**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
  **FORM
        10-Q**
  (Mark
        One)
  x Quarterly
        Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act Of
        1934
  For
        quarterly period ended **September
        30, 2008**
   ̈ Transition
        Report Pursuant To 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.**
 (Exact
        name of registrant as specified in its charter)
  **NEVADA**
              
              **87-0463772**(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)
  Registrant’s
        telephone number (including area code) **(858)
        674-8455**
  Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
        during the preceding 12 months (or for such shorter period that the
        registrant was required to file such reports), and (2) has been subject to
        such filing requirements for the past 90 days.
 Yes **x** **No**  ̈
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer, or a smaller reporting company.
 Large
                  accelerated filero
              
              Accelerated
                  filero
              
              Non-accelerated
                  filero
              
              Smaller
                  reporting company**x**
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈  **No** **x**
  State
        the
        number of shares outstanding of each of the issuer's classes of common equity,
        as of the latest practicable date:
  Common Stock, $.001 par value
              
              11,010,788(Class)
              
              Outstanding at November 12, 2008
  
  **Imagenetix, Inc.**
 **INDEX**
 
 PagePART
                  I. FINANCIAL INFORMATIONItem
                  1.
              Financial
                  Statements:Condensed
                  Consolidated Balance Sheets as of September 30, 2008 (unaudited)
                  and March
                  31, 2008
              3Condensed
                  Consolidated Statements of Operations for the three and six months
                  ended
                  September 30, 2008 and 2007 (unaudited)
              4Condensed
                  Consolidated Statements of Cash Flows for the six months ended
                  September
                  30, 2008 and 2007 (unaudited)
              5Notes
                  to Unaudited Condensed Consolidated Financial Statements
              6Item
                  2.
              Management’s
                  Discussion and Analysis or Plan of  Operation
              11Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              *Item
                4T.
              Controls
                  and Procedures
              17PART
                  II. OTHER INFORMATIONItem
                  1.
              Legal
                  Proceedings
              *Item
                  1A.
              Risk
                  Factors
              18Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              20Item
                  3.
              Defaults
                  Upon Senior Securities
              *Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              *Item
                  5.
              Other
                  Information
              *Item
                  6.
              Exhibits
              21SIGNATURES
 
 * No
        information provided due to inapplicability of the item.
  
  **PART
        I – FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
  **Imagenetix,
        Inc.**
 **Condensed
        Consolidated Balance Sheets**
 
 September 30,
              
              March 31,2008
              
              2008(Unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              2,108,704
              
              $
              1,022,555Accounts
                  receivable, net
              
              
              1,125,864
              
              
              765,492Inventories,
                  net
              
              
              1,566,364
              
              
              1,109,845Prepaid
                  expenses and other current assets
              
              
              191,103
              
              
              252,138Deferred
                  tax asset
              
              
              333,397
              
              
              862,497Total
                  current assets
              
              
              5,325,432
              
              
              4,012,527Property
                  and equipment, net
              
              
              132,092
              
              
              112,190Long-term
                  prepaid expenses
              
              
              36,000
              
              
              42,000Other
                  assets
              
              
              243,956
              
              
              218,155Total
                  Assets
              
              $
              5,737,480
              
              $
              4,384,872LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              1,183,811
              
              $
              713,324Accrued
                  liabilities
              
              
              81,595
              
              
              72,301Customer
                  deposits
              
              
              69,916
              
              
              63,216Contract
                  payable
              
              
              -
              
              
              46,200Short
                  term license payable
              
              
              20,451
              
              
              34,259Total
                  current liabilities
              
              
              1,355,773
              
              
              929,300Long
                  term license payable
              
              
              -
              
              
              2,980Total
                  Liabilities
              
              
              1,355,773
              
              
              932,280Stockholders'
                  equityPreferred
                  stock, $.001 par value; 5,000,000 shares authorized: none
                  outstanding
              
              
              -
              
              
              -Common
                  stock, $.001 par value; 50,000,000 shares authorized: 11,010,788
                  and
                  10,960,788 issued and outstanding at September 30, 2008 and March 31,
                  2008
              
              
              11,010
              
              
              10,960Capital
                  in excess of par value
              
              
              12,624,655
              
              
              12,481,407Accumulated
                  deficit
              
              
              (8,253,958
              )
              
              (9,039,775
              )Total
                  stockholders' equity
              
              
              4,381,707
              
              
              3,452,592Total
                  Liabilities and Stockholders' Equity
              
              $
              5,737,480
              
              $
              4,384,872
 
 *See
        accompanying notes to unaudited condensed consolidated financial
        statements.*
  
  **Imagenetix,
        Inc.**
 **Condensed
        Consolidated Statements of Operations**
 (Unaudited)
 
 Three Months Ended
              
              Six Months EndedSeptember 30,
              
              September 30,
              
              September 30,
              
              September 30,2008
              
              2007
              
              2008
              
              2007Net
                  sales
              
              $
              2,656,378
              
              $
              1,828,811
              
              $
              4,050,736
              
              $
              2,955,802Cost
                  of sales
              
              
              1,541,221
              
              
              1,083,256
              
              
              2,360,932
              
              
              1,619,860Gross
                  profit
              
              
              1,115,157
              
              
              745,555
              
              
              1,689,804
              
              
              1,335,942Operating
                  expenses:General
                  and administrative
              
              
              419,931
              
              
              686,854
              
              
              1,025,404
              
              
              1,333,363Payroll
                  expense
              
              
              220,755
              
              
              215,836
              
              
              592,945
              
              
              572,333Consulting
                  expense
              
              
              243,153
              
              
              227,829
              
              
              588,914
              
              
              479,353Operating
                  expenses
              
              
              883,839
              
              
              1,130,519
              
              
              2,207,263
              
              
              2,385,049Operating
                  income (loss)
              
              
              231,318
              
              
              (384,964
              )
              
              (517,459
              )
              
              (1,049,107
              )Other
                  income (expense):Other
                  income
              
              
              9,746
              
              
              14,842
              
              
              17,488
              
              
              21,786Settlement
                  income
              
              
              -
              
              
              -
              
              
              1,785,000
              
              
              -Interest
                  expense
              
              
              (523
              )
              
              (1,172
              )
              
              (1,212
              )
              
              (2,499
              )Other
                  income
              
              
              9,223
              
              
              13,670
              
              
              1,801,276
              
              
              19,287Income
                  (loss) before income taxes
              
              
              240,541
              
              
              (371,294
              )
              
              1,283,817
              
              
              (1,029,820
              )Income
                  tax expense
              
              
              41,800
              
              
              259,400
              
              
              498,000
              
              
              36,400Income
                  (loss)
              
              $
              198,741
              
              $
              (630,694
              )
              $
              785,817
              
              $
              (1,066,220
              )Basic
                  income (loss) per share
              
              $
              0.02
              
              $
              (0.06
              )
              $
              0.07
              
              $
              (0.10
              )Diluted
                  income (loss) per share
              
              $
              0.02
              
              $
              (0.06
              )
              $
              0.07
              
              $
              (0.10
              )Basic
                  weighted average common shares outstanding
              
              
              10,983,614
              
              
              10,953,283
              
              
              10,972,263
              
              
              10,912,565Diluted
                  weighted average common shares outstanding
              
              
              11,012,379
              
              
              10,953,283
              
              
              11,006,768
              
              
              10,912,565
  *See
        accompanying notes to unaudited condensed consolidated financial
        statements.*
  
  **Imagenetix,
        Inc.**
 **Consolidated
        Statements of Cash Flows**
 (Unaudited)
 
 Six Months Ended September 30,2008
              
              2007**Operating
                  activities:**Net
                  income (loss)
              
              
              $
              785,817
              
              $
              (1,066,220
              )Adjustments
                  to reconcile net income (loss) to cash provided by (used in) operating
                  activities:Amortization
                  and depreciation
              
              
              
              20,376
              
              
              24,352Provision
                  for doubtful accounts
              
              
              
              -
              
              
              15,000Provision
                  for inventory obsolescence
              
              
              
              23,498
              
              
              122,105Non
                  cash expense related to issuance of warrantsand
                  granting of stock options
              
              
              
              118,298
              
              
              339,754Changes
                  in assets and liabilities:(Increase)
                  decrease in accounts receivable
              
              
              
              (360,372
              )
              
              420,252(Increase)
                  decrease in employee receivable
              
              
              
              2,409
              
              
              1,548(Increase)
                  decrease in inventories
              
              
              
              (480,017
              )
              
              (210,189
              )(Increase)
                  decrease in other assets
              
              
              
              89,625
              
              
              141,708(Increase)
                  decrease in deferred taxes
              
              
              
              498,000
              
              
              36,400Increase
                  (decrease) in accounts payable
              
              
              
              470,487
              
              
              447,944Increase
                  (decrease) in accrued liabilities
              
              
              
              9,294
              
              
              3,972Increase
                  (decrease) in customer deposits
              
              
              
              6,700
              
              
              (97,770
              )Increase
                  (decrease) in income taxes payable
              
              
              
              -
              
              
              21,366Net
                  cash provided by operating activities
              
              
              
              1,184,115
              
              
              200,222**Investing
                  activities:**Purchases
                  of property and equipment
              
              
              
              (40,246
              )
              
              (19,015
              )Proceeds
                  from disposal of property and equipment
              
              
              
              5,268
              
              
              -Net
                  cash used in investing activities
              
              
              
              (34,978
              )
              
              (19,015
              )**Financing
                  activities:**Proceeds
                  from exercise of warrants
              
              
              
              -
              
              
              90,742Payments
                  on contracts payable
              
              
              
              (46,200
              )
              
              (49,970
              )Payments
                  on patent license financed
              
              
              
              (16,788
              )
              
              (15,501
              )Net
                  cash (used in) provided by financing activities
              
              
              
              (62,988
              )
              
              25,271**Net
                  increase in cash and cash equivalents**
              
              
              
              1,086,149
              
              
              206,478**Cash
                  and cash equivalents**,
                  beginning of period
              
              
              
              1,022,555
              
              
              958,896**Cash
                  and cash equivalents,**end of period
              
              
              $
              2,108,704
              
              $
              1,165,374**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  paid during the period for:Interest
              
              
              $
              690
              
              **$**
              2,499Income
                  taxes
              
              
              $
              -
              
              **$**
              -**Non
                  Cash Investing and Financing Activities:**Common
                  stock issued for services
              
              
              $
              25,000
              
              $
              -
 
 *See
        accompanying notes to unaudited condensed consolidated financial
        statements.*
  
 **IMAGENETIX,
          INC.**
 **Notes
          to the Unaudited Condensed Consolidated Financial Statements**
 
 **1.**
                **BASIS
                    OF PRESENTATION**
 
 The
          consolidated financial statements of Imagenetix, Inc. ("Imagenetix") presented
          herein have been prepared pursuant to the rules of the Securities and Exchange
          Commission for quarterly reports on Form 10-Q and do not include all of
          the
          information and footnotes required by accounting principles generally accepted
          in the United States of America. These statements should be read in conjunction
          with our audited consolidated financial statements and notes thereto included
          in
          Form 10-KSB for the year ended March 31, 2008.
 
 In
          the
          opinion of management, the interim consolidated financial statements reflect
          all
          adjustments of a normal recurring nature necessary for a fair statement
          of the
          results for interim periods. Operating results for the three month period
          is not
          necessarily indicative of the results that may be expected for the year.
 
 **Earnings
          Per Share**
 
 We
          follow
          Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
          per
          Share." Under SFAS No. 128, basic earnings per share is calculated as earnings
          available to common stockholders divided by the weighted average number
          of
          common shares outstanding. Diluted earnings per share is calculated as
          net
          income divided by the diluted weighted average number of common shares.
          The
          diluted weighted average number of common shares is calculated using the
          treasury stock method for common stock issuable pursuant to outstanding
          stock
          options and common stock warrants. See Note 6 for discussion of commitments
          to
          issue additional shares of common stock and warrants.
 
 **Stock
          Based Compensation**
 
 We
          account for stock based compensation under the provisions of 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.
 
 We
          have
          selected the Black-Scholes method of valuation for share-based compensation.
          The
          charge is recognized in non cash compensation, which is included in stock-based
          compensation expense, on a straight-line basis over the remaining service
          period
          based on the options’ original estimate of fair value.
 
 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.
 
 **2.**  **RECENT
          ACCOUNTING PRONOUNCEMENTS**
 
 In
          March 2008, the FASB issued SFAS No. 161, “Disclosures about
          Derivative Instruments and Hedging Activities” (SFAS No. 161”). SFAS
          No. 161 amends and expands the disclosure requirement for FASB Statement
          No. 133, “Derivative Instruments and Hedging Activities” (“SFAS
          No. 133”). It requires enhanced disclosure about (i) how and why an
          entity uses derivative instruments, (ii) how derivative instruments and
          related hedge items are accounted for under SFAS No. 133 and its related
          interpretations, and (iii) how derivative instruments and related hedge
          items affect an entity’s financial position, financial performance, and cash
          flows. SFAS No. 161 is effective for the Company as of April 1, 2009.
          The Company is currently assessing the impact of SFAS 161 on its consolidated
          financial position and results of operations.
  
 
 **IMAGENETIX,
          INC.**
 **Notes
          to the Unaudited Condensed Consolidated Financial Statements
          (Continued)**
 
 In
          May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
          Accepted Accounting Principles.” SFAS No. 162 identifies the sources of
          accounting principles and provides entities with a framework for selecting
          the
          principles used in preparation of financial statements that are presented
          in
          conformity with GAAP. The current GAAP hierarchy has been criticized because
          it
          is directed to the auditor rather than the entity, it is complex, and it
          ranks
          FASB Statements of Financial Accounting Concepts, which are subject to
          the same
          level of due process as FASB Statements of Financial Accounting Standards,
          below
          industry practices that are widely recognized as generally accepted but
          that are
          not subject to due process. The Board believes the GAAP hierarchy should
          be
          directed to entities because it is the entity (not its auditors) that is
          responsible for selecting accounting principles for financial statements
          that
          are presented in conformity with GAAP. The adoption of FASB 162 is not
          expected
          to have a material impact on the Company’s consolidated financial position and
          results of operations.
 
 In
          April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of
          Intangible Assets”, (FSP 142-3). FSP 142-3 amends the factors that should be
          considered in developing renewal or extension assumptions used to determine
          the
          useful life of a recognized intangible asset under SFAS No. 142, “Goodwill
          and Other Intangible Assets”. FSP 142-3 is effective for fiscal years beginning
          after December 15, 2008. The Company is currently assessing the impact of
          FSP 142-3 on its consolidated financial position and results of operations.
 
 **3.**  **ACCOUNTS
          RECEIVABLE**
 
 Accounts
          receivable are carried at the expected realizable value. Accounts receivable
          consisted of the following:
  September 30,
                
                March 31,2008
                
                2008Accounts
                    receivable - trade
                
                $
                1,230,090
                
                $
                870,492Allowance
                    for doubtful accounts
                
                
                (104,226
                )
                
                (105,000
                )Accounts
                    receivable, net
                
                $
                1,125,864
                
                $
                765,492
  At
          September 30, 2008, we had three customers which accounted for 26%, 24%
          and 13%
          of our accounts receivable balances.  At
          March
          31, 2008, we had two customers which accounted for 16% and 12% of our accounts
          receivable balances.
 
 For
          the
          six months ended September 30, 2008, we had three significant customers
          which
          accounted for 22%, 21% and 17% of sales. For the six months ended September
          30,
          2007, we had four significant customers which accounted for 24%, 18%, 15%
          and
          10% of sales.
  
 
 **IMAGENETIX,
          INC.**
 **Notes
          to the Unaudited Condensed Consolidated Financial Statements
          (Continued)**
  **4.**  **INVENTORIES**
 
 Inventories
          consist of the following:
 
 September 30,
                
                March 31,2008
                
                2008Raw
                    materials
                
                $
                1,273,120
                
                $
                824,807Finished
                    products
                
                
                273,501
                
                
                295,615Boxes,
                    labels, tubes & bottles
                
                
                193,783
                
                
                139,9651,740,404
                
                
                1,260,387Reserve
                    for obsolescence
                
                
                (174,040
                )
                
                (150,542
                )$
                1,566,364
                
                $
                1,109,845
 
 **5.**
                **OTHER
                    ASSETS**
 
 The
          following is a summary of intangible assets which are included in “Other Assets”
on the face of the balance sheet:
  September 30,
                
                March 31,2008
                
                2008Trademarks
                
                $
                13,032
                
                $
                13,032Patent
                
                
                172,965
                
                
                172,965Deferred
                    tax asset
                
                
                118,800
                
                
                87,700304,797
                
                
                273,697Less
                    accumulated amortization
                
                
                60,841
                
                
                55,542$
                243,956
                
                $
                218,155
 
 **6.**  **EQUITY
          TRANSACTIONS**
 
 During
          the current quarter, we recorded $25,000 as non-cash general and administrative
          expenses as a result of issuing 50,000 restricted shares of common stock
          to an
          individual who had met certain sales levels under a marketing and sales
          agreement.
 
 We
          recorded non-cash compensation expense for stock options and warrants issued
          to
          employees and consultants of $13,641 and $79,920 for the three and six
          months
          ended September 30, 2008 and $35,147 and $199,166 for the three and six
          months
          ended September 30, 2007. Also, we recorded non-cash general and administrative
          expense for warrants granted to individuals of $27,991 and $38,378 for
          the three
          and six months ended September 30, 2008 and none and $140,588 for the three
          and
          six months ended September 30, 2007.
 
 The
          significant assumptions used in the Black-Scholes model to estimate the
          compensation and general and administrative expense for the issuance of
          stock
          options and warrants are as follows:
  
 
 **IMAGENETIX,
          INC.**
 **Notes
          to the Unaudited Condensed Consolidated Financial Statements
          (Continued)**
 
 Three months ended September 30,
                
                Six months ended September 30,2008
                
                2007
                
                2008
                
                2007Expected
                    term of options and warrants
                
                
                5
                    years
                
                
                5
                    years
                
                
                5
                    years
                
                
                5
                    yearsExpected
                    volatility
                
                
                56%
                
                
                56%
                
                
                61%
                
                
                71%Expeceted
                    dividends
                
                
                None
                
                
                None
                
                
                None
                
                
                NoneRisk-free
                    interest rate
                
                
                3.12%
                    to 3.33%
                
                
                4.55%
                
                
                3.12%
                    to 3.54%
                
                
                4.55%Forteitures
                
                
                0%
                
                
                0%
                
                
                0%
                
                
                0%
 
 A
          summary
          of the options outstanding follows:
  For the Six Months EndedSeptember 30, 2008WeightedAverageExerciseOptions
                
                
                
                Shares
                
                
                PriceOutstanding
                    at beginning of year
                
                
                
                944,000
                
                $
                1.00Granted
                
                
                
                305,000
                
                
                0.65Cancelled
                
                
                
                -
                
                
                -Exercised
                
                
                
                -
                
                
                -Outstanding
                    at end of the period
                
                
                
                1,249,000
                
                
                0.92Exercisable
                    at end of the the period
                
                
                
                1,096,500
                
                $
                0.95Weighted
                    average fair value of optionsgranted
                    during the period
                
                
                
                305,000
                
                $
                0.36
 
 As
          of
          September 30, 2008, the unamortized portion of stock compensation expense
          on all
          existing stock options was $40,921.
 
 A
          summary
          of warrants outstanding follows:
 
 For the Six Months EndedSeptember 30, 2008WeightedAverageExerciseWarrants
                
                
                Shares
                
                
                PriceOutstanding
                    at beginning of year
                
                
                3,902,957
                
                $
                1.18Granted
                
                
                175,000
                
                
                1.04Cancelled
                
                
                -
                
                
                -Exercised
                
                
                -
                
                
                -Outstanding
                    at end of the period
                
                
                4,077,957
                
                
                1.17Exercisable
                    at end of the the period
                
                
                4,077,957
                
                $
                1.17Weighted
                    average fair value of warrantsgranted
                    during the period
                
                
                175,000
                
                $
                0.22
  
 
 **IMAGENETIX,
          INC.**
 **Notes
          to the Unaudited Condensed Consolidated Financial Statements
          (Continued)**
 
 **7.**  **INCOME
          TAXES**
 
 We
          file
          income tax returns in the U.S. federal jurisdiction and the state of California.
          With few exceptions, we are no longer subject to U.S. federal, state and
          local
          or non-U.S. income tax examinations by tax authorities for years before
          2004.
 
 We
          adopted the provisions of FASB Interpretation No. 48, *Accounting
          for Uncertainty in Income Taxes,* on April
          1, 2007. As a result of the implementation of Interpretation 48, we did
          not
          recognize an increase in
          the
          liability for unrecognized tax benefits. No unrecognized tax benefits are
          being
          reported for the three and six months ended September 30, 2008.
 
 Included
          in the balance at September 30, 2008, were no tax positions for which the
          ultimate deductibility is highly certain but for which there is uncertainty
          about the timing of such deductibility. Because of the impact of deferred
          tax
          accounting, other than interest and penalties, the disallowance of the
          shorter
          deductibility period would not affect the annual effective tax rate but
          would
          accelerate the payment of cash to the taxing authority to an earlier period.
 
 Our
          policy is to recognize interest accrued related to unrecognized tax benefits
          in
          interest expense and penalties in operating expenses.
  **8.**  **LITIGATION
          SETTLEMENT**
 
 In
          May
          2008, we received $2,100,000 ($1,750,000 after costs) as a result of entering
          into a settlement agreement with a company we alleged was infringing on
          the
          Celadrin trademark. In addition, we entered into a supply agreement with
          the
          same company whereby we provide Celadrin for use in their products.
   
 
 **ITEM
          2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
          OPERATION.**
 
 THE
          FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO
          OUR
          FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
          THOSE
          CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY
          OF
          FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."
          SEE ALSO OUR ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31,
          2008.
  **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 or plan of operation is 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 four 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.*  *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.
 
 *2.
          Inventories*
 Inventories
          are carried at the lower of cost or market. Cost is determined by the first-in
          first-out method. At each period end, management adjusts the inventory
          allowance
          based on estimates. These estimates take into account spoilage,
          yields, obsolescence and overstocked inventory amounts.
 
  
  *3.
          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.
  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 three and six months ended September 30, 2008, there were no returns
          that
          would indicate 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 three and six months ended September
          30, 2008, 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.
 
 *4.
          Income Taxes*
 Deferred
          income taxes are provided using the liability method whereby deferred tax
          assets
          are recognized for deductible temporary differences and operating loss
          and tax
          credit carryforwards and deferred tax liabilities are recognized for taxable
          temporary differences. Temporary differences are the differences between
          the
          reported amounts of assets and liabilities and their tax bases. Deferred
          tax
          assets are reduced by a valuation allowance when, in the opinion of management,
          it is more likely than not that some portion or all of the deferred tax
          assets
          will not be realized. Deferred tax assets and liabilities are adjusted
          for the
          effects of the changes in tax laws and rates of the date of
          enactment.
 
 When
          tax
          returns are filed, it is highly certain that some positions taken would
          be
          sustained upon examination by the taxing authorities, while others are
          subject
          to uncertainty about the merits of the position taken or the amount of
          the
          position that would be ultimately sustained. The benefit of a tax position
          is
          recognized in the financial statements in the period during which, based
          on all
          available evidence, management believes it is more likely than not that
          the
          position will be sustained upon examination, including the resolution of
          appeals
          or litigation processes, if any. Tax positions taken are not offset or
          aggregated with other portions. Tax positions that meet the more-likely-than-not
          recognition threshold are measured as the largest amount of tax benefit
          that is
          more than 50 percent likely of being realized upon settlement with the
          applicable taxing authority. The portion of the benefits associated with
          the tax
          positions taken that exceed the amount measured as described above is reflected
          as a liability for unrecognized tax benefits in the accompanying balance
          sheet
          along with any associated interest and penalties that would be payable
          to the
          taxing authorities upon examination.
  
  **Selected
          Financial Information**
   **Results
          of Operations**
   *Three
          Months Ended September 30, 2008 Compared to Three Months Ended September
          30,
          2007*
  Three
                    Months EndedIncrease9/30/08
                
                9/30/07
                
                (Decrease)
                
                %Statements
                    of Operations:Net
                    sales
                
                $
                2,656,378
                
                $
                1,828,811
                
                $
                827,567
                
                
                45.3
                %Cost
                    of goods sold
                
                
                1,541,221
                
                
                1,083,256
                
                
                457,965
                
                
                42.3
                %%
                    of net sales
                
                
                58.0
                %
                
                59.2
                %
                
                -1.2
                %
                
                -2.0
                %Gross
                    profit
                
                
                1,115,157
                
                
                745,555
                
                
                369,602
                
                
                49.6
                %%
                    of net sales
                
                
                42.0
                %
                
                40.8
                %
                
                1.2
                %
                
                3.0
                %Operating
                    expensesGeneral
                    and administrative
                
                
                419,931
                
                
                686,854
                
                
                (266,923
                )
                
                -38.9
                %Payroll
                    expense
                
                
                220,755
                
                
                215,836
                
                
                4,919
                
                
                2.3
                %Consulting
                    expense
                
                
                243,153
                
                
                227,829
                
                
                15,324
                
                
                6.7
                %Total
                    operating expenses
                
                
                883,839
                
                
                1,130,519
                
                
                (246,680
                )
                
                -21.8
                %Interest
                    expense
                
                
                (523
                )
                
                (1,172
                )
                
                (649
                )
                
                -55.4
                %Other
                    income
                
                
                9,746
                
                
                14,842
                
                
                (5,096
                )
                
                -34.3
                %Provision
                    for taxes
                
                
                41,800
                
                
                259,400
                
                
                217,600
                
                
                NMNet
                    income (loss)
                
                
                198,741
                
                
                (630,694
                )
                
                829,435
                
                
                NMNet
                    income (loss) per share basic
                
                
                0.02
                
                
                (0.06
                )
                
                0.08
                
                
                NMNet
                    income (loss) per share diluted
                
                
                0.02
                
                
                (0.06
                )
                
                0.08
                
                
                NM
  Net
          Sales
  Net
          sales
          for the quarter ended September 30, 2008 increased $827,567, a 45.3% increase,
          to $2,656,378 compared to $1,828,811 for the quarter ended September 30,
          2007.
          The primary reason for the sales increase was attributed to increased sales
          of
          our weight loss product. Sales of our own branded product, Inflame Away,
          that
          identifies Celadrin â as its
          marquee ingredient, continued to increase but was offset by product rebates
          and
          giveaways in support of marketing InflameAway through retail distribution
          channels. We anticipate, the new marketing program coupled with additional
          distribution agreements to wholesale and multi-level marketing customers
          to
          result in improved sales during the balance of our current fiscal
          year.
  Cost
          of Goods Sold
  Cost
          of
          goods sold as a percentage of net sales remained stable at 58.0% for the
          quarter
          ended September 30, 2008 compared to 59.2% for the quarter ended September
          30,
          2007. A significant portion of cost of goods sold is related to the rebate
          and
          giveaway marketing strategy for the InflameAway product. Rebate and giveaway
          programs are customary in the mass market distribution channel. We anticipate
          levels of promotional activities used to launch the awareness of InflameAway
          will be reduced in the future resulting in lower cost of goods sold
          percentages.
  General
          and Administrative
  General
          and administrative expenses decreased by $266,923, a 38.9% decrease, to
          $419,931
          for the quarter ended September 30, 2008 from $686,854 for the quarter
          ended
          September 30, 2007. The primary reasons for the decrease were an approximate
          $216,000 decrease in advertising expenses related to the launch of InflameAway
          coupled with a decrease in expenses related to clinical research studies
          and
          travel expenses. We anticipate increases in general and administrative
          expenses
          as a result of increasing our advertising campaign for our Inflame Away
          product
          and an increase in clinical research studies.
  
  Payroll
          Expense
  Payroll
          expense remained stable at $220,755 for the quarter ended September 30,
          2008
          compared to $215,836 for the quarter ended September 30, 2007. The increase
          was
          a result of normal salary increases.
  Consulting
          Expenses
  Consulting
          expenses increased to $243,153 for the quarter ended September 30, 2008,
          an
          increase of 6.7% or $15,324 compared to $227,829 for the quarter ended
          September
          30, 2007. This increase was a result of increased litigation expenses from
          now
          settled litigation.
  Provision
          for Income Taxes
  As
          a
          result of income for the quarter ended September 30, 2008, an income tax
          expense
          of $41,800 was recognized during the current quarter compared to $259,400
          of
          income tax expense being recognized during the quarter ended September
          30, 2007.
          The recognition of income tax expense during the quarter ended September
          30,
          2007 was a result of eliminating certain tax timing differences related
          to stock
          options and warrants.
  *Six
          Months Ended September 30, 2008 Compared to Six Months Ended September
          30,
          2007*
  Six
                    Months EndedIncrease9/30/08
                
                9/30/07
                
                (Decrease)
                
                %Statements
                    of Operations:Net
                    sales
                
                $
                4,050,736
                
                $
                2,955,802
                
                $
                1,094,934
                
                
                37.0
                %Cost
                    of goods sold
                
                
                2,360,932
                
                
                1,619,860
                
                
                741,072
                
                
                45.7
                %%
                    of net sales
                
                
                58.3
                %
                
                54.8
                %
                
                3.5
                %
                
                6.4
                %Gross
                    profit
                
                
                1,689,804
                
                
                1,335,942
                
                
                353,862
                
                
                26.5
                %%
                    of net sales
                
                
                41.7
                %
                
                45.2
                %
                
                -3.5
                %
                
                -7.7
                %Operating
                    expensesGeneral
                    and administrative
                
                
                1,025,404
                
                
                1,333,363
                
                
                (307,959
                )
                
                -23.1
                %Payroll
                    expense
                
                
                592,945
                
                
                572,333
                
                
                20,612
                
                
                3.6
                %Consulting
                    expense
                
                
                588,914
                
                
                479,353
                
                
                109,561
                
                
                22.9
                %Total
                    operating expenses
                
                
                2,207,263
                
                
                2,385,049
                
                
                (177,786
                )
                
                -7.5
                %Interest
                    expense
                
                
                (1,212
                )
                
                (2,499
                )
                
                1,287
                
                
                -51.5
                %Settlement
                    income
                
                
                1,785,000
                
                
                -
                
                
                1,785,000
                
                
                NMOther
                    income
                
                
                17,488
                
                
                21,786
                
                
                (4,298
                )
                
                -19.7
                %Provision
                    for taxes
                
                
                498,000
                
                
                36,400
                
                
                461,600
                
                
                1268.1
                %Net
                    income (loss)
                
                
                785,817
                
                
                (1,066,220
                )
                
                1,852,037
                
                
                NMNet
                    income (loss) per share basic
                
                
                0.07
                
                
                (0.10
                )
                
                0.17
                
                
                NMNet
                    income (loss) per share diluted
                
                
                0.07
                
                
                (0.10
                )
                
                0.17
                
                
                NM
  Net
          Sales
  Net
          sales
          for the six months ended September 30, 2008 increased $1,094,934, a 37.0%
          increase, to $4,050,736 compared to $2,955,802 for the six months ended
          September 30, 2007. The primary reason for the sales increase was attributed
          to
          the initial sales to MonaVie under a supply agreement coupled with an increase
          in our weight loss product. Sales of our own branded product, Inflame Away,
          that
          identifies Celadrin â as its
          marquee ingredient, continued to increase but was offset by product rebates
          and
          giveaways in support of marketing InflameAway through retail distribution
          channels. We anticipate, the new marketing program coupled with additional
          distribution agreements to wholesale and multi-level marketing customers
          to
          result in improved sales during the balance of our current fiscal
          year.
  
  Cost
          of Goods Sold
  Cost
          of
          goods sold as a percentage of net sales increased from 54.8% for the six
          months
          ended September 30, 2007 to 58.3% for the six months ended September 30,
          2008.
          This increase was primarily due to the rebate and giveaway marketing strategy
          discussed above which resulted in InflameAway product being provided at
          no cost
          to the eventual customer. Rebate and giveaway programs are customary in
          the mass
          market distribution channel. We anticipate levels of promotional activities
          used
          to launch the awareness of InflameAway will be reduced in the
          future.
  General
          and Administrative
  General
          and administrative expenses decreased by $307,959, a 23.1% decrease, to
          $1,025,404 for the six months ended September 30, 2008 from $1,333,363
          for the
          six months ended September 30, 2007. The primary reasons for the decrease
          were
          an approximate $289,000 decrease in advertising expenses related to the
          launch
          of InflameAway coupled with decreases in expenses related to clinical research
          studies and travel expenses. We anticipate increases in general and
          administrative expenses as a result of increasing our advertising campaign
          for
          our Inflame Away product and an increase in clinical research
          studies.
  Payroll
          Expense
  Payroll
          expense increased to $592,945 for the six months ended September 30, 2008,
          an
          increase of 3.6% or $20,612, compared to $572,333 for the six months ended
          September 30, 2007. This increase was a result of normal salary increases.
  Consulting
          Expenses
  Consulting
          expenses increased to $588,914 for the six months ended September 30, 2008,
          an
          increase of 22.9% or $109,561 compared to $479,353 for the six months ended
          September 30, 2007. This increase was a result of increased litigation
          expenses
          related to the settlement of a potential trademark infringement case coupled
          with increased audit fees related to requirements to include management’s
          assessment of internal controls in financial statements. We anticipate
          consulting fees to decrease since litigation has been successfully
          concluded.
  Settlement
          Income
  During
          the six months ended September 30, 2008, we received $2,100,000 ($1,785,000
          after costs) as a result of entering into a settlement agreement with a
          company
          we alleged was infringing on the Celadrin trademark. In addition, we entered
          into a supply agreement with the same company whereby we provide Celadrin
          for
          use in their products.
  Provision
          for Income Taxes
  As
          a
          result of income for the six months ended September 30, 2008, an income
          tax
          expense of $498,000 was recognized during the current fiscal year compared
          to
          $36,400 of income tax expense being recognized during the six months ended
          September 30, 2007.
  
  **Capital
          Resources**
  Working
                    CapitalIncrease9/30/08
                
                3/31/08
                
                (Decrease)Current
                    assets
                
                $
                5,325,432
                
                $
                4,012,527
                
                $
                1,312,905Current
                    liabilities
                
                
                1,355,773
                
                
                929,300
                
                
                426,473Working
                    capital
                
                $
                3,969,659
                
                $
                3,083,227
                
                $
                886,432Long-term
                    debt
                
                $
                -
                
                $
                2,980
                
                $
                (2,980
                )Stockholders'
                    equity
                
                $
                4,381,707
                
                $
                3,452,592
                
                $
                929,115
 
 Statements
          of Cash Flows Select Information
 
 Six Months Ended
                
                Increase9/30/08
                
                9/30/07
                
                (Decrease)Net
                    cash provided by (used in):Operating
                    activities
                
                $
                1,184,115
                
                $
                200,222
                
                $
                983,893Investing
                    activities
                
                $
                (34,978
                )
                $
                (19,015
                )
                $
                (15,963
                )Financing
                    activities
                
                $
                (62,988
                )
                $
                25,271
                
                $
                (88,259
                )
 
 Balance
          Sheet Select Information
 
 Increase9/30/08
                
                3/31/08
                
                (Decrease)Cash
                    and cash equivalients
                
                $
                2,108,704
                
                $
                1,022,555
                
                $
                1,086,149Accounts
                    receivable, net
                
                $
                1,125,864
                
                $
                765,492
                
                $
                360,372Inventories,
                    net
                
                $
                1,566,364
                
                $
                1,109,845
                
                $
                456,519Accounts
                    payable and accrued expenses
                
                $
                1,265,406
                
                $
                785,625
                
                $
                479,781
  **Liquidity**
  We
          have
          historically financed our operations internally and through debt and equity
          financings. At September 30, 2008, we had cash holdings of $2,108,704,
          an
          increase of $1,086,149 compared to March 31, 2008. Our net working capital
          position at September 30, 2008, was $3,969,659 compared to $3,083,227 as
          of
          March 31, 2008. We have initiated a direct mass market strategy with our
          own
          product, Inflame Away. Although, a significant portion of our working capital
          may be needed to implement this strategy, we believe that our cash position
          is
          sufficient to fund our operating activities for at least the next 12 months.
 
 **New
          Accounting Pronouncements**
 
 See
          Note
          2- Recent Accounting Pronouncements- to our condensed consolidated financial
          statements included in Item 1 of this Form 10-Q for discussion of recent
          accounting pronouncements.
  
  **ITEM
          4T.     CONTROLS AND PROCEDURES.**
  **Disclosure
          Controls and Procedures**
 The
          Company maintains disclosure controls and procedures that are designed
          to
          provide reasonable assurance that information required to be disclosed
          in
          reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is
          recorded, processed, summarized, and reported within the specified time
          periods
          and accumulated and communicated to the Company’s management, including its
          Principal Executive Officer and Principal Financial Officer, as appropriate,
          to
          allow timely decisions regarding required disclosure.
 
 The
          Company’s management, under the supervision and with the participation of its
          Principal Executive Officer and its Principal Financial Officer, evaluated
          the
          effectiveness of its disclosure controls and procedures (as defined in
          Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of the
          end of the period covered by this report. Based on that evaluation, the
          Company’s Principal Executive Officer and Principal Financial Officer concluded
          that the Company’s disclosure controls and procedures were effective as of
          September 30, 2008 to provide reasonable assurance in the Company’s financial
          reporting.
  **Remediation
          of Certain Weaknesses and Changes in Internal Controls**
 
 As
          discussed in the Company’s Annual Report on Form 10-KSB for the year ended March
          31, 2008, filed with the SEC on June 25, 2008, during the financial reporting
          process for the fiscal year end March 31, 2008, the following weaknesses
          in the
          Company’s internal control over financial reporting were
          identified:
 
 (1)
          Deficiencies in Segregation of Duties. The Chief Executive Officer and
          the Chief
          Financial Officer are actively involved in the preparation of the financial
          statements, and therefore cannot provide an independent review and quality
          assurance function within the accounting and financial reporting group.
          The
          limited number of qualified accounting personnel discussed above results
          in an
          inability to have independent review and approval of financial accounting
          entries. Furthermore, management and financial accounting personnel have
          wide-spread access to create and post entries in the Company’s financial
          accounting system. There is a risk that a material misstatement of the
          financial
          statements could be caused, or at least not be detected in a timely manner,
          due
          to insufficient segregation of duties, and
 
 (2) Our
          financial statement closing process did not identify all the journal entries
          that needed to be recorded as part of the closing process for certain complex
          and non-routine transactions. As part of the audit, our independent registered
          public accounting firm proposed certain entries that should have been recorded
          as part of the normal closing process. Our internal control over financial
          reporting did not detect such matters and, therefore, was not effective
          in
          detecting misstatements in the financial statements.
 
 To
          address the material weakness, during the six months ended September 30,
          2008,
          we performed additional analysis and other post-closing procedures in an
          effort
          to ensure our consolidated financial statements included in this quarterly
          report have been prepared in accordance with generally accepted accounting
          principles. We continue to implement a plan whereby during fiscal year
          2009
          sufficient testing to satisfy COSO requirements will be performed. The
          absence
          of the ability to conclude as to the sufficiency of internal controls,
          is a
          material weakness.
 
 Management
          believes that there are no material inaccuracies or omissions of material
          fact
          and, to the best of its knowledge, believes that the condensed consolidated
          financial statements for the three and six months ended September 30, 2008,
          fairly present in all material respects the financial condition and results
          of
          operations for the Company in conformity with accounting principles generally
          accepted in the United States of America.
 
 Other
          than as described above, there have not been any other changes in the Company’s
          internal control over financial reporting during the quarter ended September
          30,
          2008, which have materially affected, or are reasonably likely to materially
          affect, the Company’s internal control over financial reporting.
 
 **Limitations
          on the Effectiveness of Controls**
 
 A
          control
          system, no matter how well designed and operated, can provide only reasonable,
          not absolute, assurance that the control system’s objectives will be met. The
          Company’s management, including its Principal Executive Officer and its
          Principal Financial Officer, do not expect that the Company’s disclosure
          controls will prevent or detect all errors and all fraud. Further, the
          design of
          a control system must reflect the fact that there are resource constraints,
          and
          the benefits of controls must be considered relative to their costs. Because
          of
          the inherent limitations in all control systems, no evaluation of controls
          can
          provide absolute assurance that all control issues and instances of fraud,
          if
          any, within the Company have been detected. These inherent limitations
          include
          the realities that judgments in decision-making can be faulty, and that
          breakdowns can occur because of simple error or mistake. Controls can also
          be
          circumvented by the individual acts of some persons, by collusion of two
          or more
          people, or by management override of the controls. 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. Over
          time,
          controls may become inadequate because of changes in conditions or deterioration
          in the degree of compliance with associated policies or procedures. Because
          of
          the inherent limitations in a cost-effective control system, misstatements
          due
          to error or fraud may occur and not be detected.
  
  **PART
          II.**  **OTHER
          INFORMATION**
  **ITEM
          1A. 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 58% of our
          products and which represented approximately 74% of our sales for the year
          ended
          March 31, 2008. 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 29% and 16% of our net sales for the year
          ended
          March 31, 2008 and 22%, 21% and 17% of our net sales for the six months
          ended
          September 30, 2008. The loss 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.
 
 **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 ofour
                    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
          11,010,788 common shares outstanding of which 10,960,788 are freely tradeable
          or
          saleable under Rule 144. We also have outstanding common stock warrants
          and
          stock options exercisable into up to 5,326,957 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.
 
 **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 pennystocks;
 
 •  
          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, theserules
                    require that a broker-dealer obtain financial and other information
                    from a
                    customer, determinethat
                    transactions in penny  stocks are suitable for such customer and
                    deliver a written statement tosuch
                    customer setting forth the basis for this determination.
  **ITEM
          2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
          PROCEEDS**
  During
          the quarter ended September 30, 2008, we issued common stock and common
          stock
          purchase warrants as follows:
  **Common
          Stock**
 
 Date Stock
                
                
                
                Price perStockholder
                
                Issued
                
                Number of Shares
                
                ShareDennis
                    Beecher
                
                
                8/19/2008
                
                
                50,000
                
                $
                0.50
                
                
                Services
 
 **Common
          Stock Purchase Warrants**
 
 Name
                
                Date of Issuance
                
                Number of Shares
                
                Exercise Price
                
                Expiraton DateFrank Sajovic
                
                
                7/14/2008
                
                
                25,000
                
                $
                0.65
                
                
                7/14/2013Chris
                    Lahiji
                
                
                7/1/2008
                
                
                25,000
                
                $
                0.65
                
                
                7/1/2013Joe
                    Sutton
                
                
                7/15/2008
                
                
                100,000
                
                $
                1.20
                
                
                7/15/2013
  
  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.
 
 There
          were no proceeds received from the issuance of the above
          securities.
  **ITEM
          6.**  **EXHIBITS.**
  **Exhibit No.**
                
                **Title******31.1
                
                302
                    Certification of William P. Spencer, Chief Executive
                    Officer31.2
                
                302
                    Certification of Lowell W. Giffhorn, Chief Financial
                    Officer32.1
                
                906
                    Certification of William P. Spencer, Chief Executive
                    Officer32.2
                
                906
                    Certification of Lowell W. Giffhorn, Chief Financial
                    Officer
  
  **SIGNATURES**
  In
          accordance with the requirements 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 corporationDate:
                    November 12, 2008
                By:
                /s/
                    WILLIAM P. SPENCERWilliam
                    P. SpencerChief
                    Executive Officer(Principal
                    Executive Officer and duly authorizedto
                    sign on behalf of the
                    Registrant)