated financial statements, or any other
      matters of reportable events as set forth in Items 304(a)(2)(i) and (ii) of
      Regulation S-B.




**ITEM
      8A.     CONTROLS AND PROCEDURES.**




**Evaluation
      of Disclosure Controls and Procedures**




As
      a
      result of the enactment of the Sarbanes-Oxley Act of 2002, issuers such as
      Imagenetix, Inc. that file periodic reports under the Securities Exchange Act
      of
      1934 (the “Act”) are required to include in those reports certain information
      concerning the issuer’s controls and procedures for complying with the
      disclosure requirements of the federal securities laws pursuant to Exchange
      Act
      Rules 13a-15(b) and 15d-15(b). These disclosure controls and procedures
      include, without limitation, controls and procedures designed to ensure that
      information required to be disclosed by an issuer in the reports it files or
      submits under the Act, is communicated to the issuer’s management, including its
      principal executive officer and principal financial officer, or persons
      performing similar functions, as appropriate to allow timely decisions regarding
      required disclosure. A control system can provide only reasonable, not absolute,
      assurance that the objectives of the control system are met.




Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of the design and operation of our disclosure controls and
      procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
      promulgated under the Act, within 90 days prior to the filing date of this
      report. Based on that evaluation, our principal executive officer and our
      principal financial officer concluded that the design and operation of our
      disclosure controls and procedures were effective in timely alerting them to
      material information required to be included in the Company's periodic reports
      filed with the SEC under the Act. The design of any system of controls is based
      in part upon certain assumptions about the likelihood of future events, and
      there can be no assurance that any design will succeed in achieving its stated
      goals under all potential future conditions, regardless of how remote.





20


**Change
      in Internal Controls.**





There
      have been no significant changes made in the internal controls and there were
      no
      other factors that could significantly effect our internal controls during
      the
      fourth quarter of the fiscal year covered by this report.




**ITEM
      8B.**  **OTHER
      INFORMATION.**




None.




**PART
      III**




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




The
      following table and biographical summaries set forth information, including
      principal occupations and business experience, about our directors and the
      executive officer at March 31, 2007:





**Name**
            
            **Age**
            
            **Position**William
                P. Spencer
            
            54
            
            Chief
                Executive Officer, President and DirectorDebra
                L. Spencer
            
            55
            
            Secretary,
                Treasurer and DirectorLowell
                W. Giffhorn
            
            60
            
            Chief
                Financial OfficerDerek
                C. Boosey
            
            64
            
            Vice
                President—InternationalJeffrey
                G. McGonegal
            
            56
            
            DirectorRobert
                Burg
            
            50
            
            DirectorBarry
                S. King
            
            61
            
            Director





**Biographical
      Information**





*William
      P. Spencer* has
      served as a director and has been our president since January 1999. From
      January 1986 to December 1996 he served as chief operating officer,
      chief financial officer and executive vice-president of Natural Alternatives
      International, Inc., a company engaged in the formulation and production of
      encapsulated vitamins and nutrients. He was president of NAI from
      December 1996 to October 1998 and was a director from
      January 1986 to October 1998. From 1976 to 1988 he was a regional vice
      president for San Diego Trust and Savings Bank. Mr. Spencer earned a B.S.
      degree in finance and an MBA degree from San Diego State University.





*Debra
      L. Spencer* has
      served as a director and has been our secretary since March 1999 and served
      as
      our treasurer from March 1999 to July 2005. Her responsibilities also include
      product label copy and graphic design in compliance with FDA regulations as
      well
      as developing marketing materials for our private label products. From 1970
      to
      1981 she was an Executive Assistant to the Vice President of a local San Diego
      bank. She was a homemaker from 1981 to 1987. From 1987 to 1993 she served as
      vice president, secretary and treasurer for Vitamin Direct, Inc., a
      consumer mail order vitamin company.





*Derek
      C. Boosey* has
      served as our vice-president — international
      since September 1999. From 1994 to September 1999, he was new business
      manager for National Alternatives International, Inc., and from 1990 to
      1994 was director of marketing for Athletics Canada. From 1984 to 1990,
      Mr. Boosey was a technical advisor to the Korean Ministry of Sports and a
      sports and marketing consultant for MKC International. He earned degrees in
      physical education from Keele University (England) and Opu University (England)
      and is the Senior Olympics world record holder in the triple jump in the age
      55
      to 60 class.





21


*Barry
      S. King*  joined
      our Board in 2003. He was the Director of Marketing for the United States
      Olympic Committee from 1987 to 2002. Since 2002, Mr. King has been the Vice
      President and General Manager of Triactive America. Mr. King graduated with
      a B.A. degree from the University of Colorado in 1969.





*Lowell
      W. Giffhorn* has
      served as our Chief Financial Officer since July 2005. Since October 2005,
      Mr.
      Giffhorn also has served as the Chief Financial Officer and, since December
      2005, has served on the board of directors of Brendan Technologies, Inc., a
      publicly held company that provides computer software to the pharmaceutical
      and
      life science industries. F rom
      November 1996 to June 2005, Mr. Giffhorn was the Chief Financial Officer of
      Patriot Scientific Corp., a publicly held semiconductor and intellectual
      property company. From June 1992 to August 1996 and from September 1987 to
      June
      1990 he was the CFO of Sym-Tek Systems, Inc. and Vice President of Finance
      for
      its successor, Sym-Tek Inc., a supplier of capital equipment to the
      semiconductor industry. Mr. Giffhorn obtained a M.B.A. degree from National
      University in 1976 and he obtained a B.S. in Accountancy from the University
      of
      Illinois in 1969. Mr. Giffhorn is also a director and chairman of the audit
      committee of DND Technologies, Inc., a publicly held company. Mr. Giffhorn
      devotes approximately 50% of his time to our affairs.





*Jeffrey
      G. McGonegal* joined
      our board in 2005. He also serves as the chief financial officer of AspenBio
      Pharma, Inc., a publicly-held biomedical company and of Security with Advanced
      Technology, Inc., a publicly held security products and services company and
      as
      senior vice president — finance of Cambridge Holdings, a publicly-held real
      estate and business development firm with limited activities, and since 1997,
      Mr. McGonegal has served as managing director of McGonegal and Co., a company
      engaged in providing accounting and business consulting services. From 1974
      to
      1997, he was an accountant with BDO Seidman LLP. While at BDO Seidman, Mr.
      McGonegal served as managing partner of the Denver, Colorado office. Until
      April
      2007, following its sale he was also a member of the board of directors of
      Applied Medical Devices, Inc., a publicly-held shell company. Mr. McGonegal
      received a B.A. degree in accounting from Florida State University and he is
      a
      certified public accountant licensed in Colorado.





*Robert
      Burg* joined
      our board in 2005. Since 1998, Mr. Burg has been the owner of The Burg Group,
      a
      business development company based in the sports industry. From 1992 to 1998,
      Mr. Burg held several executive level positions, including President from 1995
      to 1998, with Royal Grip, Inc., a publicly traded company that designed and
      distributed golf club grips and athletic headware. He received a B.A. degree
      in
      Business from the Great Western States University in 1977.





William
      P. Spencer and Debra L. Spencer are married to each other.




**Committees
      of the Board Of Directors**





Our
      Board
      has a standing Audit Committee. The entire Board serves as the Compensation
      Committee.




***Audit
      Committee.*** **** The
      Audit
      Committee is responsible for: (1) selection and oversight of our independent
      accountant; (2) establishing procedures for the receipt, retention and treatment
      of complaints regarding accounting, internal controls and auditing matters;
      (3)
      establishing procedures for the confidential, anonymous submission of concerns
      regarding accounting and auditing matters; (4) engaging outside advisors; and,
      (5) funding for the outside auditors and any outside advisors engagement by
      the
      audit committee. The Audit Committee, which met four times during 2007, is
      composed of one employee director and one other director, who was determined
      by
      the Board to be an independent director. During 2007, the Audit Committee
      consisted of Mr. McGonegal (Chairman) and Mr. Spencer.




The
      Board
      of Directors has determined that Mr. McGonegal is an audit committee
      financial expert as defined in Item 401 of Regulation S-B promulgated by the
      Securities and Exchange Commission. The Board's conclusions regarding the
      qualifications of Mr. McGonegal as an audit committee financial expert were
      based on his service as a chief financial officer of a public company, his
      prior
      practice as an audit partner for a national certified public accounting firm
      and
      his degrees in accounting and business administration.




**Code
      of Ethics**




Imagenetix
      has set forth its policy on ethical behavior in a document called "Code of
      Business Conduct and Ethics." This policy applies to the members of our Board
      of
      Directors and all employees, including (but not limited to) our principal
      executive officer, principal financial officer, principal accounting officer
      or
      controller and persons performing similar functions. This policy comprises
      written standards that are reasonably designed to deter wrongdoing and to
      promote the behavior described in Item 406 of Regulation S-B promulgated by
      the Securities and Exchange Commission. No waivers of the Code were granted
      in
      2007.




22


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




Due
      to
      our status as a Section 15(d) reporting company, our executive officers,
      directors, and persons who beneficially own more than 10% of a registered class
      of our equity securities are not required to file with the SEC reports of
      ownership and changes in ownership of Imagenetix's equity securities pursuant
      to
      Section 16(a) of the Securities Exchange Act of 1934.




**ITEM
      10.**  **EXECUTIVE
      COMPENSATION.**




There
      is
      shown below information concerning the compensation of our principal executive
      officer and the most highly compensated executive officers whose total
      compensation exceeded $100,000 (each a “Named Officer”) for the fiscal years
      ended March 31, 2007 and 2006.




**SUMMARY
      COMPENSATION TABLE**


Name
                  and
              
              Fiscal
              
              
              
              
              
              Option
              
              All
                  Other CompensationPrincipal
                  Position
              
              Year
              
              Salary
                  ($)
              
              Bonus
                  ($)
              
              Awards
                  ($)
              
              ($)
              
              Total
                  ($)[a]
              
              [b]
              
              [c]
              
              [d]
              
              [f]
              
              [i]
              
              [j]William
                  P. Spencer
              
              
              2007
              
              $
              174,386
              
              $
              39,000
              
              
              -
              
              $
              9,903
              
              $
              223,289President,
                  CEO and Director
              
              
              2006
              
              $
              165,969
              
              $
              -
              
              $
              83,515
              
              
              -
              
              $
              249,484


The
      amount included in other compensation during the year ended March 31, 2007,
      is a
      car allowance paid to Mr. Spencer. We estimate the fair value of the option
      issued to Mr. Spencer at the issuance date by using the Black-Scholes
      option-pricing model with the following weighted-average assumptions used for
      those options issued during the year ended March 31, 2006: dividend yield of
      zero percent; expected volatility of 90%, risk-free interest rates of 3.83%;
      and
      expected life of 5 years. ****





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


Name
              
              Number
                  of Securities Underlying Unexercised Options (#) Exercisable
              
              Option
                  Exercise Price ($)
              
              Option
                  Expiration Date[a]
              
              [b]
              
              [e]
              
              [f]William
                  P. Spencer
              
              
              125,000
              
              $
              1.00
              
              
              Oct.
                  23, 2007President,
                  CEO and
              
              
              25,000
              
              $
              2.00
              
              
              Aug.
                  21, 2010Director
              
              
              60,000
              
              $
              1.95
              
              
              July
                  1, 2010
  **Employment
        Contracts**





We
      do not
      have employment contracts with any of our executive officers.





23




**DIRECTOR
      COMPENSATION**


Name
              
              Fees
                  Earned or Paid In Cash ($)
              
              All
                  Other Compensation ($)
              
              Total($)[a]
              
              [b]
              
              [g]
              
              [h]Debra
                  Spencer
              
              $
              -
              
              $
              65,516
              
              $
              65,516Jeffrey
                  McGonegal
              
              $
              10,000
              
              $
              -
              
              $
              10,000Barry
                  King
              
              $
              1,200
              
              $
              -
              
              $
              1,200Robert
                  Burg
              
              $
              7,500
              
              $
              -
              
              $
              7,500




Mrs.
      Spencer is an employee and director of ours. The amount reflected as other
      compensation is the amount she was paid as an employee. She received no
      compensation for being a director.





**Liability
      and Indemnification of Officers and Directors**





Our
      Articles of Incorporation provides that our directors will not be liable for
      monetary damages for breach of their fiduciary duty as directors, other than
      the
      liability of a director for:





·
            A
                breach of the director’s duty of loyalty to our company or our
                stockholders;





·
            Acts
                or omissions by the director not in good faith or which involve
                intentional misconduct or a knowing violation of law;





·
            Willful
                or negligent declaration of an unlawful dividend, stock purchase
                or
                redemption; or





·
            Transactions
                from which the director derived an improper personal benefit.





Our
      Articles of Incorporation require us to indemnify all persons whom we may
      indemnify pursuant to Nevada law to the full extent permitted by Nevada law.





Our
      bylaws require us to indemnify our officers and directors and other persons
      against expenses, judgments, fines and amounts incurred or paid in settlement
      in
      connection with civil or criminal claims, actions, suits or proceedings against
      such persons by reason of serving or having served as officers, directors,
      or in
      other capacities, if such person acted in good faith and in a manner such person
      reasonably believed to be in or not opposed to our best interests and, in a
      criminal action or proceeding, if he had no reasonable cause to believe that
      his/her conduct was unlawful. The termination of any action, suit or proceeding
      by judgment, order, settlement, conviction or upon a plea of no contest or
      its
      equivalent shall not, of itself, create a presumption that the person did not
      act in good faith and in a manner which he or she reasonably believed to be
      in
      or not opposed to our best interests or that he or she had reasonable cause
      to
      believe his or her conduct was unlawful. Indemnification as provided in our
      bylaws shall be made only as authorized in a specific case and upon a
      determination that the person met the applicable standards of conduct. Insofar
      as the limitation of, or indemnification for, liabilities arising under the
      Securities Act of 1933 may be permitted to directors, officers, or persons
      controlling us pursuant to the foregoing, or otherwise, we have been advised
      that, in the opinion of the Securities and Exchange Commission, such limitation
      or indemnification is against public policy as expressed in the Securities
      Act
      of 1933 and is, therefore, unenforceable.





24


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





The
      following table sets forth certain information concerning our common stock
      ownership as of June 28, 2007, by (1) each person who is known by us to be
      the
      beneficial owner of more than five percent of our common stock; (2) each of
      our
      executive officers and directors; and (3) all of our directors and executive
      officers as a group. The address of each such stockholder is in care of us
      at
      10845 Rancho Bernardo Road, Suite 105, San Diego, California 92127.


**Name
                  of Beneficial Owner**
              
              **Amount
                  of Benefical Ownership (1)(2)**
              
              **Percent
                  of****Ownership**William
                  P.and Debra L. Spencer (3)
              
              
              2,993,000
              
              
              26.9
              %Gary
                  J. McAdam (4)
              
              
              2,741,483
              
              
              22.5
              %James
                  Scibelli (5)
              
              
              1,069,750
              
              
              9.2
              %Barry
                  S. King (6)
              
              
              19,000
              
              
              *Robert
                  Burg (7)
              
              
              50,000
              
              
              *Jeffrey
                  G. McGonegal (7)
              
              
              50,000
              
              
              *Lowell
                  W. Giffhorn (8)
              
              
              130,000
              
              
              1.1
              %Derek
                  C. Boosey (9)
              
              
              195,000
              
              
              1.8
              %All
                  officers and directors as a group (6 persons) (10)
              
              
              3,437,000
              
              
              30.1
              %


* Represents
          less than 1%
  (1)
                Reflects
                    amounts as to which the beneficial owner has sole voting power
                    and sole
                    investment power.
  (2)
                Includes
                    stock options and common stock purchase warrants exercisable
                    within 60
                    days from the date hereof.
  (3)
                Comprised
                    of 2,740,000 shares and 253,000 stock options. William P. and
                    Debra
                    Spencer are husband and wife and are deemed to share beneficial
                    ownership
                    of these shares and options.
  (4)
                Comprised
                    of 1,435,557 shares and 1,305,926 common stock purchase warrants,
                    all of
                    which are owned by entities controlled by Mr. McAdam.
  (5)
                Includes
                    370,000 shares and 699,750 common stock purchase warrants, all
                    of which
                    are owned by entities controlled by the estate of Mr. Scibelli.
  (6)
                Comprised
                    of 19,000 stock options.
  (7)
                Comprised
                    of 50,000 stock options.
  (8)
                Comprised
                    of 115,000 shares and 15,000 stock
                    options.
  (9)
                Comprised
                    of 50,000 shares and 145,000 stock
                    options.
  (10)
                Comprised
                    of 2,905,000 shares and 532,000 stock
                    options.




25




**Equity
      Compensation Plan Information**


**Plan
                  Category**
              
              **Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights (a)**
              
              **Weighted
                  average exercise price of outstanding options, warrants and rights
                  (b)**
              
              **Number
                  of securities remaining available for issuance under equity compensaton
                  plans (excluding securities reflected in column (a))
                  (c)**Equity
                  compensation plans approved by security holders
              
              
              1,129,000
              
              $
              1.74
              
              
              586,000Equity
                  compensation plans not approved by security holders
              
              
              4,357,100
              
              $
              1.26
              
              
              -Total
              
              
              5,486,100
              
              $
              1.36
              
              
              586,000


Common
      shares issuable on the exercise of common stock warrants have not been approved
      by the security holders and, accordingly, have been segregated in the above
      table.




**ITEM
      12.     CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS.**




GJM
      Trading Partners, Ltd., an entity controlled by Gary McAdam, a principal
      stockholder, holds exclusive rights to market some of our products through
      certain e-commerce distribution channels.





In
      January 2005 we entered into a consulting agreement with Business Partners
      Operations, LLC., a company in which Mr. McAdam is an officer and principal
      stockholder. Under the agreement, Mr. McAdam provides us with business
      consulting in the areas of finance and marketing strategies. The agreement
      calls
      for us to pay a fee of $3,500 per month and can be terminated by either party
      with a 30 day notice.





We
      believe that the above transactions were fair, reasonable and upon terms at
      least as favorable to us as those we might have obtained from unaffiliated
      third
      parties.




**ITEM
      13.**  **EXHIBITS.**




(a)
            The
                following documents are filed as a part of this Report:





1.
            Financial
                Statements. The following consolidated financial statements and Report
                of
                Independent
                Registered Certified Public Accounting Firm are included in Part
                II of
                this Report:





Report
      of
      HJ Associates & Consultants LLP, Independent Registered Public Accounting
      Firm





Consolidated
      Balance Sheets- As of March 31, 2007 and 2006





Consolidated
      Statements of Operation- Years Ended March 31, 2007 and 2006





Consolidated
      Statement of Stockholders' Equity- Years Ended March 31, 2007


and
      2005





Consolidated
      Statements of Cash Flows- Years Ended March 31, 2007 and 2006





Notes
      to
      Consolidated Financial Statements




26





2.
            Exhibits.
                The following Exhibits are filed as part of, or incorporated by reference
                into, this
                Report:




**Exhibit
                No.**
            
            **Title******3.01
            
            Articles
                of Incorporation of the Registrant(1)3.02
            
            Bylaws
                of the Registrant(1)3.03
            
            Amendment
                to Articles of Incorporation (Name change)(2)10.01
            
            Celadrin®
                Supply Agreement with Organic Technologies(2)10.19
            
            Business
                Partners Operations Agreement (4)10.20
            
            Office
                Lease Agreement with Bernardo Gateway Partners (5)10.21
            
            Patent
                License with University of Minnesota (5)10.22
            
            Patent
                License with EHP Products, Inc. (5)14
            
            Code
                of Ethics (3)31.1
            
            302
                Certification of William P. Spencer31.2
            
            302
                Certification of Lowell W. Giffhorn32.1
            
            906
                Certification of William P. Spencer32.2
            
            906
                Certification of Lowell W. Giffhorn





(1)
            Incorporated
                by reference to our Registration Statement on Form SB-1, file number
                333-87535, filed on September 22, 1999.




(2)
            Incorporated
                by reference to our Registration Statement on Form SB-2, File Number
                333-71756,declared
                effective on July 26, 2002 and post-effective amendment No. 1 thereto
                declared effectiveon
                August 25, 2003.





(3)
            Incorporated
                by reference to our Annual Report on Form 10-KSB for the year ended
                March
                31,2005.





(4)
            Incorporated
                by reference to our Registration Statement on Form SB-2, File Number
                333-123159,declared
                effective on March 18, 2005.





(5)
            Incorporated
                by reference to our Annual Report on Form 10-KSB for the year ended
                March
                31,2006.




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




The
      following is a summary of the fees billed to Imagenetix by its principal
      accountants for the fiscal years ended March 31, 2007 and 2006:


HJ
                  Associates &Consultants
                  LLP
              
              Mayer
                  HoffmanMcCann
                  P.C.
              
              HJ
                  Associates &Consultants
                  LLP
              
              Mayer
                  HoffmanMcCann
                  P.C.
              
              Pritchett,
                Siler &Hardy,
                P. C.Fee
                  category
              
              2007
              
              2007
              
              2006
              
              2006
              
              2006Audit
                  fees
              
              $
              33,563
              
              $
              5,000
              
              $
              44,772
              
              $
              29,151
              
              $
              -Audit-related
                  fees
              
              $
              3,513
              
              $
              3,440
              
              $
              -
              
              $
              5,821
              
              $
              3,730Tax
                  fees
              
              $
              1,922
              
              $
              -
              
              $
              1,600
              
              $
              9,450
              
              $
              -All
                  other fees
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Total
                  fees
              
              $
              38,998
              
              $
              8,440
              
              $
              46,372
              
              $
              44,422
              
              $
              3,730





27


Audit
      fees. Consists of fees for professional services rendered by our principal
      accountants for the audit of our annual financial statements and the review
      of
      financial statements included in our Forms 10-QSB or services that are normally
      provided by our principal accountants in connection with statutory and
      regulatory filings or engagements.





Audit-related
      fees. Consists of fees for assurance and related services by our principal
      accountants that are reasonably related to the performance of the audit or
      review of our financial statements and are not reported under "Audit fees."





Tax
      fees.
      Consists of fees for professional services rendered by our principal accountants
      for tax compliance, tax advice and tax planning.





All
      other
      fees. Consists of fees for products and services provided by our principal
      accountants, other than the services reported under "Audit fees," "Audit-related
      fees" and "Tax fees" above. The fees disclosed in this category include due
      diligence, preparation of pro forma financial statements as a discussion piece
      for a Board member, and preparation of letters in connection with the filing
      of
      Current Reports on Form 8-K.





**Pre-Approval
      Policies and Procedures**





All
      services provided by our independent registered public accounting firm, HJ
      Associates & Consultants LLP (“HJ”), are subject to pre-approval by our
      Audit Committee. The Audit Committee has authorized each of its members to
      approve services by HJ in the event there is a need for such approval prior
      to
      the next full Audit Committee meeting. The Audit Committee has also adopted
      policies and procedures that are detailed as to the particular service and
      that
      do not include delegation of the Audit Committee’s responsibilities to
      management under which management may engage HJ to render audit or non-audit
      services. Any interim approval given by an Audit Committee member and any such
      engagement by management must be reported to the Audit Committee no later than
      its next scheduled meeting. Before granting any approval, the Audit Committee
      (or a committee member if applicable) gives due consideration to whether
      approval of the proposed service will have a detrimental impact on HJ’s
      independence. The full Audit Committee pre-approved all services provided by
      HJ
      in fiscal 2007.





Based
      upon the Audit Committee's discussion with management and the independent
      auditors and the Audit Committee review of the representations of management
      and
      the report of the independent accountants to the Audit Committee, the Audit
      Committee recommended that the Board of Directors include our audited financial
      statements in our Annual Report on Form 10-KSB for the year ended March 31,
      2007
      filed with the Securities and Exchange Commission.





28




**Index
      to Consolidated Financial Statements**


Report
                    of Independent Registered Public Accounting Firm
                
                
                F-2Consolidated
                    Balance Sheets, March 31, 2007 and 2006
                
                
                F-3Consolidated
                    Statements of Operation, for the years ended March 31, 2007 and
                    2006
                
                
                F-4Consolidated
                    Statement of Stockholders' Equity, for the years ended March
                    31, 2007 and
                    2006
                
                
                F-5Consolidated
                    Statements of Cash Flows, for the years ended March 31, 2007
                    and
                    2006
                
                
                F-6Notes
                    to Consolidated Financial Statements
                
                
                F-7-F-23




F-1




**Report
      Of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors


Imagenetix,
      Inc.


San
      Diego, California





We
      have
      audited the consolidated balance sheets of Imagenetix, Inc. as of March 31,
      2007
      and 2006, and the related consolidated statements of operations, stockholders’
equity and cash flows for the years then ended. These consolidated financial
      statements are the responsibility of the Company's management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. An audit includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements. An audit also includes assessing the accounting principles used
      and
      significant estimates made by management, as well as evaluating the overall
      financial statement presentation. We believe that our audits provide a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Imagenetix, Inc. as of
      March
      31, 2007 and 2006, and the results of their operations and their cash flows
      for
      each of the years then ended, in conformity with U.S. generally accepted
      accounting principles.






/s/
      HJ Associates & Consultants, LLP


HJ
      Associates & Consultants, LLP


Salt
      Lake
      City, Utah


June
      14,
      2007





F-2


**Imagenetix,
                  Inc.****Consolidated
                  Balance Sheets**
  March
                  31,
              
              **2007**
              
              2006**ASSETS****Current
                  assets:**Cash
                  and cash equivalents
              
              **$**
              **958,896**
              
              $
              1,808,016Accounts
                  receivable, net
              
              
              **1,576,641**
              
              
              811,198Inventories,
                  net
              
              
              **1,284,458**
              
              
              1,741,468Prepaid
                  expenses
              
              
              **384,217**
              
              
              220,747Income
                  tax receivable
              
              
              **269,140**
              
              
              617,570Deferred
                  tax asset
              
              
              **109,797**
              
              
              94,200Total
                  current assets
              
              
              **4,583,149**
              
              
              5,293,199**Property
                  and equipment,**net
              
              
              **125,456**
              
              
              97,574**Other
                  assets**
              
              
              **551,998**
              
              
              503,301**Total
                  Assets**
              
              **$**
              **5,260,603**
              
              $
              5,894,074**LIABILITIES
                  AND STOCKHOLDERS' EQUITY****Current
                  liabilities:**Accounts
                  payable
              
              **$**
              **368,089**
              
              $
              740,461Accrued
                  liabilities
              
              
              **64,265**
              
              
              51,949Customer
                  deposits
              
              
              **136,645**
              
              
              48,485Contract
                  payable
              
              
              **49,970**
              
              
              -Short
                  term license payable
              
              
              **31,633**
              
              
              29,209Total
                  current liabilities
              
              
              **650,602**
              
              
              870,104**Long
                  term license payable**
              
              
              **37,239**
              
              
              68,873**Total
                  Liabilities**
              
              
              **687,841**
              
              
              938,977**Stockholders'
                  equity**Preferred
                  stock, $.001 par value; 5,000,000 sharesauthorized:
                  none outstanding
              
              
              **-**
              
              
              -Common
                  stock, $.001par value; 50,000,000 sharesauthorized:
                  10,871,400 and 10,721,400 issued and outstanding atMarch
                  31, 2007 and 2006, respectively
              
              
              **10,871**
              
              
              10,721Capital
                  in excess of par value
              
              
              **10,734,945**
              
              
              10,342,395Accumulated
                  deficit
              
              
              **(6,173,054**
              **)**
              
              (5,398,019
              )Total
                  stockholders' equity
              
              
              **4,572,762**
              
              
              4,955,097**Total
                  Liabilities and Stockholders' Equity**
              
              **$**
              **5,260,603**
              
              $
              5,894,074
  *See
                  accompanying report of independent registered public accounting
                  firm,
                  summary of accounting policies *and
                  notes to consolidated financial
                  statements.**
  F-3


**Imagenetix,
                  Inc.****Consolidated
                  Statements of Operation**
  *Years
                  Ended March 31,*
              
              **2007**
              
              2006Net
                  sales
              
              **$**
              **5,596,725**
              
              $
              7,649,941Cost
                  of sales
              
              
              **2,969,002**
              
              
              4,134,645Gross
                  profit
              
              
              **2,627,723**
              
              
              3,515,296Operating
                  expenses:General
                  and administrative
              
              
              **1,407,996**
              
              
              2,995,917Payroll
                  expense
              
              
              **712,945**
              
              
              674,344Consulting
                  expense
              
              
              **1,339,515**
              
              
              1,072,391Operating
                  expenses
              
              
              **3,460,456**
              
              
              4,742,652Operating
                  (loss)
              
              
              **(832,733**
              **)**
              
              (1,227,356
              )Other
                  income (expense):Other
                  income
              
              
              **32,885**
              
              
              35,906Interest
                  expense (Note 6)
              
              
              **(6,791**
              **)**
              
              (25,728
              )Other
                  income (expense)
              
              
              **26,094**
              
              
              10,178Loss
                  before income taxes
              
              
              **(806,639**
              **)**
              
              (1,217,178
              )Benefits
                  from taxes (Note 10)
              
              
              **(139,000**
              **)**
              
              (623,800
              )Net
                  (loss)
              
              **$**
              **(667,639**
              **)**
              $
              (593,378
              )Basic
                  (loss) per share
              
              **$**
              **(0.06**
              **)**
              $
              (0.06
              )Diluted
                  (loss) per share
              
              **$**
              **(0.06**
              **)**
              $
              (0.06
              )
  *See
                  accompanying report of independent registered public accounting
                  firm,
                  summary of accounting *polices
                  and notes to consolidated financial
                  statements.**
  F-4


**Imagenetix,
                  Inc.****Consolidated
                  Statements of Stockholders'
                  Equity**
  *Years
                  Ended March 31, 2007 and 2006*
  Common
                  Stock
              
              Capital
                  in excessof Par
              
              Retained
                  Earnings
              
              Stockholders'Shares
              
              Amount
              
              Value
              
              (Deficit)
              
              EquityBalance,
                  April 1, 2005
              
              
              10,404,652
              
              $
              10,405
              
              $
              4,267,707
              
              $
              (105,822
              )
              $
              4,172,290Issuance
                  of common stock for servicesat
                  $1.95 per share
              
              
              45,000
              
              
              45
              
              
              87,705
              
              
              -
              
              
              87,750Exercise
                  of warrants at $1.00 to****$2.00
                  per share
              
              
              271,748
              
              
              271
              
              
              312,477
              
              
              -
              
              
              312,748Value
                  of warrants and options issuedand
                  extended
              
              
              -
              
              
              -
              
              
              5,674,506
              
              
              -
              
              
              5,674,506Non-cash
                  dividend issued to certainwarrant
                  holders
              
              
              -
              
              
              -
              
              
              -
              
              
              (4,698,819
              )
              
              (4,698,819
              )Net
                  (loss) for the year endedMarch
                  31, 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              (593,378
              )
              
              (593,378
              )Balance
                  March 31, 2006
              
              
              10,721,400
              
              
              10,721
              
              
              10,342,395
              
              
              (5,398,019
              )
              
              4,955,097Issuance
                  of common stock for servicesat
                  $.94 per share
              
              
              150,000
              
              
              150
              
              
              140,850
              
              
              -
              
              
              141,000Purchase
                  price of warrants
              
              
              -
              
              
              -
              
              
              1,250
              
              
              -
              
              
              1,250Value
                  of warrants issued
              
              
              -
              
              
              -
              
              
              143,054
              
              
              -
              
              
              143,054Non-cash
                  dividend issued to certainwarrant
                  holders
              
              
              -
              
              
              -
              
              
              107,396
              
              
              (107,396
              )
              
              -Net
                  (loss) for the year endedMarch
                  3l, 2007
              
              
              -
              
              
              -
              
              
              -
              
              
              (667,639
              )
              
              (667,639
              )Balance
                  March 31, 2007
              
              
              10,871,400
              
              $
              10,871
              
              $
              10,734,945
              
              $
              (6,173,054
              )
              $
              4,572,762
  *See
                  accompanying report of independent registered public accounting
                  firm,
                  summary of accounting policies and notes to *consolidated
                  finacial
                  statements.**
  F-5
  **Imagenetix,
                  Inc.****Consolidated
                  Statements of Cash Flows**
  *Years
                  Ended March 31,*
              
              **2007**
              
              2006**Operating
                  activities:**Net
                  (loss)
              
              **$**
              **(667,639**
              **)**
              $
              (593,378
              )Adjustments
                  to reconcile net (loss)to
                  cash provided (used) by operating activities:Amortization
                  and depreciation
              
              
              **41,410**
              
              
              61,001Provision
                  for doubtful accounts
              
              
              **40,000**
              
              
              17,930Provision
                  for inventory obsolescence
              
              
              **(61,380**
              **)**
              
              123,794Non
                  cash expense related to issuance of warrantsand
                  stock options
              
              
              **143,054**
              
              
              975,687Stock
                  issued for services
              
              
              **141,000**
              
              
              87,750Change
                  in deferred taxes
              
              
              **(100,497**
              **)**
              
              (358,200
              )Changes
                  in assets and liabilities:(Increase)
                  decrease in accounts receivable
              
              
              **(805,443**
              **)**
              
              1,234,961(Increase)
                  decrease in employee receivable
              
              
              **2,870**
              
              
              1,544(Increase)
                  decrease in inventory
              
              
              **518,390**
              
              
              (482,767
              )(Increase)
                  decrease in other assets
              
              
              **(147,591**
              **)**
              
              87,332Increase
                  (decrease) in accounts payable
              
              
              **(372,372**
              **)**
              
              (101,340
              )Increase
                  (decrease) in accrued liabilities
              
              
              **12,316**
              
              
              31,704Increase
                  (decrease) in customer deposits
              
              
              **88,160**
              
              
              (26,906
              )Increase
                  (decrease) in income taxes payable
              
              
              **348,430**
              
              
              (1,055,354
              )Net
                  cash provided by (used in) operating activities
              
              
              **(819,292**
              **)**
              
              3,758**Investing
                  activities:**Acquisition
                  of office equipment and leasehold improvements
              
              
              **(51,838**
              **)**
              
              (100,193
              )Trademarks,
                  patents and infomercial
              
              
              -
              
              
              (189,979
              )Net
                  cash used in investing activities
              
              
              **(51,838**
              **)**
              
              (290,172
              )**Financing
                  activities:**Payments
                  on notes payable to related party
              
              
              -
              
              
              (225,000
              )Proceeds
                  from exercise of stock options and warrants
              
              
              -
              
              
              312,748Proceeds
                  from issuance of warrant
              
              
              **1,250**
              
              
              -Proceed
                  from contracts payable
              
              
              **102,143**
              
              
              -Payments
                  on contracts payable
              
              
              **(52,173**
              **)**
              
              -Payments
                  on patent license financed
              
              
              **(29,210**
              **)**
              
              (24,804
              )Net
                  cash provided by financing activities
              
              
              **22,010**
              
              
              62,944**Net
                  increase (decrease) in cash**
              
              
              **(849,120**
              **)**
              
              (223,470
              )**Cash
                  and cash equivalents**,
                  beginning of year
              
              
              **1,808,016**
              
              
              2,031,486**Cash
                  and cash equivalents,**end of year
              
              **$**
              **958,896**
              
              $
              1,808,016**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  paid during the period for:Interest
              
              **$**
              **-**
              
              $
              25,728Income
                  taxes
              
              **$**
              **-**
              
              $
              789,754**Non
                  Cash Investing and Financing Activities:**Patent
                  license financed
              
              **$**
              **-**
              
              $
              122,886Non-cash
                  valuation related to issuance of warrants
              
              **$**
              **143,054**
              
              $
              -Common
                  stock issued for services
              
              **$**
              **141,000**
              
              $
              -Non-cash
                  dividend issued to certain warrant holders
              
              **$**
              **107,396**
              
              $
              4,698,819
  *See
                  accompanying report of independent registered public accounting
                  firm,
                  summary of accounting policies *and
                  notes to consolidated financial
                  statements.**





F-6


**IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements
 March
        31,
        2007 and 2006
 
 NOTE
        1 -  SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
 
 The
        accompanying consolidated financial statements represent the accounts of
        Imagenetix, Inc. [“Parent”] organized under the laws of the State of Nevada on
        March 28, 1988; and its subsidiary Imagenetix, Inc [“Subsidiary”] organized
        under the laws of the state of Colorado on July 26, 1996 and its subsidiary
        Imagenetix [“Imagenetix CA”] organized under the laws of the State of California
        on January 7, 1999. We are engaged in the business of developing and marketing
        nutritional supplements and skin care products primarily in domestic
        markets.
 
 On
        March
        23, 1999, Subsidiary completed an exchange agreement with Imagenetix CA wherein
        Subsidiary issued 3,900,000 shares of its common stock in exchange for all
        of
        the outstanding common stock of Imagenetix CA. The Acquisition was accounted
        for
        as a recapitalization of Imagenetix CA as the shareholders of the Imagenetix
        CA
        controlled the combined entity after the acquisition. There was no adjustment
        to
        the carrying values of the assets or liabilities of the Subsidiary or Imagenetix
        CA as a result of the recapitalization.
 
 During
        October 2000, the Subsidiary entered into a definitive merger agreement and
        plan
        of reorganization with Parent. The transaction was accounted for as a
        recapitalization of the Subsidiary, wherein the Subsidiary became a wholly
        owned
        subsidiary of the Parent. After giving effect to the preceding transaction,
        the
        parent had 8,550,000 shares of common stock, 3,183,750 warrants, and 525,000
        options outstanding. In connection with the reverse acquisition, the Parent
        changed its name to Imagenetix, Inc.
 
 We
        have,
        at the present time, not paid any dividends, and any dividends that may be
        paid
        in the future will depend upon our financial requirements and other relevant
        factors.
 
 Consolidation
 
 All
        significant intercompany transactions between the Parent, Subsidiary, and
        Imagenetix CA have been eliminated in consolidation.
 
 Reclassifications
 
 Certain
        items included in the year ended March 31, 2006 financial statements have
        been
        reclassified to conform to the current year presentation.
 
 Accounting
        Estimates
 
 The
        preparation of financial statements in conformity with generally accepted
        accounting principles in the United States of America requires management
        to
        make estimates and assumptions that effect the reported amounts of assets
        and
        liabilities, the disclosures of contingent assets and liabilities at the
        date of
        the financial statements, and the reported amounts of revenues and
        expenses during the reporting period. Actual results could differ from those
        estimated by management.
  F-
            7
  **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
 
 Cash
        and Cash Equivalents
 
 For
        purposes of the financial statements, we consider all highly liquid debt
        investments purchased with a maturity of three months or less to be cash
        equivalents. At various times throughout the year, we have exceeded federally
        insured limits.
 
 Accounts
        receivable
 
 Accounts
        receivable are carried at the expected net realizable value. The allowance
        for
        doubtful accounts is based on management’s assessment of the collectibility of
        specific customer accounts and the aging of the accounts receivable. If there
        were a deterioration of a major customer’s creditworthiness, or actual defaults
        were higher than historical experience, our estimates of the recoverability
        of
        amounts due to us could be overstated, which could have a negative impact
        on
        operations.
 
 Inventory
 
 Inventory
        is carried at the lower of cost or market. Cost is determined by the first-in
        first-out method.
 
 Property
        and Equipment
 
 Property
        and equipment are stated at cost. Expenditures for major renewals and
        betterments that extend the useful lives of property and equipment are
        capitalized, upon being placed in service. Expenditures for maintenance and
        repairs are charged to expense as incurred. Depreciation is computed over
        the
        estimated useful life of three to seven years, except leasehold improvements
        which are depreciated over the lesser of the remaining lease life or the
        life of
        the asset, using the straight-line method. We follow the provisions of the
        Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
        Standards ("SFAS") No. 144, "Accounting for the Impairment of Long-lived
        Assets." Long-lived assets and certain identifiable intangibles to be held
        and
        used by us are reviewed for impairment whenever events or changes in
        circumstances indicate that the carrying amount of an asset may not be
        recoverable. We continuously evaluate the recoverability of our long-lived
        assets based on estimated future cash flows and the estimated fair value
        of such
        long-lived assets, and provide for impairment if such undiscounted cash flows
        are insufficient to recover the carrying amount of the long-lived
        asset.
 
 Trademarks
        and Patents
 
 Patents
        and trademarks are carried at cost less accumulated amortization and are
        amortized over their estimated useful lives of from 8 to 17 years for patents
        and 10 years for trademarks. The carrying value of patents and trademarks
        is
        periodically reviewed and impairments, if any, are recognized when the expected
        future benefit to be derived from individual intangible assets is less than
        its
        carrying value determined based on the provisions of SFAS No. 144 as discussed
        above.
 
 F-
            8
  **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
 
 Stock
        Based Compensation
 
 Effective
        January 1, 2006, we adopted FASB Statement No. 123R, “Accounting for Stock-Based
        Compensation” (“SFAS 123R”). SFAS 123R requires all share-based payments to
        employees, including grants of employee stock options and restricted stock,
        to
        be recognized in the financial statements based on their fair values. Under
        SFAS
        123R, the pro forma disclosures previously permitted under SFAS 123R are
        no
        longer an alternative to financial statement recognition.
 
 We
        have
        selected the Black-Scholes method of valuation for share-based compensation
        and
        have adopted the modified prospective transition method under SFAS 123R,
        which
        requires that compensation cost be recorded, as earned, for all unvested
        stock
        options outstanding at the beginning of the first quarter of adoption of
        SFAS
        123R. As permitted by SFAS 123R, prior periods have not been restated. The
        charge is being recognized in non cash compensation, which is included in
        stock-based compensation expense, on a straight-line basis over the remaining
        service period after the adoption date based on the options’ original estimate
        of fair value. Prior to the adoption of SFAS 123R, the Company applied the
        intrinsic-value-based method of accounting prescribed by Accounting Principles
        Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.”
Under this method, compensation cost was recorded only if the market price
        of
        the underlying stock on the grant date exceeded the exercise price. As permitted
        by SFAS 123, the Company elected the disclosure only requirements of SFAS
        123.
        The fair-value based method used to determine historical pro forma amounts
        under
        SFAS 123 was similar in most respects to the method used to determine
        stock-based compensation expense under SFAS 123R.
  F-
            9
  **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
  The
          following table illustrates the pro forma effect on our net loss and net
          loss
          per share as if we had adopted the fair value based method of accounting
          for
          stock-based compensations under the provisions of SFAS 123R at the beginning
          of
          the year ended March 31, 2006:
 Year
                        Ended March 31,
                      2006Net
                    income (loss), as reported
                
                $
                (593,378
                )Stock-based
                        employee compensation,
                      net
                        of tax effects, included in reported net loss
                
                
                217,200Stock-based
                        employee compensation,
                      net
                        of tax effects
                
                
                (770,365
                )Proforma
                    net income (loss)
                
                $
                (1,146,543
                )Net
                    income (loss) per share:Basic-
                    as reported
                
                $
                (0.06
                )Basic-
                    proforma
                
                $
                (0.11
                )Diluted-
                    as reported
                
                $
                (0.06
                )Diluted-
                    proforma
                
                $
                (0.11
                )
  For
        purposes of computing the pro forma disclosures required by SFAS No. 123,
        the
        fair value of each option granted to employees and directors is estimated
        using
        the Black-Scholes option-pricing model with the following weighted-average
        assumptions used for the year ended March 31, 2006: dividend yield of zero
        percent; expected volatility of from 90% to 94%; risk-free interest rates
        of
        3.64% to 4.02%, and expected lives of from 2 to 5 years.
  We
        apply
        SFAS No. 123 in valuing options granted to consultants and estimate the fair
        value of such options using the Black-Scholes option-pricing model. The fair
        value is recorded as consulting expense as services are provided. Options
        granted to consultants for which vesting is contingent based on future
        performance are measured at their then current fair value at each period
        end,
        until vested.
  Revenue
        Recognition
  We
        recognize revenue in accordance with the SEC’s Staff Accounting Bulletin
        No. 104, “Revenue Recognition in Financial Statements” (SAB104), Statement
        of Financial Accounting Standards No. 48, “Revenue Recognition When Right
        of Return Exists” (SFAS 48), and Emerging Issues Task Force Abstract (EITF)
        No. 01-9, “Accounting for Consideration Given by a Vendor to a Customer
        (Including a Reseller of the Vendor’s Products.” SAB 104 requires that four
        basic criteria be met before revenue can be recognized: 1) there is evidence
        that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed
        or
        determinable; and 4) collectibility is reasonably assured. SFAS 48 states
        that
        revenue from sales transactions where the buyer has the right to return the
        product shall be recognized at the time of sale only if (1) the seller’s
        price to the buyer is substantially fixed or determinable at the date of
        sale;
        (2) the buyer has paid the seller, or the buyer is obligated to pay the
        seller and the obligation is not contingent on resale
        of the product; (3) the buyer’s obligation to the seller would not be
        changed in the event of theft or physical destruction or damage of the product;
        (4) the buyer acquiring the product for resale has economic substance apart
        from that provided by the seller; (5) the seller does not have significant
        obligations for future performance to directly bring about resale of the
        product
        by the buyer; and (6) the amount of future returns can be reasonably
        estimated. We recognize revenue upon determination that all criteria for
        revenue
        recognition have been met. The criteria are usually met at the time title
        passes
        to the customer, which usually occurs upon shipment. Revenue from shipments
        where title passes upon delivery is deferred until the shipment has been
        delivered.
  F-
            10
  **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
  We
        account for payments made to customers in accordance with EITF 01-09, which
        states that cash consideration (including a sales incentive) given by a vendor
        to a customer is presumed to be a reduction of the selling prices of the
        vendor’s products or services and, therefore, should be characterized as a
        reduction of revenue when recognized in the vendor’s income statement, rather
        than a sales and marketing expense. We have various agreements with customers
        that provide for discounts and rebates. These agreements are classified as
        a
        reduction of revenue. Certain other costs associated with customers that
        meet
        the requirements of EITF 01-09 are recorded as sales and marketing expense.
        Vendor considerations recorded as a reduction of sales were $232,000 for
        the
        year ended March 31, 2007.
  We
        guarantee customer satisfaction. Our policy requires the customer to return
        the
        unused product to the retailer from whom they originally purchased it. We
        pay
        the retailer for the returned product plus a handling cost. We periodically
        assess the adequacy of this policy and will record a liability as
        necessary.  For
        the
        year ended March 31, 2007, there were no returns that would suggest a liability
        needed to be recorded.
  We
        review
        gross revenue for estimated returns of private label contract manufacturing
        products and direct-to-consumer products. The estimated returns are based
        upon
        the trailing six months of private label contract manufacturing gross sales
        and
        our historical experience for both private label contract manufacturing and
        direct-to-consumer product returns. However, the estimate for product returns
        does not reflect the impact of a large product recall resulting from product
        nonconformance or other factors as such events are not predictable nor is
        the
        related economic impact estimable.  For
        the
        year ended March 31, 2007 there were no returns that would suggest a liability
        needed to be recorded.
  As
        part
        of the services we provide to our private label contract manufacturing
        customers, we may perform, but are not required to perform, certain research
        and
        development activities related to the development or improvement of their
        products. While our customers typically do not pay directly for this service,
        the cost of this service is included as a component of the price we charge
        to
        manufacture and deliver their products.
  Income
        Taxes
  We
        account for income taxes in accordance with Statement of Financial Accounting
        Standards No. 109, “Accounting for Income Taxes.” This statement requires an
        asset and liability approach for accounting for income taxes (See Note
        10).
  F-
            11
  **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
  Earnings
        Per Share
  The
        computation of earnings per share is based on the weighted average number
        of
        shares outstanding during the period presented in accordance with Statement
        of
        Financial Accounting Standards No. 128, “Earnings Per Share” (See Note
        11).
  Recently
        Enacted Accounting Standards
  In
        February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
        Financial Assets and Financial Liabilities”. This Statement permits entities to
        choose to measure many financial assets and financial liabilities at fair
        value.
        Unrealized gains and losses on items for which the fair value option has
        been
        elected are reported in earnings. SFAS No. 159 is effective for fiscal years
        beginning after November 15, 2007. We are currently assessing the impact of
        SFAS No. 159 on our financial position and results of operations.
  In
        September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined
        Benefit Pension and Other Postretirement Plans.” This Statement requires an
        employer to recognize the over funded or under funded status of a defined
        benefit post retirement plan (other than a multiemployer plan) as an asset
        or
        liability in its statement of financial position, and to recognize changes
        in
        that funded status in the year in which the changes occur through comprehensive
        income.  SFAS No. 158 is effective for fiscal years ending after December
        15, 2006. The adoption of SFAS No. 158 had no impact on our financial position
        and results of operations.
  In
        September 2006, the FASB issued SFAS No. 157, “Fair Value Measures”.
        This Statement defines fair value, establishes a framework for measuring
        fair
        value in generally GAAP, expands disclosures about fair value measurements,
        and
        applies under other accounting pronouncements that require or permit fair
        value
        measurements. SFAS No. 157 does not require any new fair value
        measurements. However, the FASB anticipates that for some entities, the
        application of SFAS No. 157 will change current practice. SFAS No. 157
        is effective for financial statements issued for fiscal years beginning after
        November 15, 2007, which for us would be the fiscal year beginning April 1,
        2008. We are currently evaluating the impact of SFAS No. 157 but do
        not expect that it will have a material impact on our financial
        statements.
  In
        September 2006, the SEC issued Staff Accounting Bulletin
        (“SAB”) No. 108, “Considering the Effects of Prior Year Misstatements
        when Quantifying Misstatements in Current Year Financial Statements.” SAB
        No. 108 addresses how the effects of prior year uncorrected misstatements
        should be considered when quantifying misstatements in current year financial
        statements. SAB No. 108 requires companies to quantify misstatements using
        a balance sheet and income statement approach and to evaluate whether either
        approach results in quantifying an error that is material in light of relevant
        quantitative and qualitative factors. SAB No. 108 is effective for periods
        ending after November 15, 2006.  The adoption of SAB No. 108 had no
        impact on our financial position and results of operations.
  In
        June
        2006, the FASB issued FASB Interpretation Number 48, "Accounting for Uncertainty
        in Income Taxes - an interpretation of FASB Statement No. 109."  This
        Interpretation clarifies the accounting for uncertainty in income taxes
        recognized in an enterprise's financial statements in  accordance
        with FASB Statement No. 109, "Accounting for Income Taxes."  This
        Interpretation is effective for fiscal years beginning after December 15,
        2006.
        We are currently assessing the effect of this Interpretation on our financial
        statements.
  F-
            12
  **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
  NOTE
        2
        -  ACCOUNTS
        RECEIVABLE
  Accounts
        receivable are carried at the expected realizable value. Accounts receivable
        consisted of the following:
 March
                    31,2007
                
                2006Accounts
                    receivable - trade
                
                $
                1,666,641
                
                $
                861,198Allowance
                    for doubtful accounts
                
                
                (90,000
                )
                
                (50,000
                )Accounts
                    receivable, net
                
                $
                1,576,641
                
                $
                811,198
  NOTE
        3
        -  INVENTORY
  Inventory
        consisted of the following:
 March
                    31,2007
                
                2006Raw
                    materials
                
                $
                797,498
                
                $
                1,554,417Finished
                    products
                
                
                401,895
                
                
                168,228Boxes,
                    labels, tubes & bottles
                
                
                220,153
                
                
                215,2911,419,546
                
                
                1,937,936Reserve
                    for obsolescence
                
                
                (135,088
                )
                
                (196,468
                )$
                1,284,458
                
                $
                1,741,468
  F-
            13
  **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
  NOTE
          4 -
          PROPERTY AND EQUIPMENT
  The
        following is a summary of equipment, at cost, less accumulated
        depreciation:
 March
                    31,2007
                
                2006Office
                    equipment
                
                $
                54,115
                
                $
                40,922Lease-hold
                    improvements
                
                
                126,353
                
                
                87,708Leased
                    equipment
                
                
                12,341
                
                
                12,341192,809
                
                
                140,971Less
                    accumulated depreciation
                
                
                67,353
                
                
                43,397$
                125,456
                
                $
                97,574
  Depreciation
          expense for the year ended March 31, 2007 and 2006 was $23,956 and $45,606,
          respectively.
  NOTE
        5
        -  OTHER
        ASSETS
  The
        following is a summary of intangible assets which are included in “Other Assets”
on the face of the balance sheet:
 March
                    31,2007
                
                2006Trademarks
                
                $
                13,032
                
                $
                13,032Promotional
                
                
                -
                
                
                18,750Patent
                
                
                161,353
                
                
                161,353Deferred
                    tax asset
                
                
                415,100
                
                
                330,200589,485
                
                
                523,335Less
                    accumulated amortization
                
                
                37,487
                
                
                20,034$
                551,998
                
                $
                503,301
  For
        the
        year ended March 31, 2007 and 2006 amortization expense was $17,454 and $15,395,
        respectively.
  NOTE
        6
        -  LICENSE
        AND ROYALTY PAYABLE
 
 In
        May,
        2005, we entered into an agreement with EHP Products, Inc. acquiring a
        non-exclusive world-wide license to make, use and sell products relating
        to
        Cetyl Myristoleate covered under U.S. Patent No. 5,569,676. The agreement
        provides for payments of $3,000 per month from May, 2005 through April, 2009,
        at
        which time EHP Products, Inc. has agreed to convey ownership in the product
        to
        us.
  As
        of
        March 31, 2007 the following obligations were outstanding related to this
        license:
 As
                    of March 31,2007
                
                2006Patent
                    License and Royalty Payable
                
                $
                68,872
                
                $
                98,082Less
                    current portion
                
                
                31,633
                
                
                29,209Long
                    term license payable
                
                $
                37,239
                
                $
                68,873
 F-
            14
  **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
 
 NOTE
        7 -
        LEASES OBLIGATIONS
 
 Operating
        Lease
 
 We
        entered into a seven-year building lease for our office commencing in January
        2006 and expiring in December 2012. In addition we entered into a three-year
        lease for warehouse space commencing in September 2006 and expiring in August
        2009. Lease expense for the years ended March 31, 2007 and 2006 amounted
        to
        $160,902 and $219,336, respectively. The following is a schedule of minimum
        annual rental payments for the next five years.
 Years
                    ending March 31,2008
                
                $
                182,0952009
                
                
                184,4912010
                
                
                158,9932011
                
                
                143,2062012
                
                
                148,218Thereafter
                
                
                114,056Total
                    minimum lease payments
                
                $
                931,059
 NOTE
        8 -
        COMMITMENTS AND CONTINGINCIES
 
 Contingencies
 
 We
        are
        involved in litigation from time to time in the normal course of business.
 
 Management
        believes there are no such claims, which would have a material effect on
        our
        financial position.
 
 Other
        agreements
 
 We
        routinely enter into contracts and agreements with suppliers, manufacturers,
        consultants, product marketing, and sales representatives in the normal course
        of doing business. These agreements can be either short or long term and
        are
        normally limited to specific products and marketing opportunities. We are
        committed to purchase a minimum of $1,680,000 each year through 2012 of the
        major ingredient in our current products. However, we entered into a waiver,
        which could be exercised solely at our option, which eliminated $840,000
        of the
        purchase commitment for the twelve months ending December 31, 2006.
 
  F-
            15
  **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
 
 In
          June
          2004, we entered into a marketing and promotion agreement which contained
          certain milestones which, if met, required us to issue warrants exercisable
          into
          up to 125,000 shares of common stock with an exercise price equal to 150%
          of the
          market price on the date the milestone was met. We issued warrants exercisable
          into up to 50,000 shares of common stock during the year ended March 31,
          2005,
          as the result of two of the milestones being met. The warrants were valued
          using
          the Black-Sholes pricing model and resulted in additional expense of
          approximately $57,000
          as of March 31, 2005. We issued warrants exercisable into up to 25,000
          shares of
          common stock during the year ended March 31, 2006, as a result of the third
          milestone being met. The warrant was valued using the Black-Sholes pricing
          model
          and resulted in additional expense of approximately $39,000 for the year
          ended
          March 31, 2006. No such warrants were issued during the year ended March
          31,
          2007.
 
 NOTE
        9 -
        CAPITAL STOCK
 
 Preferred
        Stock
 
 We
        have
        authorized 5,000,000 shares of preferred stock, $.001 par value, with such
        rights, preferences and designations and to be issued in such series as
        determined by the Board of Directors. No shares are issued and outstanding
        at
        March 31, 2007.
 
 Common
        Stock
 
 The
        Company has authorized 50,000,000 shares of common stock at $.001 par value.
        At
        March 31, 2007, the Company had 10,871,400 shares of common stock issued
        and
        outstanding.
 
 During
        the year ended March 31, 2006, we issued 271,748 shares of common stock for
        proceeds of $312,748. The shares were issued upon shareholders exercising
        warrants with exercise prices ranging from $1.00 to $2.00 per
        share.
 
 Also,
        during the year ended March 31, 2006, we issued 45,000 shares of common stock
        to
        three individuals in exchange for services they provided to the company.
        The
        services performed were valued based on the price of the common stock on
        the
        date of issuance, $1.95 per share or $87,750 in the aggregate. This amount
        was
        reflected as non-cash expense during the year ended March 31, 2006.
 
 During
        the year ended March 31, 2007, we issued 150,000 shares of common stock to
        one
        individual in exchange for services he will provide to the company. The services
        to be performed were valued based on the price of the common stock on the
        date
        of issuance, $0.94 per share or $141,000 in the aggregate. This amount is
        being
        amortized over 24 months, the life of the contract under which the services
        are
        to be provided, as non-cash expense.
  Stock
        Bonus Plan
 
 During
        the year ended March 31, 2000, our board of directors adopted a stock bonus
        plan. The plan provides for the granting of awards of up to 724,500 shares
        of
        common stock to officers, directors, consultants and employees. Awards under
        the
        plan will be granted as determined by the board of directors. As of March
        31,
        2007, 499,500 shares have been granted under the plan.
  F-
            16
 **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
 Warrants
 
 A
        summary
        of the status of the warrants granted under various agreements at March 31,
        2007
        and 2006, and changes during the years then ended is presented
        below:
  WarrantsWeightedAverageExerciseShares
                
                PriceOutstanding,
                    April 1, 2005
                
                
                4,228,848
                
                $
                1.25Granted
                
                
                150,000
                
                
                1.96Exercised
                
                
                (271,748
                )
                
                1.20Outstanding,
                    March 31, 2006
                
                
                4,107,100
                
                
                1.28Granted
                
                
                250,000
                
                
                1.00Outstanding,
                    March 31, 2007
                
                
                4,357,100
                
                $
                1.26Exercisable,
                    March 31, 2006
                
                
                4,107,100
                
                $
                1.28Exercisable,
                    March 31, 2007
                
                
                4,357,100
                
                $
                1.26Weighted
                    average fair value of warrantsgranted
                    during the year ended:March
                    31, 2006
                
                
                150,000
                
                $
                1.46March
                    31, 2007
                
                
                250,000
                
                $
                0.57
  During
          the year ended March 31, 2007, we issued warrants to one individual for
          services
          he will perform for us valued at $143,054 which we are amortizing to general
          and
          administrative expenses over 24 months. We estimate the fair value of each
          warrant at the issuance date by using the Black-Scholes option-pricing
          model
          with the following weighted-average assumptions used for the year ended
          March
          31, 2007: dividend yield of zero percent; expected volatility of 71%, risk-free
          interest rates of 4.83%; and expected lives of 5 years.
 
 During
        the years ended March 31, 2007 and 2006, we extended the expiration date
        on
        warrants exercisable for up to 415,375 and 2,757,782, respectively, shares
        of
        common stock to October 23, 2007. These warrants were issued in 2000 and
        2001 as
        part of an equity unit sale. By the terms of the warrants, we were to use
        our
        best efforts to maintain a registration statement under which the holders
        could
        resell the common shares on the exercise of the warrants. Since we failed
        to
        maintain a timely registration statement, we decided to extend the expiration
        date of the warrants. Due to this modification, we recorded non-cash dividends
        of $107,396 and $4,698,819, respectively, for the years ended March 31, 2007
        and
        2006. We estimated the fair value of the non-cash dividends declared during
        the
        year ended March 31, 2007 by using the Black-Scholes pricing model with the
        following weighted average assumptions: dividend yield of zero percent; expected
        volatility of 70% to 72%; risk free interest rate of 4.56% to 4.87%; and
        expected lives of 13 to 18 months.
  F-
            17
  **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
 A
        summary
        of the status of the warrants granted under the various agreements at
 March
        31,
        2007, are presented in the table below:
 Outstanding
                
                ExercisableWeightedAverage
                
                Weighted
                
                
                
                WeightedRange
                    of
                
                
                
                Remaining
                
                Average
                
                
                
                AverageExercise
                
                Number
                
                Contractual
                
                Exercise
                
                Number
                
                ExercisePrices
                
                Outstanding
                
                Life
                
                Price
                
                Exercisable
                
                PriceWarrants$0.70-1.00
                
                
                1,594,853
                
                
                0.92
                
                $
                0.95
                
                
                1,594,853
                
                $
                0.95$1.10-1.95
                
                
                1,977,250
                
                
                0.92
                
                $
                1.19
                
                
                1,977,250
                
                $
                1.19$2.00
                
                
                710,000
                
                
                0.56
                
                $
                2.00
                
                
                710,000
                
                $
                2.00$2.33-3.45
                
                
                74,997
                
                
                3.17
                
                $
                2.85
                
                
                74,997
                
                $
                2.854,357,100
                
                
                
                
                
                
                
                
                4,357,100
  Warrants
            to purchase 1,316,598 shares at $1.00 per share, 750,000 shares at $2.00
            per
            share and 125,000 shares at $1.75 per share are redeemable at $.01 per
            warrant
            at our option if there is an effective registration of the securities
            and the
            closing bid or selling price of our common stock for 10 consecutive trading
            days
            equal three times the exercise price of the warrants.
 
 Stock
        Option Plan
  In
        August 2000 we adopted a Stock Option Plan, which we refer to as the
        "Plan," which provides for the grant of stock options intended to qualify
        as
        "incentive stock options" and "nonqualified stock options" (collectively
        "stock
        options") within the meaning of Section 422 of the United States Internal
        Revenue Code of 1986 (the "Code"). Stock options may be issued to any of
        our
        officers, directors, key employees or consultants.
  Under
        the
        Plan, we have reserved 1.5 million shares underlying stock options for
        issuance, of which 1,139,000 options have been granted to executive officers,
        employees and consultants at prices ranging from $.86 to $2.00 per share.
        The
        Plan is administered by the full Board of Directors, who determine which
        individuals shall receive stock options, the time period during which the
        stock
        options may be exercised, the number of shares of common stock that may be
        purchased under each stock option and the stock option price.
  The
        per
        share exercise price of incentive stock options may not be less than the
        fair
        market value of the common stock on the date the option is granted. The
        aggregate fair market value (determined as of the date the stock option is
        granted) of the common stock that any person may purchase under an incentive
        stock option in any calendar year pursuant to the exercise of incentive stock
        options will not exceed $100,000. No person who owns, directly or indirectly,
        at
        the time of the granting of an incentive stock option, more than 10% of the
        total combined voting power of all classes of our stock is eligible to receive
        incentive stock options under the Plan unless the stock option price is at
        least
        110% of the fair market value of the common stock subject to the stock option
        on
        the date of grant.
  No
        incentive stock options may be transferred by an optionee other than by will
        or
        the laws of descent and distribution, and, during the lifetime of an optionee,
        the stock option may only be exercisable
        by the optionee. Except as otherwise determined by the Board of Directors,
        stock
        options may be exercised only if the stock option holder remains continuously
        associated with us from the date of grant to the date of exercise. The exercise
        date of a stock option granted under the Plan may not be later than ten years
        from the date of grant. Any stock options that expire unexercised or that
        terminate upon an optionee's ceasing to be employed by us will become available
        once again for issuance. Shares issued upon exercise of a stock option will
        rank
        equally with other shares then outstanding. No stock options will be granted
        by
        us at an exercise price less than 85% of the fair market value of the stock
        underlying the option on the date the option is granted. During the year
        ended
        March 31, 2006 there were options granted to purchase up to 469,000 shares
        of
        common stock and there were no options exercised. During the year ended March
        31, 2007, there were no options granted or exercised.
  F-
            18
  **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
  A
        summary
        of the status of the options granted under the Company’s 2000 stock option plan
        and other agreements at March 31, 2007 and 2006, and changes during the years
        then ended is presented below:
 OptionsWeightedAverageExerciseShares
                
                PriceOutstanding,
                    April 1, 2005
                
                
                660,000
                
                $
                1.44Granted
                
                
                469,000
                
                
                2.18Cancelled
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Outstanding,
                    March 31, 2006
                
                
                1,129,000
                
                
                1.74Granted
                
                
                -
                
                
                -Cancelled
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Outstanding,
                    March 31, 2007
                
                
                1,129,000
                
                
                1.74Exercisable,
                    March 31, 2006
                
                
                1,129,000
                
                $
                1.74Exercisable,
                    March 31, 2007
                
                
                1,129,000
                
                $
                1.74Weighted
                    average fair value of optionsgranted
                    during the year ended March 31, 2006
                
                
                469,000
                
                $
                1.55
  F-
            19
  **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
  A
        summary
        of the status of the options granted under the stock option plan and other
        agreements at March 31, 2007, are presented in the table below:
  Outstanding
                
                ExercisableWeightedAverage
                
                Weighted
                
                
                
                WeightedRange
                    of
                
                
                
                Remaining
                
                Average
                
                
                
                AverageExercise
                
                Number
                
                Contractual
                
                Exercise
                
                Number
                
                ExercisePrices
                
                Outstanding
                
                Life
                
                Price
                
                Exercisable
                
                Price***Options***$0.86-1.00
                
                
                360,000
                
                
                0.56
                
                $
                0.96
                
                
                360,000
                
                $
                0.96$1.95
                
                
                249,000
                
                
                3.25
                
                $
                1.95
                
                
                249,000
                
                $
                1.95$2.00
                
                
                300,000
                
                
                3.39
                
                $
                2.00
                
                
                300,000
                
                $
                2.00$2.35-2.50
                
                
                220,000
                
                
                3.49
                
                $
                2.43
                
                
                220,000
                
                $
                2.431,129,000
                
                
                
                
                
                
                
                
                1,129,000
 NOTE
        10 -
        INCOME TAXES
 
 We
        account for income taxes in accordance with Statement of Financial Accounting
        Standards No. 109. SFAS No. 109 requires us to provide a net deferred tax
        asset
        or liability equal to the expected future tax benefit or expense of temporary
        reporting differences between book and tax accounting and any available
        operating loss or tax credit carryforwards. The Company has no federal or
        state
        net operating loss carryovers at March 31, 2007.
 
 At
        March
        31, 2007 and 2006, the total of all deferred tax assets was approximately
        $524,897 and $424,400, respectively. There are no deferred tax liabilities
        for
        either year. The amount of and ultimate realization of the benefits from
        the
        deferred tax assets for income tax purposes is dependent, in part, upon the
        tax
        laws in effect, our future earnings, and other future events, the effects
        of
        which cannot be determined.
 
 The
        temporary differences gave rise to the following deferred tax asset
        (liability):
 March
                    31,2007
                
                2006Excess
                    of financial accountingover
                    tax depreciation
                
                $
                17,100
                
                $
                6,000State
                    income tax benefits
                
                
                12,497
                
                
                (11,300
                )Allowance
                    for obsolete inventory
                
                
                53,800
                
                
                78,300Allowance
                    for bad debts
                
                
                35,800
                
                
                19,900Valuation
                    of stock options and warrants
                
                
                398,000
                
                
                324,200Vacation
                    accrual
                
                
                7,700
                
                
                7,300Net
                    deferred tax asset
                
                $
                524,897
                
                $
                424,400
  The
        reconciliation of income tax from continuing operations computed at the U.S.
        federal statutory tax rate to our effective rate is as follows for the year
        ended:
  F-
            20
 
 **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
 *March
                    31,*
                
                *2007*
                
                *2006*Federal
                    income tax expense computed at the Federal statutory rate
                
                $
                (274,300
                )
                $
                (413,800
                )State
                    income tax expense net of Federal benefit
                
                
                (46,300
                )
                
                (76,000
                )Other-
                    permanent differences
                
                
                4,500
                
                
                (29,200
                )Other
                
                
                177,100
                
                
                (104,800
                )Income
                    tax expense (benefit)
                
                $
                (139,000
                )
                $
                (623,800
                )
  The
        components of federal income tax (benefit) expense from continuing operations
        consisted of the following for the year ended:
 March
                    31,2007
                
                2006Current
                    income tax expense:Federal
                
                $
                (97,300
                )
                $
                (177,000
                )State
                
                
                -
                
                
                (88,600
                )Net
                    current tax expense
                
                $
                (97,300
                )
                $
                (265,600
                )Deferred
                    tax expense (benefit) resulted from:Excess
                    of financial accounting overtax
                    depreciation
                
                $
                (11,200
                )
                $
                18,500State
                    income tax benefits
                
                
                35,100
                
                
                11,300Valuation
                    of stock options and warrants
                
                
                (73,700
                )
                
                (324,200
                )Net
                    operating loss
                
                
                -
                
                
                -Valuation
                    allowance
                
                
                -
                
                
                -Allowance
                    for obsolete inventory
                
                
                24,400
                
                
                (49,300
                )Vacation
                    accrual
                
                
                (400
                )
                
                (7,300
                )Allowance
                    for bad debts
                
                
                (15,900
                )
                
                (7,200
                )Net
                    deferred tax expense (benefit)
                
                $
                (41,700
                )
                $
                (358,200
                )$
                (139,000
                )
                $
                (623,800
                )
  Deferred
        income tax expense (benefit) results primarily from the reversal of temporary
        timing differences between tax and financial statement income.
  F-
            21
  **IMAGENETIX,
          INC.**
 Notes
          to
          the Consolidated Financial Statements (Continued)
 March
          31,
          2007 and 2006
 NOTE
            11 -
            EARNINGS PER SHARE
 The
        following data show the amounts used in computing earnings per share of common
        stock for the period presented:
 For
                    the Year EndedMarch
                    31,2007
                
                2006Income
                    (loss) available to commonshareholders
                    (Numerator)
                
                $
                (667,639
                )
                $
                (593,378
                )Weighted
                    average number of commonshares
                    outstanding used in basic incomeper
                    share during the period(Denominator)
                
                
                10,745,647
                
                
                10,611,358Weighted
                    average number of commonshares
                    outstanding used in diluted incomeper
                    share during the period(Denominator)
                
                
                10,745,647
                
                
                10,611,358
 At
          March
          31, 2007, we had options to purchase 1,129,000 shares of common stock at
          prices
          ranging from $0.86 to $2.00 per share and warrants to purchase 4,387,100
          shares
          of common stock at prices ranging from $0.70 to $3.45 per share that were
          not
          included in the computation of earnings per share because their effects
          are
          anti-dilutive due to a loss being recognized for the year then
          ended.
 
 At
        March
        31, 2006, we had options to purchase 1,129,000 shares of common stock at
        prices
        ranging from $0.86 to $2.00 per share and warrants to purchase 4,107,100
        shares
        of common stock at prices ranging from $0.70 to $3.45 per share that were
        not
        included in the computation of earnings per share because their effects are
        anti-dilutive due to a loss being recognized for the year then
        ended.
 
 NOTE
        12 -
        CONCENTRATIONS
 
 Sales
 
 During
        the year ended March 31, 2007, we had two significant customers which accounted
        for 22.9%, and 15.2% of sales.
 
 During
        the year ended March 31, 2006, we had four significant customers which accounted
        for 22%, 16%, 13% and 11% of sales.
 
 Supplier
 
 We
        also
        have a single source and exclusive supplier arrangement with the supplier
        of a
        specific raw material, which is used as part of products which accounts for
        approximately 74% of our sales. The interruption of raw materials provided
        by
        this supplier or the loss of a significant customer would adversely affect
        our
        business and financial condition.
 
 F-
            22
 
 **IMAGENETIX,
        INC.**
 Notes
        to
        the Consolidated Financial Statements (Continued)
 March
        31,
        2007 and 2006
 
 During
        the year ended March 31, 2007, we had one significant vendor who accounted
        for
        12% of cost of sales.
 
 During
        the year ended March 31, 2006, we had two significant vendors which accounted
        for 36% and 13% of cost of sales.
 
 Accounts
        Receivable
 
 At
        March
        31, 2007, the Company had two customers which accounted for 47% and 16% of
        our
        accounts receivable balances.
 
 At
        March
        31, 2006, we had three customers which accounted for 22%, 20%, and 14% of
        our
        accounts receivable balances.
  F-
            23
  **SIGNATURES**
  In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
        this report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  IMAGENETIX,
                  INC.
                a
                  Nevada corporationBy:
              /s/ WILLIAM
                P. SPENCERWilliam
                P. SpencerChief
                Executive Officer
  Pursuant
        to the requirements of the Securities Exchange Act of 1934, this report has
        been
        signed below by the following persons on behalf of the Registrant and in
        the
        capacities and on the dates indicated:
 Signature
                
                Title
                
                Date/s/
                    WILLIAM P. SPENCER
                  
                  William
                    P. Spencer
                
                Chief
                    Executive Officer,
                    President
                      and Director
                
                June
                    28, 2007/s/
                    DEBRA L. SPENCER
                  
                  Debra
                    L. Spencer
                
                Secretary,
                    Treasurer, and Director
                
                June
                    28, 2007/s/
                    BARRY S. KING
                  
                  Barry
                      S. King
                
                Director
                
                June
                    28, 2007/s/
                    JEFFREY G. MC GONEGAL
                  
                  Jeffrey
                    McGonegal
                
                Director
                
                June
                    28, 2007/s/
                    ROBERT BURG
                  
                  Robert
                    Burg
                
                Director
                
                June
                    28, 2007/s/
                    LOWELL W. GIFFHORN
                  
                  Lowell
                    W. Giffhorn
                
                Chief
                    Financial Officer (Principal Accounting Officer)
                
                June
                    28, 2007