**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
  **FORM
        10-QSB**
  (Mark
        One)
  x Quarterly
        Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of
        1934
  For
        quarterly period ended **September
        30, 2005**
   ̈ Transition
        Report Under Section 13 Or 15(d) Of The Securities Exchange Act Of 1934
  For
        the
        transition period from _____ to _____
  **COMMISSION
        FILE NUMBER** **033-24138-D**
  **IMAGENETIX,
        INC.**
 (Exact
        name of small business issuer as specified in its charter)
  **NEVADA**
              
              **87-0463772**(State
                  or other jurisdiction of incorporation or organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 **16935
                  West Bernardo Drive, Suite 101****San
                  Diego, California 92127**(Address
                  of principal executive offices)
                Issuer's
                  telephone number **(858)
                  674-8455**
  Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes
x  No
        o
  Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes o  No
x
  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     10,672,596
  (Class)     Outstanding
        at November 21, 2005
  Transitional
        Small Business Disclosure Format (Check one): Yes  ̈  No x
  
  **Imagenetix,
        Inc.**
 **INDEX**
  PagePART
                    I. FINANCIAL INFORMATIONItem
                    1. Financial Statements:Consolidated
                    Balance Sheets as of September 30, 2005 (unaudited) and March
                    31,
                    2005
                
                3Consolidated
                    Statements of Income for the three and six months ended September
                    30, 2005
                    and 2004 (unaudited)
                
                4Consolidated
                    Statements of Cash Flows for the six months ended September 30,
                    2005 and
                    2004 (unaudited)
                
                5Notes
                    to Unaudited Consolidated Financial Statements
                
                6Item
                    2. Management's Discussion and Analysis or Plan of
                    Operation
                
                15Item
                    3. Controls and Procedures
                
                23PART
                    II. OTHER INFORMATIONItem
                    1. Legal Proceedings
                
                24Item
                    2. Unregistered Sales of Equity Securities and Use of
                    Proceeds
                
                24Item
                    3. Defaults upon Senior Securities
                
                *Item
                    4. Submission of Matters to a Vote of Security Holders
                
                *Item
                    5. Other Information
                
                *Item
                    6. Exhibits
                
                25SIGNATURES
                
                26
 *  No
          information provided due to inapplicability of the item.
  2
  **PART
        I - FINANCIAL INFORMATION**
  **Item
        1. Financial Statements**
 **Imagenetix,
                    Inc.****Consolidated
                    Balance Sheets**(Unaudited)September
                    30,
                
                March
                    31,2005
                
                2005ASSETSCurrent
                    assets:Cash
                    and cash equivalents
                
                $
                2,169,040
                
                $
                2,031,486Accounts
                    receivable, net
                
                
                1,667,130
                
                
                2,064,089Inventory
                
                
                1,670,409
                
                
                1,382,495Prepaid
                    expenses
                
                
                278,016
                
                
                26,700Income
                    tax receivable
                
                
                61,424
                
                
                —Deferred
                    tax asset
                
                
                93,000
                
                
                41,700Total
                    current assets
                
                
                5,939,019
                
                
                5,546,470Property
                    and equipment, net
                
                
                31,383
                
                
                42,987Other
                    assets
                
                
                522,188
                
                
                183,054$
                6,492,590
                
                $
                5,772,511LIABILITIES
                    AND STOCKHOLDERS' EQUITYCurrent
                    liabilities:Accounts
                    payable
                
                $
                1,377,113
                
                $
                841,801Accrued
                    liabilities
                
                
                22,113
                
                
                20,245Customer
                    deposits
                
                
                15,700
                
                
                75,391Income
                    tax payable
                
                
                —
                
                
                437,784Line
                    of credit with related party
                
                
                50,000
                
                
                225,000Total
                    current liabilities
                
                
                1,464,926
                
                
                1,600,221Stockholders'
                    equityPreferred
                    stock, $.001 par value; 5,000,000 shares authorized: none
                    outstanding
                
                
                —
                
                
                —Common
                    stock, $.001 par value; 50,000,000 shares authorized: 10,672,596
                    and
                    10,404,652 issued and outstanding at September 30 and March 31,
                    2005,
                    respectively
                
                
                10,673
                
                
                10,405Capital
                    in excess of par value
                
                
                9,894,015
                
                
                4,267,707Accumulated
                    deficit
                
                
                (4,877,024
                )
                
                (105,822
                )Total
                    stockholders' equity
                
                
                5,027,664
                
                
                4,172,290$
                6,492,590
                
                $
                5,772,511


*See
        accompanying summary of accounting policies and notes to unaudited consolidated
        financial statements.*
  3
 **Imagenetix,
                    Inc.****Consolidated
                    Statements of Income**(Unaudited)Three
                    Months Ended
                
                Six
                    Months EndedSeptember
                    30,
                
                September
                    30,2005
                
                2004
                
                2005
                
                2004Net
                    sales
                
                $
                2,016,295
                
                $
                1,034,146
                
                $
                4,886,040
                
                $
                2,220,309Cost
                    of sales
                
                
                1,152,244
                
                
                470,464
                
                
                2,607,343
                
                
                1,183,395Gross
                    profit
                
                
                864,051
                
                
                563,682
                
                
                2,278,697
                
                
                1,036,914Operating
                    expenses:General
                    and administrative
                
                
                1,076,388
                
                
                228,861
                
                
                1,509,505
                
                
                347,322Payroll
                    expense
                
                
                272,344
                
                
                125,052
                
                
                450,076
                
                
                203,599Consulting
                    expense
                
                
                207,782
                
                
                80,599
                
                
                469,199
                
                
                153,620Operating
                    expenses
                
                
                1,556,514
                
                
                434,512
                
                
                2,428,780
                
                
                704,541Operating
                    (loss) income
                
                
                (692,463
                )
                
                129,170
                
                
                (150,083
                )
                
                332,373Other
                    income (expense):Other
                    income
                
                
                9,105
                
                
                1
                
                
                18,017
                
                
                2Modification
                    of warrants (Note 9)
                
                
                (4,675,304
                )
                
                —
                
                
                (4,675,304
                )
                
                —Interest
                    expense (Note 7)
                
                
                (4,551
                )
                
                (7,207
                )
                
                (17,532
                )
                
                (13,957
                )Other
                    income (expense)
                
                
                (4,670,750
                )
                
                (7,206
                )
                
                (4,674,819
                )
                
                (13,955
                )(Loss)
                    income before income taxes
                
                
                (5,363,213
                )
                
                121,964
                
                
                (4,824,902
                )
                
                318,418Provision
                    for (benefits from) taxes (Note 10)
                
                
                (288,000
                )
                
                104,152
                
                
                (53,700
                )
                
                10,577Net
                    (loss) income
                
                $
                (5,075,213
                )
                $
                17,812
                
                $
                (4,771,202
                )
                $
                307,841Basic
                    (loss) income per share
                
                $
                (0.48
                )
                $
                —
                
                $
                (0.45
                )
                $
                0.04Diluted
                    (loss) income per share
                
                $
                (0.48
                )
                $
                —
                
                $
                (0.45
                )
                $
                0.03
  *See
          accompanying summary of accounting policies and notes to unaudited consolidated
          financial statements.*
  4
  **Imagenetix,
                    Inc.****Consolidated
                    Statements of Cash Flows**(Unaudited)**Six
                    Months Ended****September
                    30,****2005**
                
                2004**Operating
                    activities:**Net
                    (loss) income
                
                **$**
                **(4,771,202**
                **)**
                $
                307,841Adjustments
                      to reconcile net (loss) income to cash provided by operating
                      activities:Amortization
                    and depreciation
                
                
                **13,724**
                
                
                7,889Provision
                    for doubtful accounts, net
                
                
                **2,930**
                
                
                (33,381
                )Provision
                    for inventory obsolescence
                
                
                **112,927**
                
                
                28,647Non
                    cash expense related to warrants and stock options
                
                
                **5,284,882**
                
                
                —Stock
                    issued for services
                
                
                **87,750**
                
                
                —Change
                    in deferred taxes
                
                
                **(295,400**
                **)**
                
                (115,119
                )Changes
                    in assets and liabilities:(Increase)
                    decrease in accounts receivable
                
                
                **394,029**
                
                
                70,385(Increase)
                    decrease in inventory
                
                
                **(400,841**
                **)**
                
                (283,768
                )(Increase)
                    decrease in other assets
                
                
                **(326,940**
                **)**
                
                (14,271
                )Increase
                    (decrease) in accounts payable
                
                
                **535,312**
                
                
                (71,182
                )Increase
                    (decrease) in accrued liabilities
                
                
                **1,868**
                
                
                (31,487
                )Increase
                    (decrease) in customer deposits
                
                
                **(59,691**
                **)**
                
                149,818Increase
                    (decrease) in income taxes payable
                
                
                **(411,084**
                **)**
                
                125,695Net
                    cash provided by operating activities
                
                
                **168,264**
                
                
                141,067**Investing
                    activities:**Trademarks,
                    patents and infomercial
                
                
                **(109,654**
                **)**
                
                (52,981
                )Net
                    cash used in investing activities
                
                
                **(109,654**
                **)**
                
                (52,981
                )**Financing
                    activities:**Payments
                    on notes payable to related party
                
                
                **(175,000**
                **)**
                
                —Proceeds
                    from exercise of stock options and warrants
                
                
                **253,944**
                
                
                —Net
                    cash provided by financing activities
                
                
                **78,944**
                
                
                —**Net
                    increase in cash**
                
                
                **137,554**
                
                
                88,086**Cash**,
                    beginning of period
                
                
                **2,031,486**
                
                
                454,377**Cash,**end of period
                
                **$**
                **2,169,040**
                
                $
                542,463**Supplemental
                    Disclosure of Cash Flow Information:**Cash
                    paid during the period for:Interest
                
                **$**
                **17,532**
                
                $
                13,957Income
                    taxes
                
                **$**
                **740,908**
                
                $
                —**Non
                    Cash Investing and Financing Activities:**None
  *See
          accompanying summary of accounting policies and notes to unaudited consolidated
          financial statements.*
 5
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited 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-QSB 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, 2005.
 
 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 and six month
        periods are not necessarily indicative of the results that may be expected
        for
        the year ending March 31, 2006.
 
 **Reclassifications**
 
 Certain
        items included in the three and six months ended September 30, 2004 financial
        statements have been reclassified to conform to the current period
        presentation.
  **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 9 for discussion of commitments
        to
        issue additional shares of common stock and warrants. (See Note
        11).
 
 **Stock
        Options**
 
 The
        Company applies Accounting Principles Board ("APB") Opinion 25, "Accounting
        for
        Stock Issued to Employees," and related Interpretations in accounting for
        all
        stock option plans. Under APB Opinion 25, compensation cost has been recognized
        for stock options granted to employees when the option price is less than
        the
        market price of the underlying common stock on the date of grant.
 
 SFAS
        No.
        123, "Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting
        for Stock-Based Compensation-Transition and Disclosure," require the Company
        to
        provide pro forma information regarding net income as if compensation cost
        for
        the Company's stock option plans had been determined in accordance with the
        fair
        value based method prescribed in SFAS No. 123. To provide the required pro
        forma
        information, the Company estimates the fair value of each stock option at
        the
        grant date by using the Black-Scholes option-pricing model. SFAS No. 148
        also
        provides for alternative methods of transition for a voluntary change to
        the
        fair value based method of accounting for stock-based employee compensation.
        The
        Company has elected to continue to account for stock-based compensation under
        APB No. 25.
 
 The
        Company applies SFAS No. 123 in valuing options granted to consultants and
        estimates 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
  6
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
 
 contingent
        based on future performance are measured at their then current fair value
        at
        each period end, until vested.
 
 The
        Company estimates the fair value of each option or warrant at the issuance
        date
        by using the Black-Scholes option-pricing model with the following
        weighted-average assumptions used for the six months ended September 30,
        2005:
        dividend yield of zero percent; expected volatility of from 90% to 94%;
        risk-free interest rates of 3.64% to 4.02%, and expected lives of from 2.5
        to 5
        years.
 
 Under
        the
        accounting provisions of SFAS No. 123, the Company's net earnings (loss)
        per
        share would have been decreased or increased by the pro forma amounts indicated
        below:
 Three
                    months ended
                  September
                    30,
                
                Six
                    months ended
                  September
                    30,2005
                
                2004
                
                2005
                
                2004Net
                    income (loss), as reported
                
                $
                (5,075,213
                )
                $
                17,812
                
                $
                (4,771,202
                )
                $
                307,841Stock-based
                    employee compensation, net of tax effects, included in reported
                    net
                    loss
                
                
                109,200
                
                
                —
                
                
                109,200
                
                
                —Stock-based
                    employee compensation, net of tax effects
                
                
                (233,627
                )
                
                —
                
                
                (233,627
                )
                
                —Proforma
                    net income (loss)
                
                $
                (5,199,640
                )
                $
                17,812
                
                $
                (4,895,629
                )
                $
                307,841Net
                    income (loss) per share:Basic-
                    as reported
                
                $
                (0.48
                )
                $
                —
                
                $
                (0.45
                )
                $
                0.04Basic-
                    proforma
                
                $
                (0.49
                )
                $
                —
                
                $
                (0.46
                )
                $
                0.04Diluted-
                    as reported
                
                $
                (0.48
                )
                $
                —
                
                $
                (0.45
                )
                $
                0.03Diluted-
                    proforma
                
                $
                (0.49
                )
                $
                —
                
                $
                (0.46
                )
                $
                0.03
 **2.** **RECENT
        ACCOUNTING PRONOUNCEMENTS**
 
 In
        November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an amendment
        of
        ARB. No. 43, Chapter 4". This Statement amends the guidance in ARB No. 43,
        Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
        of idle facility expense, freight, handling costs, and wasted material
        (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "...
        under
        some circumstances, items such as idle facility expense, excessive spoilage,
        double freight, and re-handling costs may be so abnormal as to require treatment
        as current period charges...." This Statement requires that those items be
        recognized as current-period charges regardless of whether they meet the
        criterion of "so abnormal." In addition, this Statement requires that allocation
        of fixed production overheads to the costs of conversion be based on the
        normal
        capacity of the production facilities. The Company will adopt this standard
        on
        January 1, 2006. Management is still evaluating the impact this standard
        will
        have on our financial statements.
 
 In
        December 2004, the FASB issued SFAS No. 123R, “Share Based Payment". This
        Statement is a revision of FASB Statement No. 123, “Accounting for Stock-Based
        Compensation”. This Statement supersedes APB Opinion No. 25, “Accounting for
        Stock Issued to Employees”, and its related implementation guidance. This
        Statement establishes standards for the accounting for transactions in which
        an
        entity exchanges its equity instruments for goods or services. It also addresses
        transactions in which an entity incurs liabilities in exchange for goods
        or
        services that are based on the fair value of the entity's equity instruments
        or
        that may be settled by the issuance of those equity instruments. This Statement
        focuses primarily on accounting for transactions in which an entity obtains
        employee services in share-based payment transactions. This Statement does
        not
        change the accounting guidance for share-
  7
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
 
 based
        payment transactions with parties other than employees provided in Statement
        123
        as originally issued and EITF Issue No. 96-18, "Accounting for Equity
        Instruments That Are Issued to Other Than Employees for Acquiring, or in
        Conjunction with Selling, Goods or Services." This Statement does not address
        the accounting for employee share ownership plans, which are subject to AICPA
        Statement of Position 93-6, “Employers’ Accounting for Employee Stock Ownership
        Plans”. The Company will adopt this standard on January 1, 2006. Management is
        still evaluating the impact this standard will have on our financial
        statements.
 
 **3.**  **ACCOUNTS
        RECEIVABLE**
 
 Accounts
        receivable are carried at the expected realizable value. Accounts receivable
        consisted of the following:
  September
                    30,
                
                March
                    31,2005
                
                2005Accounts
                    receivable - trade
                
                $
                1,702,130
                
                $
                2,096,159Allowance
                    for doubtful accounts
                
                
                (35,000
                )
                
                (32,070
                )Accounts
                    receivable, net
                
                $
                1,667,130
                
                $
                2,064,089
  The
        Company has pledged its accounts receivable as collateral against a line
        of
        credit. (See Note 7)
 
 **4.**  **INVENTORY**
 
 Inventory
        consists of the following at:


September
                    30,
                
                March
                    31,2005
                
                2005Raw
                    materials
                
                $
                1,451,338
                
                $
                1,205,175Finished
                    products
                
                
                111,804
                
                
                57,120Boxes,
                    labels, tubes & bottles
                
                
                107,267
                
                
                120,200$
                1,670,409
                
                $
                1,382,495
 The
        Company has pledged its inventory as collateral against a line of credit.
        (See
        Note 7).
 
 8
 
 **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
 
 **5.**  **PROPERTY
        AND EQUIPMENT**
 
 The
        following is a summary of property and equipment, at cost, less accumulated
        depreciation:
 
 September
                  30,
              
              March
                  31,2005
              
              2005Office
                  equipment
              
              $
              45,807
              
              $
              45,807Lease-hold
                  improvements
              
              
              113,598
              
              
              113,598Leased
                  equipment
              
              
              12,341
              
              
              12,341171,746
              
              
              171,746Less
                  accumulated depreciation
              
              
              (140,363
              )
              
              (128,759
              )$
              31,383
              
              $
              42,987
 
 Depreciation
        expense for the six months ended September 30, 2005 and 2004 was $11,604
        and
        $4,302, respectively.
 
 The
        Company has pledged its property and equipment as collateral against a line
        of
        credit. (See Note 7)
 
 **6.**  **OTHER
        ASSETS**
 
 The
        following is a summary of Other Assets:
 September
                    30,
                
                March
                    31,2005
                
                2005Trademarks
                
                $
                13,033
                
                $
                11,736Deposit
                    on infomercial
                
                
                159,598
                
                
                79,240Promotional
                
                
                31,250
                
                
                43,750Patent
                
                
                56,467
                
                
                28,468Deferred
                    tax asset (Note 10)
                
                
                268,600
                
                
                24,500Globestar
                
                
                3,674
                
                
                3,674532,622
                
                
                191,368Less
                    accumulated amortization
                
                
                (10,434
                )
                
                (8,314
                )$
                522,188
                
                $
                183,054
 
 For
        the
        six months ended September 30, 2005 and 2004 amortization expense was $2,120
        and
        $4,031, respectively.
 
 **7.**  **LINE
        OF CREDIT - RELATED PARTY**
 
 In
        October 2001, the Company entered into a line of credit agreement with two
        principal shareholders. The shareholders agreed to provide a line of credit
        in
        the amount of $1,000,000. The balance on the line of credit accrues interest
        at
        a rate of 12% per annum. The line of credit is for working capital needs
        and is
        secured with the Company’s assets. The line of credit agreement expired on
        September 30, 2002. The
  9
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
 
 Company
        has verbally negotiated extension of terms on the line of credit. The verbal
        agreement changes the terms on the line of credit to a month to month
        basis.
 
 At
        September 30, 2005, the balance owed on the line of credit was $50,000. During
        the six months ended September 30, 2005 and 2004 the Company recorded interest
        expense of approximately $16,266 and $13,957, respectively, in connection
        with
        the line.
 
 **8.**  **COMMITMENTS
        AND CONTINGENCIES**
 
 Contingencies
 
 The
        Company is involved in litigation from time to time in the normal course
        of
        business. Management believes there are no such claims, which would have
        a
        material effect on the financial position of the Company.
 
 Other
        agreements
 
 The
        Company routinely enters into contracts and agreements with suppliers,
        manufacturers, consultants, product marketing, and sales representatives
        in the
        normal course of doing business. These agreements can be either short or
        long
        term and are normally limited to specific products and marketing opportunities.
 
 In
        June
        2004, the Company entered into a marketing and promotion agreement which
        contained certain milestones which, if met, require the Company to issue
        warrants exercisable for up to 125,000 shares of
 common
        stock with an exercise price equal to 150% of the market price on the date
        the
        milestone is met. The Company issued a warrant exercisable for up to 50,000
        shares of common stock during the year ended March 31, 2005 and a warrant
        exercisable for up to 25,000 shares of common stock during the six months
        ended
        September 30, 2005, as the result of three of the milestones being met. The
        warrants were valued using the Black-Scholes pricing model and resulted in
        additional expense of approximately $57,000 during the year ended March 31,
        2005
        and $39,000 during the six months ended September 30, 2005. The Company
        estimates the fair value of each warrant at the issuance date by using the
        Black-Scholes option-pricing model with the following weighted-average
        assumptions used for the six months ended September 30, 2005: dividend yield
        of
        zero percent; expected volatility of 90% to 94%, risk-free interest rates
        of
        3.64% to 4.02%; and expected lives of 5 years.
 
 **9.**  **CAPITAL
        STOCK**
 
 Preferred
        Stock
 
 The
        Company has authorized 5,000,000 shares of preferred stock, $.001 par value,
        with such rights, preferences and designations, and to be issued in such
        series
        as determined by the Board of Directors. No shares are issued and outstanding
        at
        September 30, 2005.
 
 Common
        Stock
 
 The
        Company has authorized 50,000,000 shares of common stock at $.001 par value.
        At
        September 30, 2005, the Company had 10,672,596 shares of common stock issued
        and
        outstanding.
 
 During
        the six months ended September 30, 2005, the Company issued 222,944 shares
        of
        common stock for proceeds of $253,944. The shares were issued upon shareholders
        exercising warrants with exercise prices ranging from $1.00 to $2.00 per
        share.
  10
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
 
 Also,
        during the six months ended September 30, 2005, the Company issued 45,000
        shares
        of common stock to three individuals in exchange for services they provided
        to
        the company. The services performed were valued based on the price of the
        common
        stock on the date of issuance, $1.95 per share or $87,750 in the aggregate.
        This
        amount was reflected as non-cash expense during the quarter ended September
        30,
        2005.
 
 Stock
        Bonus Plan
 
 During
        the year ended March 31, 2000, the Board of Directors of the Company adopted
        a
        stock bonus plan. The plan provides for the granting of awards of up to 724,500
        shares of common stock to officers, directors, consultants and employees.
        Awards
        under the plan will be granted as determined by the Board of Directors. To
        date,
        499,500 shares have been granted under the plan.
 
 Warrants
 
 At
        September 30, 2005, there were outstanding warrants exercisable for up to
        4,155,904 shares of common stock with exercise prices ranging from $0.70
        to
        $3.45 per share expiring in 2007 through 2010. During the six months ended
        September 30, 2005, the Company issued 222,944 shares of common stock for
        proceeds of $253,944. The shares were issued upon shareholders exercising
        warrants with exercise prices ranging from $1.00 to $2.00 per share.
 
 In
        addition, during the six months ended September 30, 2005, the Company extended
        the expiration date on warrants exercisable for up to 4,011,601 shares of
        common
        stock to October 23, 2007. These warrants were issued in 2000 and 2001 as
        part
        of an equity unit sale. By the terms of the warrants, the Company was to
        maintain a registration statement under which the holders could resell the
        common shares on the exercise of the warrants. The Company failed to maintain
        a
        timely registration statement. As a compromise, the Company agreed to modify
        the
        terms of the warrants. Due to this modification, the Company recorded a non-cash
        expense of $4,675,304 for the three and six months ended September 30,
        2005.  The
        Company estimated the fair value of the warrants at the modification date
        by
        using the Black-Scholes pricing model with the following weighted average
        assumptions used for the three and six months ended September 30, 2005: Dividend
        yield of zero percent; expected volatility of 93%; risk free interest rate
        of
        3.7%; and expected lives of 2.5 years.
 
 Warrants
        to purchase 1,133,657 shares at $1.00 per share, 720,000 shares at $2.00
        per
        share and 125,000 shares at $1.75 per share are redeemable at $.01 per warrant
        at the option of the Company if there is an
 effective
        registration of the securities and the closing bid or selling price of the
        Company’s common stock for 10 consecutive trading days equal to three times the
        exercise price of the warrants.
 
 Stock
        Option Plan
 
 In
        August 2000 the Company adopted a Stock Option Plan, which is referred
        to
        as the "Plan," which provides for the grant of stock options intended to
        qualify
        as "incentive stock options" and "nonqualified stock options" (collectively
        "stock options") within the meaning of Section 422 of the United States
        Internal Revenue Code of 1986 (the "Code"). Stock options may be issued to
        any
        of our officers, directors, key employees or consultants.
  Under
        the
        Plan, we have reserved 1.5 million shares underlying stock options
        for
        issuance, of which 1,009,000 options are outstanding as of September 30,
        2005.
        The options have been granted to directors, executive officers, employees
        and
        consultants at prices ranging from $.86 to $2.35 per share. The Plan is
        administered by the full Board of Directors, who determine which individuals
        shall receive stock options, the time period during which the stock options
        may
        be exercised, the number of shares of common stock that may be purchased
        under
        each stock option and the stock option price. During the six months ended
        September 30, 2005, the Company granted options to purchase up to 349,000
        shares
        of common stock with exercise prices ranging from $1.95 to $2.35 per share
        which
        are subject to vesting schedules and will
  11
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
  expire
        five years from the date of grant. Also, during the six months ended September
        30, 2005, the Company extended the expiration date on stock options exercisable
        for up to 360,000 shares of common stock to October 23, 2007. Due to the
        modification of the terms of the stock option agreements, the Company recorded
        non-cash expenses of $281,866 related to stock options issued to consultants
        and
        $109,200 related to stock options issued to employees.
 
 **10.**  **INCOME TAXES**
 
 The
        Company accounts for income taxes in accordance with Statement of Financial
        Accounting Standards No. 109. SFAS No. 109 requires the Company to provide
        a net
        deferred tax asset or liability equal to the expected future tax benefit
        or
        expense of temporary reporting differences between book and tax accounting
        and
        any available operating loss or tax credit carryforwards. The Company has
        no
        federal or state net operating loss carryovers at September 30,
        2005.
 
 At
        September 30 and March 31, 2005, the total of all deferred tax assets was
        $361,600 and $66,200, respectively. There are no deferred tax liabilities
        for
        either period. The amount of and ultimate realization of the benefits from
        the
        deferred tax assets for income tax purposes is dependent, in part, upon the
        tax
        laws in effect, the Company’s future earnings, and other future events, the
        effects of which cannot be determined.
 
 The
        temporary differences gave rise to the following deferred tax
        asset:
 
 September
                  30,
              
              March
                  31,2005
              
              2005Excess
                    of financial accounting over tax depreciation
              
              $
              25,800
              
              $
              24,500Valuation
                  of warrants and stock options
              
              
              242,800
              
              
              —Allowance
                  for obsolete inventory
              
              
              73,900
              
              
              29,000Allowance
                  for bad debts
              
              
              13,900
              
              
              12,700Other
              
              
              5,200
              
              
              —Net
                  deferred tax asset
              
              $
              361,600
              
              $
              66,200




The
        reconciliation of income tax from continuing operations computed at the U.S.
        federal statutory tax rate to the Company’s effective rate is as follows for the
        periods ended:
  For
                    the Six Months Ended
                  September
                    30,2005
                
                2004Federal
                    income tax expense computed at the Federal statutory rate
                
                $
                (1,640,500
                )
                $
                125,696State
                    income tax expense net of Federal benefit
                
                
                (7,900
                )
                
                —Change
                    in valuation allowance
                
                
                —
                
                
                (169,158
                )Modification
                    of warrants
                
                
                1,589,600
                
                
                ––Other
                
                
                5,100
                
                
                54,039Income
                    tax expense
                
                $
                (53,700
                )
                $
                10,577
   The
        components of federal income tax expense from continuing operations consisted
        of
        the following for the periods ended:
  12
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
 Six
                    Months Ended
                  September
                    30,2005
                
                2004Current
                    income tax expense:Federal
                
                $
                188,100
                
                $
                125,696State
                
                
                53,600
                
                
                —Net
                    current tax expense
                
                
                241,700
                
                
                125,696Deferred
                    tax expense (benefit) resulted from:Excess of financial accounting over tax depreciation
                
                
                (1,200
                )
                
                19,283Valuation
                    of warrants and stock options
                
                
                (242,800
                )Other
                
                
                (5,200
                )
                
                —Net
                    operating loss
                
                
                —
                
                
                32,599Valuation
                    allowance
                
                
                —
                
                
                (169,158
                )Allowance
                    for obsolete inventory
                
                
                (45,000
                )
                
                (12,144
                )Allowance
                    for bad debts
                
                
                (1,200
                )
                
                14,301Net
                    deferred tax benefit
                
                
                (295,400
                )
                
                (115,119
                )Net
                
                $
                (53,700
                )
                $
                10,577
  
 Deferred
        income tax expense results primarily from the reversal of temporary timing
        differences between tax and financial statement income.
 
 **11.**  **EARNINGS
        PER SHARE**
 
 The
        following data shows the amounts used in computing earnings per share of
        common
        stock for the period presented:
  For
                      the Three Months Ended
                    September
                      30,
                  
                  For
                      the Six Months Ended
                    September
                      30,2005
                  
                  2004
                  
                  2005
                  
                  2004Income
                      (loss) available to common shareholders (Numerator)
                  
                  $
                  (5,075,213
                  )
                  $
                  17,812
                  
                  $
                  (4,771,202
                  )
                  $
                  307,841Weighted
                      average number of common shares outstanding used in basic income
                      (loss)
                      per share during the period (Denominator)
                  
                  
                  10,601,412
                  
                  
                  8,722,152
                  
                  
                  10,530,993
                  
                  
                  8,722,152Weighted
                      average number of common shares outstanding used in diluted
                      income (loss)
                      per share during the period (Denominator)
                  
                  
                  10,601,412
                  
                  
                  8,812,079
                  
                  
                  10,530,993
                  
                  
                  9,590,891
   For
        the
        six months ended September 30, 2005, the Company had warrants to purchase
        50,000
        shares of common stock at prices ranging from $2.78 to $3.45 per share that
        were
        not included in the computation of earnings per share because their effects
        are
        anti-dilutive due to the exercise price being higher than the
  13
  **IMAGENETIX,
        INC.**
 **Notes
        to the Unaudited Consolidated Financial Statements
        (Continued)**
 
 average
        market price. For the three and six months ended September 30, 2005, the
        basic
        and dilutive weighted average number of common shares outstanding were the
        same
        because the effects are anti-dilutive due to the net loss for each of the
        periods.
 
 At
        September 30, 2004, the Company had options to purchase 300,000 shares of
        common
        stock at a price of $2.00 per share and warrants to purchase 750,000 shares
        of
        common stock at $2.00 per share that were not included in the computation
        of
        earnings per share because their effects were anti-dilutive due to the exercise
        price being higher than the average market price.
 
 **12.**  **RELATED
        PARTY TRANSACTIONS**
 
 **Line
        of credit**
 
 See
        note
        7.
 
 **13.**  **CONCENTRATIONS**
 
 Sales
 
 During
        the six months ended September 30, 2005, the Company had four significant
        customers which accounted for 31%, 11%, 11%, and 10% of sales.
 
 During
        the six months ended September 30, 2004, the Company had three significant
        customers which accounted for 23%, 20%, and 14% of sales.
 
 Accounts
        Receivable
 
 At
        September 30, 2005, the Company had four customers which accounted for 28%,
        20%,
        17%, and 13% of the Company’s accounts receivable balances.
 
 Supplier
 
 The
        Company also has a single source and exclusive supplier arrangement with
        the
        supplier of a specific raw material, which is used as part of products which
        account for approximately 80% of the Company’s sales. The interruption of raw
        materials provided by this supplier or the loss of a significant customer
        would
        adversely affect the Company’s business and financial condition.
 
 **14.**  **SUBSEQUENT
        EVENT**
 
 Subsequent
        to September 30, 2005, the Company entered into a new 5,426 square foot
        commercial lease to relocate its San Diego headquarters and operations. The
        lease will commence on January 1, 2006 for a term of seven years with monthly
        payments ranging from $10,309 to $12,673.
  14
  **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,
        2005.
  **Overview**
  We
        develop, formulate and market on a private label basis 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® which we have
        historically offered as a part of product formulations which we sold on a
        private label basis to our customers. Recently, however, we have begun offering
        Celadrin® as an ingredient which our customers may use in their own products.
 
 A
        key
        part of our marketing strategy is our ability to provide to customers that
        distribute our products a "turnkey" approach to the marketing and distribution
        of our products. This turnkey approach provides our 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
        have
        developed and sold over 60 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 have also begun to offer Celadrin® products
        through customers that in turn offer their products containing Celadrin® to mass
        market retailers.
 
 Management's
        discussion and analysis of results of operations and financial condition
        are
        based upon the Company's financial statements. These statements have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America. These principles require management to make certain
        estimates, judgments and assumptions that affect the reported amounts of
        assets,
        liabilities, revenues and expenses, and related disclosure of contingent
        assets
        and liabilities. On an on-going basis, we evaluate our estimates based on
        historical experience and various other assumptions that are believed to
        be
        reasonable under the circumstances, the results of which form the basis for
        making judgments about the carrying values of assets and liabilities that
        are
        not readily apparent from other sources. Actual results may differ from these
        estimates under different assumptions or conditions .
 
 **Critical
        Accounting Policies and Estimates**
 
 We
        have
        identified 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.
 
 15
 
 *2.
        Inventory*
 Inventory
        is 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*
 Revenue
        is recognized when the product is shipped. The Company evaluates whether
        an
        allowance for estimated returns is required based on historical returns.
        The
        Company has not had significant returns and accordingly, has not established
        an
        estimated allowance for returns at September 30, 2005.
 
 *4.
        Income Taxes*
 The
        Company accounts for income taxes in accordance with Statement of Financial
        Accounting Standards No. 109, “Accounting for Income Taxes.” This statement
        requires an asset and liability approach for accounting for income
        taxes.
 
 *5.
        Stock Options and Warrants*
 The
        Company applies Accounting Principles Board ("APB") Opinion 25, "Accounting
        for
        Stock Issued to Employees," and related Interpretations in accounting for
        all
        stock option plans. Under APB Opinion 25, compensation cost has been recognized
        for stock options granted to employees when the option price is less than
        the
        market price of the underlying common stock on the date of grant.
 
 SFAS
        No.
        123, "Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting
        for Stock-Based Compensation-Transition and Disclosure," require the Company
        to
        provide pro forma information regarding net income as if compensation cost
        for
        the Company's stock option plans had been determined in accordance with the
        fair
        value based method prescribed in SFAS No. 123. To provide the required pro
        forma
        information, the Company estimates the fair value of each stock option at
        the
        grant date by using the Black-Scholes option-pricing model. SFAS No. 148
        also
        provides for alternative methods of transition for a voluntary change to
        the
        fair value based method of accounting for stock-based employee compensation.
        The
        Company has elected to continue to account for stock-based compensation under
        APB No. 25.
 
 The
        Company applies SFAS No. 123 in valuing options granted to consultants and
        estimates 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.
 
 16
  **Results
        of Operations**
  *Three
        Months Ended September 30, 2005 Compared to Three Months Ended September
        30,
        2004*
  **Selected
        Financial Information**
 Three
                    Months EndedIncrease9/30/05
                
                9/30/04
                
                (Decrease)
                
                %Statements
                    of Operations:Net
                    sales
                
                $
                2,016,000
                
                $
                1,034,000
                
                $
                982,000
                
                
                95
                %Cost
                    of goods sold
                
                
                1,152,000
                
                
                470,000
                
                
                682,000
                
                
                145
                %%
                    of net sales
                
                
                57
                %
                
                45
                %
                
                12
                %
                
                26
                %Gross
                    profit
                
                
                864,000
                
                
                564,000
                
                
                300,000
                
                
                53
                %%
                    of net sales
                
                
                43
                %
                
                55
                %
                
                -12
                %
                
                -21
                %Operating
                    expensesGeneral
                    and administrative
                
                
                1,076,000
                
                
                229,000
                
                
                847,000
                
                
                370
                %Payroll
                    expense
                
                
                272,000
                
                
                125,000
                
                
                147,000
                
                
                118
                %Consulting
                    expense
                
                
                208,000
                
                
                81,000
                
                
                127,000
                
                
                157
                %Total
                    operating expenses
                
                
                1,556,000
                
                
                435,000
                
                
                1,121,000
                
                
                258
                %Interest
                    expense
                
                
                (5,000
                )
                
                (7,000
                )
                
                (2,000
                )
                
                -29
                %Modification
                    of warrants
                
                
                (4,675,000
                )
                
                —
                
                
                (4,675,000
                )
                
                NMOther
                    income
                
                
                9,000
                
                
                —
                
                
                9,000
                
                
                NMProvision
                    for (benefit from) taxes
                
                
                (288,000
                )
                
                104,000
                
                
                392,000
                
                
                NMNet
                    (loss) income
                
                
                (5,075,000
                )
                
                18,000
                
                
                (5,093,000
                )
                
                NMNet
                    (loss) income per share basic
                
                
                (0.48
                )
                
                —
                
                
                (0.48
                )
                
                NMNet
                    (loss) income per share diluted
                
                
                (0.48
                )
                
                —
                
                
                (0.48
                )
                
                NM
   Net
        Sales
  Net
        sales
        for the quarter ended September 30, 2005 increased $982,000, 95%, to $2,016,000
        compared to $1,034,000 for the quarter ended September 30, 2004. The primary
        reasons for the sales increase was that we sold Celadrin â as an
        ingredient to a new client and sales of our topical cream product containing
        Celadrin â to
        existing clients increased. We began selling Celadrin â as an
        ingredient into the mass market starting in October 2004, and since, products
        containing Celadrin â have
        been placed in over 10,000 stores throughout the country, including Wal-Mart,
        Albertsons, and GNC Health Stores. We anticipate that the level of
        Celadrin â sales
        will continue to increase.
  Cost
        of Goods Sold
  Cost
        of
        goods sold as a percentage of net sales increased from 45% for the quarter
        ended
        September 30, 2004 to 57% for the quarter ended September 30, 2005. This
        increase was primarily due to increased expenses charged to cost of goods
        sold
        associated with the ingredient sales. As mentioned above, we began selling
        Celadrin â as an
        ingredient into the mass market during October 2004. We anticipate the cost
        of
        goods sold will continue to reflect the increased costs associated with
        ingredient sales.
  General
        and Administrative
  General
        and administrative expenses increased by $847,000, a 370% increase, to
        $1,076,000 for the quarter ended September 30, 2005 from $229,000 for the
        quarter ended September 30, 2004. The primary reasons for the increase were
        approximately $249,000 increase in commissions associated with a media campaign
        to brand Celadrin â ,
        approximately $268,000 charged to marketing expenses related to the issuance
        of
        stock and warrants to several individuals who are marketing Celadrin â ,
        approximately $282,000 non-cash expense as a result of changing the terms
        on
        stock options and a $25,000 increase to bad debts. We anticipate a reduction
        in
        future general and administrative expense due to the non-recurring nature
        of the
        non-cash item discussed above.
  Payroll
        Expense
  Payroll
        expense increased to $272,000 for the quarter ended September 30, 2005, an
        increase of 118% or $147,000, compared to $125,000 for the quarter ended
        September 30, 2004. This increase was a result of approximately $109,000
        non-cash expense as a result of changing the terms on stock options and
        additional personnel hired to support the increased selling and clinical
        research activities. We anticipate a reduction in future payroll expense
        due to
        the non-recurring nature of the non-cash item discussed above.
  17
  Consulting
        Expenses
  Consulting
        expenses increased to $208,000 for the quarter ended September 30, 2005,
        an
        increase of 157% or $127,000, compared to $81,000 for the quarter ended
        September 30, 2004. This increase was a result of approximately $62,000 related
        to product presentations, public relations and investor relations and
        approximately $56,000 related to increased accounting expenses. We anticipate
        additional increases in consulting expenses as we continue with clinical
        testing
        and developing new markets.
  Modification
        of Warrants
  We
        recorded a one-time, non-cash expense of $4,675,000 during the quarter ended
        September 30, 2005, related to the modification of the terms of warrants
        issued
        in 2000 and 2001.
  Provision
        for Income Taxes
  As
        a
        result of the loss for the quarter ended September 30, 2005, income tax benefits
        of $288,000 was recognized during the current quarter compared to $104,000
        of
        tax expense being recognized during the quarter ended September 30, 2004.
        Since
        we have used up our federal and state tax loss carry-forwards, we anticipate
        income tax expense to increase in the future relative to income before
        taxes.
 
 *Six
        Months Ended September 30, 2005 Compared to Six Months Ended September 30,
        2004*
  **Selected
        Financial Information**
 Six
                      Months EndedIncrease9/30/05
                  
                  9/30/04
                  
                  (Decrease)
                  
                  %Statements
                      of Operations:Net
                      sales
                  
                  $
                  4,886,000
                  
                  $
                  2,220,000
                  
                  $
                  2,666,000
                  
                  
                  120
                  %Cost
                      of goods sold
                  
                  
                  2,607,000
                  
                  
                  1,183,000
                  
                  
                  1,424,000
                  
                  
                  120
                  %%
                      of net sales
                  
                  
                  53
                  %
                  
                  53
                  %
                  
                  0
                  %
                  
                  0
                  %Gross
                      profit
                  
                  
                  2,279,000
                  
                  
                  1,037,000
                  
                  
                  1,242,000
                  
                  
                  120
                  %%
                      of net sales
                  
                  
                  47
                  %
                  
                  47
                  %
                  
                  0
                  %
                  
                  0
                  %Operating
                      expensesGeneral
                      and administrative
                  
                  
                  1,510,000
                  
                  
                  347,000
                  
                  
                  1,163,000
                  
                  
                  335
                  %Payroll
                      expense
                  
                  
                  450,000
                  
                  
                  204,000
                  
                  
                  246,000
                  
                  
                  121
                  %Consulting
                      expense
                  
                  
                  469,000
                  
                  
                  154,000
                  
                  
                  315,000
                  
                  
                  205
                  %Total
                      operating expenses
                  
                  
                  2,429,000
                  
                  
                  705,000
                  
                  
                  1,724,000
                  
                  
                  245
                  %Interest
                      expense
                  
                  
                  (18,000
                  )
                  
                  (14,000
                  )
                  
                  4,000
                  
                  
                  29
                  %Modification
                      of warrants
                  
                  
                  (4,675,000
                  )
                  
                  —
                  
                  
                  (4,675,000
                  ).
                  
                  NMOther
                      income
                  
                  
                  18,000
                  
                  
                  —
                  
                  
                  18,000
                  
                  
                  NMProvision
                      for (benefit from) taxes
                  
                  
                  (54,000
                  )
                  
                  10,000
                  
                  
                  64,000
                  
                  
                  NMNet
                      (loss) income
                  
                  
                  (4,771,000
                  )
                  
                  308,000
                  
                  
                  (5,079,000
                  )
                  
                  NMNet
                      (loss) income per share basic
                  
                  
                  (0.45
                  )
                  
                  0.04
                  
                  
                  (0.49
                  )
                  
                  NMNet
                      (loss) income per share diluted
                  
                  
                  (0.45
                  )
                  
                  0.03
                  
                  
                  (0.48
                  )
                  
                  NM
 Net
        Sales
  Net
        sales
        for the six months ended September 30, 2005 increased $2,666,000, 120%, to
        $4,886,000 compared to $2,220,000 for the six months ended September 30,
        2004.
        The primary reasons for the sales increase was that we sold Celadrin â as an
        ingredient to a new client and sales of our topical cream product containing
        Celadrin â to
        existing clients increased. We began selling Celadrin â as an
        ingredient into the mass market starting in October 2004, and since, products
        containing Celadrin â have
        been placed in over 10,000 stores throughout the country, including Wal-Mart,
        Albertsons, and GNC Health Stores. We anticipate that the level of
        Celadrin â sales
        will continue to increase.
  18
  Cost
        of Goods Sold
  Cost
        of
        goods sold as a percentage of net sales remained constant at 53% for the
        six
        months ended September 30, 2005 and 2004. As mentioned above, we began selling
        Celadrin â as an
        ingredient into the mass market during October 2004. We anticipate future
        cost
        of goods sold will reflect the increased costs associated with ingredient
        sales.
  General
        and Administrative
  General
        and administrative expenses increased by $1,163,000, a 335% increase, to
        $1,510,000 for the six months ended September 30, 2005 from $347,000 for
        the six
        months ended September 30, 2004. The primary reasons for the increase were
        approximately $442,000 increase in commissions associated with a media campaign
        to brand Celadrin â ,
        approximately $282,000 charged to marketing expenses related to the issuance
        of
        stock and warrants to several individuals who are marketing Celadrin â ,
        approximately $282,000 non-cash expense as a result of changing the terms
        on
        stock options, $49,000 increase to bad debts before recoveries, $35,000 increase
        in travel costs associated with clinical research, and $38,000 increase in
        the
        costs of delivery services. We anticipate a reduction in future general and
        administrative expense due to the non-recurring nature of the non-cash item
        discussed above.
  Payroll
        Expense
  Payroll
        expense increased to $450,000 for the six months ended September 30, 2005,
        an
        increase of 121% or $246,000, compared to $204,000 for the six months ended
        September 30, 2004. This increase was a result of approximately $109,000
        non-cash expense as a result of changing the terms on stock options and
        additional personnel hired to support the increased selling and clinical
        research activities. We anticipate a reduction in future payroll expense
        due to
        the non-recurring nature of the non-cash item discussed above.
  Consulting
        Expenses
  Consulting
        expenses increased to $469,000 for the six months ended September 30, 2005,
        an
        increase of 205% or $315,000, compared to $154,000 for the six months ended
        September 30, 2004. This increase was a result of an approximate $104,000
        increase in clinical research and selling activities, an approximate $139,000
        increase in accounting expenses inclusive of the costs of changing to a new
        auditing firm, and an approximate $37,000 in litigation expenses. We anticipate
        additional increases as we continue with clinical testing and approaching
        new
        markets.
  Modification
        of Warrants
  We
        recorded a one-time, non-cash expense of $4,675,000 during the quarter ended
        September 30, 2005, related to the modification of the terms of warrants
        issued
        in 2000 and 2001.
  Provision
        for Income Taxes
  As
        a
        result of the loss during the six months ended September 30, 2005, the Company
        reflected an income tax benefit of $54,000 compared to income tax expense
        of
        $10,000 for the six months ended September 30, 2004. Since we have used up
        our
        federal and state tax loss carry-forwards, we anticipate income tax expense
        to
        increase in the future relative to income before taxes.
  19
  **Capital
        Resources**
 Working
                    CapitalIncrease9/30/05
                
                3/31/05
                
                (Decrease)Current
                    assets
                
                $
                5,939,000
                
                $
                5,546,000
                
                $
                393,000Current
                    liabilities
                
                
                1,465,000
                
                
                1,600,000
                
                
                (135,000
                )Working
                    capital
                
                $
                4,474,000
                
                $
                3,946,000
                
                $
                528,000Long-term
                    debt
                
                $
                —
                
                $
                —
                
                $
                —Stockholders'
                    equity
                
                $
                5,028,000
                
                $
                4,172,000
                
                $
                856,000Statements
                    of Cash Flows Select InformationSix
                    Months Ended
                
                
                Increase9/30/05
                
                
                9/30/04
                
                
                (Decrease)Net
                    cash provided by (used in):Operating
                    activities
                
                $
                168,000
                
                $
                141,000
                
                $
                27,000Investing
                    activities
                
                $
                (110,000
                )
                $
                (53,000
                )
                $
                (57,000
                )Financing
                    activities
                
                $
                79,000
                
                $
                —
                
                $
                79,000Balance
                    Sheet Select InformationIncrease9/30/05
                
                
                3/31/05
                
                
                (Decrease)Cash
                    and cash equivalients
                
                $
                2,169,000
                
                $
                2,031,000
                
                $
                138,000Accounts
                    receivable
                
                $
                1,667,000
                
                $
                2,064,000
                
                $
                (397,000
                )Inventory
                
                $
                1,670,000
                
                $
                1,382,000
                
                $
                288,000Accounts
                    payable and accrued expenses
                
                $
                1,399,000
                
                $
                862,000
                
                $
                537,000
   **Liquidity**
  We
        have
        historically financed our operations internally and through debt and equity
        financings. At September 30, 2005, we had cash holdings of $2,169,000, an
        increase of $138,000 compared to March 31, 2005. Our net working capital
        position at September 30, 2005, was $4,474,000 compared to $3,946,000 as
        of
        March 31, 2005. We have a single source and exclusive supplier arrangement
        with
        our Celadrin â supplier. We use Celadrin â in
        approximately 80% of our products representing approximately 87% of our sales.
        The interruption of raw material from this supplier would adversely affect
        our
        business and financial condition. Although our client base is growing, the
        loss
        of any of our four largest customers would have a material adverse effect
        on our
        revenue and earnings. We believe that our cash position is sufficient to
        fund
        our operating activities for at least the next 12 months.
 
 **New
        Accounting Pronouncements**
 
 In
        November 2004, the FASB issued SFAS No. 151, "Inventory Costs-an amendment
        of
        ARB. No. 43, Chapter 4". This Statement amends the guidance in ARB No. 43,
        Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts
        of idle facility expense, freight, handling costs, and wasted material
        (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "...
        under
        some circumstances, items such as idle facility expense, excessive spoilage,
        double freight, and re-handling costs may be so abnormal as to require treatment
        as current period charges...." This Statement requires that those items be
        recognized as current-period charges regardless of whether they meet the
        criterion of "so abnormal." In addition, this Statement requires that allocation
        of fixed production overheads to the costs of conversion be based on the
        normal
        capacity of the production facilities. The Company will adopt this standard
        on
        April 1, 2006. Management is still evaluating the impact this standard will
        have
        on our financial statements.
  20
  In
        December 2004, the FASB issued SFAS No. 123R, “Share Based Payment". This
        Statement is a revision of FASB Statement No. 123, “Accounting for Stock-Based
        Compensation”. This Statement supersedes APB Opinion No. 25, “Accounting for
        Stock Issued to Employees”, and its related implementation guidance. This
        Statement establishes standards for the accounting for transactions in which
        an
        entity exchanges its equity instruments for goods or services. It also addresses
        transactions in which an entity incurs liabilities in exchange for goods
        or
        services that are based on the fair value of the entity's equity instruments
        or
        that may be settled by the issuance of those equity instruments. This Statement
        focuses primarily on accounting for transactions in which an entity obtains
        employee services in share-based payment transactions. This Statement does
        not
        change the accounting guidance for share-based payment transactions with
        parties
        other than employees provided in Statement 123 as originally issued and EITF
        Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other
        Than Employees for Acquiring, or in Conjunction with Selling, Goods or
        Services." This Statement does not address the accounting for employee share
        ownership plans, which are subject to AICPA Statement of Position 93-6,
“Employers’ Accounting for Employee Stock Ownership Plans”. The Company will
        adopt this standard on January 1, 2006. Management is still evaluating the
        impact this standard will have on our financial statements.
 
 **Risk
        Factors**
  You
        should consider the following discussion of risks as well as other information
        regarding our common stock. The risks and uncertainties described below are
        not
        the only ones. Additional risks and uncertainties not presently known to
        us or
        that we currently deem immaterial also may impair our business operations.
        If
        any of the following risks actually occur, our business could be harmed.
 
 **There
        Is Only One Supplier for Celadrin®. If We Are Unable to Purchase Celadrin® from
        This Supplier, Our Business Would Be Harmed.**
 
 There
        is
        only one supplier for Celadrin®, which we use in approximately 80% of our
        products and which represented approximately 87% of our sales for the six
        months
        ended September 30, 2005. We 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
        four
        largest customers accounted for 31%, 11%, 11% and 10% of our sales for the
        six
        months ended September 30, 2005. The loss of any of these customers would
        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.
  21
  **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:
 
 •
              theformulation, 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.
 
 **There
        Are Limitations on the Liability of Our Officers and Directors Which May
        Restrict Our Stockholders from Bringing Claims.**
 
 Our
        Bylaws substantially limit the liability of our officers and directors to
        us and
        our stockholders for negligence and breach of fiduciary or other duties to
        us.
        This limitation may prevent stockholders from bringing claims against our
        officers and directors in the future.
 
 **Shares
        of Our Common Stock Which Are Eligible for Sale by Our Stockholders May Decrease
        the Price of Our Common Stock.**
 
 We
        have
        10,672,596 common shares outstanding, all of which are freely tradeable or
        saleable under Rule 144. We also have outstanding common stock warrants and
        stock options exercisable into up to 5,164,904 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.
  22
  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
        3.     CONTROLS AND PROCEDURES.**
  (a)
        Under
        the supervision and with the participation of our management, including our
        principal executive officer and principal financial officer, we conducted
        an
        evaluation of the design and operation of our disclosure controls
 and
        procedures, as such term is defined under Rules 13a-14(c) and 15d-14(c)
        promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
        Act"), within 90 days of the filing date of this report. Based on that
        evaluation, our principal executive officer and our principal financial officer
        concluded that the design and operation of our disclosure controls and
        procedures were effective in timely alerting them to material information
        required to be included in the Company's periodic reports filed with the
        SEC
        under the Securities Exchange Act of 1934, as amended. The design of any
        system
        of controls is based in part upon certain assumptions about the likelihood
        of
        future events, and there can be no assurance that any design will succeed
        in
 achieving
        its stated goals under all potential future conditions, regardless of how
        remote.
 
 (b)
        During the six months ended September 30, 2005, we recruited a chief financial
        officer who has begun establishing, designing and implementing systems and
        procedures over our internal control over financial reporting as well as
        added
        internal control expertise which includes:
  23
  ·
              Preparation
                  of periodic income tax provisions;
 
 ·
              Review
                  and recording of equity transactions, including warrant and option
                  valuations;
 
 ·
              Certain
                  end of period financial reconciliations;
                  and
 
 ·
              Financial
                  statement preparation and
                  disclosures.
 
 
 **PART
        II.**  **OTHER
        INFORMATION**
  **ITEM
        1.     LEGAL PROCEEDINGS.**
  During
        the quarter, we were dismissed from a case in which we were named as a
        cross-defendant alleging that a product containing ephedra caused injuries
        and
        damages to the plaintiff . The suit, which is entitled "Piantodosi vs. Integris
        Global, L.P., et al" civil action number 3:03CV 0782 was filed in the United
        States District Court for the District of Connecticut in 2003.
  **ITEM
        2.     UNREGISTERED SALES OF EQUITY SECURITIES
        AND USE
        OF PROCEEDS.**
  (a)
              During
                  the six months ended September 30, 2005, we offered and/or sold
                  the
                  following common stock and warrants, either for cash or in consideration
                  of services rendered as indicated below, without registration under
                  the
                  Securities Act of 1933, as amended, and exemption for such sales
                  from
                  registration under the Act is claimed in reliance upon the exemption
                  provided by Section 4(2) thereof on the basis that such offers
                  and sales
                  were transactions not involving any public offering. Appropriate
                  precautions against transfer have been taken, including the placing
                  of a
                  restrictive legend on all certificates evidencing such securities.
                  All
                  such sales were effected without the aid of underwriters, and no
                  sales
                  commissions were paid.
  
  Number
                    of
                
                Aggregate
                
                Purchase
                    PriceName
                
                Date
                    of Sale
                
                Shares
                
                Purchase
                    Price
                
                per
                    ShareJohn
                    Turner
                
                
                7/1/2005
                
                
                25,000
                
                $
                48,750.00
                
                $
                1.95
                    ServicesWilliam
                    Fleet
                
                
                7/1/2005
                
                
                5,000
                
                $
                9,750.00
                
                $
                1.95
                    ServicesHe
                    Zhang
                
                
                7/1/2005
                
                
                15,000
                
                $
                29,250.00
                
                $
                1.95
                    Services
 Number
                    of
                
                Exercise
                    Price
                
                ExpirationWarrant
                    Holder
                
                Date
                    of Issuance
                
                Shares
                
                per
                    Share
                
                DateDean
                    Mosca
                
                06/02/05
                
                25,000
                
                3.45
                
                06/01/10He
                    Zhang
                
                07/01/05
                
                35,000
                
                1.50
                
                05/31/10William
                    Fleet
                
                07/01/05
                
                15,000
                
                1.50
                
                05/31/10John
                    Turner
                
                07/01/05
                
                30,000
                
                1.50
                
                05/31/10Johnathan
                    Greenhut
                
                07/01/05
                
                10,000
                
                1.95
                
                05/31/10Maurile
                    Tremblay
                
                07/01/05
                
                25,000
                
                1.95
                
                05/31/10Gordon
                    Ross
                
                07/01/05
                
                10,000
                
                1.95
                
                05/31/10
  24
  **ITEM
        6.**  **EXHIBITS.**
  (a)
              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
 
 25
 
 **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
                22, 2005
              By:
              /s/ William
                P. SpencerWilliam
                P. SpencerChief
                Executive Officer(Principal
                  Executive and duly authorized
                to
                  sign on behalf of the Registrant)
 
 26