**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 **December
      31, 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.)





**10845
                Rancho Bernardo Road, Suite 105****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** x **No
      o**




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
            __10,690,819________(Class)
            Outstanding at February 13,
              2006







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 December 31, 2005 (unaudited)and
              March 31, 2005
            3Consolidated Statements of Income for
              the
              three and nine monthsended December 31, 2005 and 2004 (unaudited)
            4Consolidated
              Statements of Cash Flows for the ninemonths
              ended December 31, 2005 and 2004 (unaudited)
            5Notes to Unaudited Consolidated Financial
              Statements
            6Item
                2.
            Management’s Discussion and Analysis or Plan
              of Operation
            16Item
                3.
            Controls and Procedures
            23PART II.OTHER
              INFORMATIONItem
                1.
            Legal Proceedings
            25Item
                2.
            Unregistered Sales of Equity Securities
              and
              Use of Proceeds
            *Item
                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**
  December
                  31,
              
              March
                  31,2005
              
              2005(Unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              2,196,200
              
              $
              2,031,486Accounts
                  receivable, net
              
              
              1,000,830
              
              
              2,064,089Inventory
              
              
              1,358,091
              
              
              1,382,495Prepaid
                  expenses
              
              
              551,793
              
              
              26,700Income
                  tax receivable
              
              
              68,382
              
              
              -Deferred
                  tax asset
              
              
              84,400
              
              
              41,700Total
                  current assets
              
              
              5,259,696
              
              
              5,546,470Property
                  and equipment, net
              
              
              26,313
              
              
              42,987Other
                  assets
              
              
              582,694
              
              
              183,054$
              5,868,703
              
              $
              5,772,511LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              402,797
              
              $
              841,801Accrued
                  liabilities
              
              
              34,322
              
              
              20,245Customer
                  deposits
              
              
              66,185
              
              
              75,391Income
                  tax payable
              
              
              -
              
              
              437,784Line
                  of credit with related party
              
              
              -
              
              
              225,000Total
                  current liabilities
              
              
              503,304
              
              
              1,600,221Stockholders'
                  equity:Preferred
                  stock, $.001 par value; 5,000,000 sharesauthorized:
                  none outstanding
              
              
              -
              
              
              -Common
                  stock, $.001 par value; 50,000,000 sharesauthorized:
                  10,687,344 and 10,404,652 issued andoutstanding
                  at December 31 and March 31, 2005, respectively
              
              
              10,688
              
              
              10,405Capital
                  in excess of par value
              
              
              10,134,089
              
              
              4,267,707Accumulated
                  deficit
              
              
              (4,779,378
              )
              
              (105,822
              )Total
                  stockholders' equity
              
              
              5,365,399
              
              
              4,172,290$
              5,868,703
              
              $
              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
              
              Nine
                  Months EndedDecember
                  31,
              
              December
                  31,2005
              
              2004
              
              2005
              
              2004Net
                  sales
              
              $
              1,742,979
              
              $
              2,739,743
              
              $
              6,629,019
              
              $
              4,960,052Cost
                  of sales
              
              
              834,412
              
              
              1,602,427
              
              
              3,403,148
              
              
              2,785,822Gross
                  profit
              
              
              908,567
              
              
              1,137,316
              
              
              3,225,871
              
              
              2,174,230Operating
                  expenses:General
                  and administrative
              
              
              411,158
              
              
              301,788
              
              
              1,458,892
              
              
              649,110Payroll
                  expense
              
              
              171,543
              
              
              147,895
              
              
              512,419
              
              
              351,494Consulting
                  expense
              
              
              234,066
              
              
              88,917
              
              
              703,265
              
              
              242,537Operating
                  expenses
              
              
              816,767
              
              
              538,600
              
              
              2,674,576
              
              
              1,243,141Operating
                  (loss) income
              
              
              91,800
              
              
              598,716
              
              
              551,295
              
              
              931,089Other
                  (expense) income:Other
                  income
              
              
              7,964
              
              
              1
              
              
              25,981
              
              
              3Costs
                  related to stock options andwarrants
              
              
              (26,918
              )
              
              -
              
              
              (5,311,800
              )
              
              -Interest
                  expense
              
              
              -
              
              
              (7,284
              )
              
              (17,532
              )
              
              (21,241
              )Other
                  income (expense)
              
              
              (18,954
              )
              
              (7,283
              )
              
              (5,303,351
              )
              
              (21,238
              )(Loss)
                  income before income taxes
              
              
              72,846
              
              
              591,433
              
              
              (4,752,056
              )
              
              909,851Provision
                  for (benefits from) taxes
              
              
              (24,800
              )
              
              244,583
              
              
              (78,500
              )
              
              212,128Net
                  income (loss)
              
              $
              97,646
              
              $
              346,850
              
              $
              (4,673,556
              )
              $
              697,723Basic
                  income (loss) per share
              
              $
              0.01
              
              $
              0.04
              
              $
              (0.44
              )
              $
              0.08Diluted
                  income (loss) per share
              
              $
              0.01
              
              $
              0.04
              
              $
              (0.44
              )
              $
              0.07
    *See
          accompanying summary of accounting policies and notes to unaudited consolidated
          financial statements.*
   4




**Imagenetix,
        Inc.**
 **Consolidated
        Statements of Cash Flows**
 (Unaudited)
 **Nine
                  Months Ended****December
                  31,****2005**
              
              2004**Operating
                  activities:**Net
                  (loss) income
              
              $
              (4,673,556
              )
              $
              697,723Adjustments
                  to reconcile net (loss) incometo
                  cash provided by operating activities:Amortization
                  and depreciation
              
              
              **40,854**
              
              
              28,928Provision
                  for doubtful accounts, net
              
              
              **12,930**
              
              
              47,764Provision
                  for inventory obsolescence
              
              
              **78,225**
              
              
              20,303Non
                  cash expense related to warrants and stock options
              
              
              **5,311,800**
              
              
              -Stock
                  issued for services
              
              
              **87,750**
              
              
              -Change
                  in deferred taxes
              
              
              **(306,400**
              **)**
              
              (133,630
              )Changes
                  in assets and liabilities:(Increase)
                  decrease in accounts receivable
              
              
              **1,050,329**
              
              
              (333,800
              )(Increase)
                  decrease in inventory
              
              
              **(53,821**
              **)**
              
              (200,327
              )(Increase)
                  decrease in other assets
              
              
              **(444,324**
              **)**
              
              (89,700
              )Increase
                  (decrease) in accounts payable
              
              
              **(439,005**
              **)**
              
              90,444Increase
                  (decrease) in accrued liabilities
              
              
              **14,077**
              
              
              (31,487
              )Increase
                  (decrease) in customer deposits
              
              
              **(9,206**
              **)**
              
              (46,609
              )Increase
                  (decrease) in income taxes payable
              
              
              **(389,884**
              **)**
              
              345,757Net
                  cash provided by operating activities
              
              
              **279,769**
              
              
              395,366**Investing
                  activities:**Property
                  and equipment
              
              
              **(21,000**
              **)**
              
              -Trademarks,
                  patents and infomercial
              
              
              **(147,747**
              **)**
              
              (74,760
              )Net
                  cash used in investing activities
              
              
              **(168,747**
              **)**
              
              (74,760
              )**Financing
                  activities:**Payments
                  on notes payable to related party
              
              
              **(225,000**
              **)**
              
              -Proceeds
                  from exercise of stock options and warrants
              
              
              **278,692**
              
              
              -Net
                  cash provided by financing activities
              
              
              **53,692**
              
              
              -**Net
                  increase in cash**
              
              
              **164,714**
              
              
              320,606**Cash**,
                  beginning of period
              
              
              **2,031,486**
              
              
              454,377**Cash,**end of period
              
              $
              2,196,200
              
              $
              774,983**Supplemental
                  Disclosure of Cash Flow Information:**Cash
                  paid during the period for:Interest
              
              $
              17,532
              
              $
              20,250Income
                  taxes
              
              $
              734,066
              
              $
              -**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 nine 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 nine months ended December 31, 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.





On
      December 31, 2005, our Board of Directors accelerated the vesting of 309,000
      unvested stock options held by our employees with exercise prices ranging from
      $1.39 to $1.68 per share. The options would have otherwise vested over various
      periods through September 2008. Our Board of Directors determined that the
      acceleration of the vesting of the stock options described above was in the
      best
      interests of the




6


**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





company
      to enhance the incentive of the affected options and to provide us with greater
      flexibility for future grants of share-based incentives as SFAS 123(R) becomes
      effective. We plan to adopt SFAS 123(R) in January 2006.





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.





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 nine months ended December 31, 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
                December
                  31,
              
              
              
              Nine
                  months ended
                December
                  31,2005
              
              2004
              
              2005
              
              2004Net
                  income (loss), as reported
              
              $
              97,646
              
              $
              346,850
              
              $
              (4,673,556
              )
              $
              697,723Stock-based
                  employee compensation,net
                  of tax effects, included in reported net loss
              
              
              -
              
              
              -
              
              
              109,200
              
              
              -Stock-based
                  employee compensation,net
                  of tax effects
              
              
              (447,429
              )
              
              -
              
              
              (681,056
              )
              
              -Proforma
                  net income (loss)
              
              $
              (349,783
              )
              $
              346,850
              
              $
              (5,245,412
              )
              $
              697,723Net
                  income (loss) per share:Basic-
                  as reported
              
              $
              0.01
              
              $
              0.04
              
              $
              (0.44
              )
              $
              0.08Basic-
                  proforma
              
              $
              (0.03
              )
              $
              0.04
              
              $
              (0.50
              )
              $
              0.08Diluted-
                  as reported
              
              $
              0.00
              
              $
              0.04
              
              $
              (0.44
              )
              $
              0.07Diluted-
                  proforma
              
              $
              (0.03
              )
              $
              0.04
              
              $
              (0.50
              )
              $
              0.07


**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





7


**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





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.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
      ("SFAS 154") which replaces Accounting Principles Board Opinions No. 20
      "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim
      Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides
      guidance on the accounting for and reporting of accounting changes and error
      corrections. It establishes retrospective application, or the latest practicable
      date, as the required method for reporting a change in accounting principle
      and
      the reporting of a correction of an error. SFAS 154 is effective for accounting
      changes and a correction of errors made in fiscal years beginning after December
      15, 2005 and is required to be adopted by the Company in the first quarter
      of
      fiscal 2007. The Company is currently evaluating the effect that the adoption
      of
      SFAS 154 will have on its consolidated results of operations and financial
      condition.





**3.**  **ACCOUNTS
      RECEIVABLE**





Accounts
      receivable are carried at the expected realizable value. Accounts receivable
      consisted of the following:




December
                  31,
              
              March
                  31,2005
              
              2005Accounts
                  receivable - trade
              
              
              
              
              $
              1,045,830
              
              $
              2,096,159Allowance
                  for doubtful accounts
              
              
              
              
              
              (45,000
              )
              
              (32,070
              )Accounts
                  receivable, net
              
              
              
              
              $
              1,000,830
              
              $
              2,064,089







8


**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





**4.**
            **INVENTORY**





Inventory
      consists of the following at:


December
                  31,
              
              March
                  31,2005
              
              2005Raw
                  materials
              
              $
              1,139,020
              
              $
              1,205,175Finished
                  products
              
              
              111,804
              
              
              57,120Boxes,
                  labels, tubes & bottles
              
              
              107,267
              
              
              120,200$
              1,358,091
              
              $
              1,382,495




**5.**
            **PROPERTY
                AND EQUIPMENT**





The
      following is a summary of property and equipment, at cost, less accumulated
      depreciation:





December
                  31,
              
              March
                  31,2005
              
              2005Office
                  equipment
              
              $
              45,807
              
              $
              45,807Lease-hold
                  improvements
              
              
              134,598
              
              
              113,598Leased
                  equipment
              
              
              12,341
              
              
              12,341192,746
              
              
              171,746Less
                  accumulated depreciation
              
              
              (166,433
              )
              
              (128,759
              )$
              26,313
              
              $
              42,987





Depreciation
      expense for the nine months ended December 31, 2005 and 2004 was $37,674 and
      $18,592, respectively.








9





**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





**6.**
            **OTHER
                ASSETS**





The
      following is a summary of Other Assets:


December
                  31,
              
              March
                  31,2005
              
              2005Trademarks
              
              $
              13,032
              
              $
              11,736Deposit
                  on infomercial
              
              
              207,815
              
              
              79,240Promotional
              
              
              25,000
              
              
              43,750Patent
              
              
              56,467
              
              
              28,468Deferred
                  tax asset (Note 10)
              
              
              288,200
              
              
              24,500Globestar
              
              
              3,674
              
              
              3,674594,188
              
              
              191,368Less
                  accumulated amortization
              
              
              (11,494
              )
              
              (8,314
              )$
              582,694
              
              $
              183,054




For
      the
      nine months ended December 31, 2005 and 2004 amortization expense was $3,180
      and
      $10,336, 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 accrued interest
      at
      a rate of 12% per annum. The line of credit was for working capital needs and
      was secured with the Company’s assets. The line of credit agreement expired on
      September 30, 2002. The Company verbally negotiated extension of terms on the
      line of credit. The verbal agreement changed the terms on the line of credit
      to
      a month to month basis.





The
      line
      of credit was paid off during the quarter ended December 31, 2005. During the
      nine months ended December 31, 2005 and 2004 the Company recorded interest
      expense of approximately $16,300 and $20,200, 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.





In
      October 2005 the Company entered into a new 5,426 square foot commercial lease
      to relocate its San Diego headquarters and operations. This lease commenced
      January 1, 2006 for a term of seven years with monthly payments ranging from
      $10,309 to $12,673.





10





**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





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 nine months
      ended
      December 31, 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 nine months ended December 31, 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 nine months ended December 31, 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
      December 31, 2005.





Common
      Stock





The
      Company has authorized 50,000,000 shares of common stock at $.001 par value.
      At
      December 31, 2005, the Company had 10,687,344 shares of common stock issued
      and
      outstanding.





During
      the nine months ended December 31, 2005, the Company issued 237,692 shares
      of
      common stock for proceeds of $278,692. The shares were issued upon shareholders
      exercising warrants with exercise prices ranging from $1.00 to $2.00 per
      share.





Also,
      during the nine months ended December 31, 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 nine months ended December
      31, 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.








11





**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





Warrants





At
      December 31, 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 nine months ended
      December 31, 2005, the Company issued 237,692 shares of common stock for
      proceeds of $278,692. The shares were issued upon shareholders exercising
      warrants with exercise prices ranging from $1.00 to $2.00 per share.





In
      addition, during the nine months ended December 31, 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 nine months ended December 31, 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 nine months ended December 31, 2005: dividend yield of zero percent;
      expected volatility of 93%; risk free interest rate of 3.17%; 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 December 31, 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 nine months ended
      December 31, 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 expire five years from the date of
      grant. Also, during the nine months ended December 31, 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, during the nine months ended December 31, 2005,
      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.








12








**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





**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 December 31, 2005.





At
      December 31 and March 31, 2005, the total of all deferred tax assets was
      $372,600 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:


December
                  31,
              
              March
                  31,2005
              
              2005Excess
                  of financial accountingover
                  tax depreciation
              
              $
              34,700
              
              $
              24,500Valuation
                  of warrants and stock options
              
              
              253,500
              
              
              -Allowance
                  for obsolete inventory
              
              
              60,100
              
              
              29,000Allowance
                  for bad debts
              
              
              17,900
              
              
              12,700Other
              
              
              6,400
              
              
              -Net
                  deferred tax asset
              
              $
              372,600
              
              $
              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 Nine Months EndedDecember
                  31,2005
              
              2004Federal
                  income tax expense computed at the Federal statutory rate
              
              $
              (1,615,700
              )
              $
              305,500State
                  income tax expense net of Federal benefit
              
              
              (3,000
              )
              
              40,300Change
                  in valuation allowance
              
              
              -
              
              
              (169,200
              )Modification
                  of warrants
              
              
              1,589,600
              
              
              -Other
              
              
              (49,400
              )
              
              35,500Income
                  tax (benefit) expense
              
              $
              (78,500
              )
              $
              212,100


The
      components of federal income tax expense from continuing operations consisted
      of
      the following for the periods ended:








13




**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**




Nine
                  Months Ended December 31,2005
              
              2004Current
                  income tax expense:Federal
              
              
              
              
              $
              195,900
              
              $
              305,500State
              
              
              
              
              
              32,000
              
              
              40,200Net
                  current tax expense
              
              
              
              
              
              227,900
              
              
              345,700Deferred
                  tax expense (benefit) resulted from:Excess
                  of financial accounting overtax
                  depreciation
              
              
              
              
              
              (10,300
              )
              
              22,000Valuation
                  of warrants and stock options
              
              
              
              
              
              (253,500
              )Other
              
              
              
              
              
              (6,400
              )
              
              -Net
                  operating loss
              
              
              
              
              
              -
              
              
              42,600Valuation
                  allowance
              
              
              
              
              
              -
              
              
              (169,200
              )Allowance
                  for obsolete inventory
              
              
              
              
              
              (31,100
              )
              
              (8,600
              )Allowance
                  for bad debts
              
              
              
              
              
              (5,100
              )
              
              (20,500
              )Net
                  deferred tax benefit
              
              
              
              
              
              (306,400
              )
              
              (133,700
              )Net
              
              
              
              
              $
              (78,500
              )
              $
              212,000





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
              
              For
                  the Nine Months EndedDecember
                  31,
              
              December
                  31,2005
              
              2004
              
              2005
              
              2004Income
                  (loss) available to commonshareholders
                  (Numerator)
              
              $
              98,000
              
              $
              347,000
              
              $
              (4,674,000
              )
              $
              698,000Weighted
                  average number of commonshares
                  outstanding used in basic income(loss)
                  per share during the period(Denominator)
              
              
              10,678,710
              
              
              8,722,152
              
              
              10,580,411
              
              
              8,722,152Weighted
                  average number of commonshares
                  outstanding used in diluted income(loss)
                  per share during the period(Denominator)
              
              
              13,024,036
              
              
              9,176,243
              
              
              12,654,449
              
              
              10,044,982





14





**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements
      (Continued)**





For
      the
      nine months ended December 31, 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


average
      market price. For the three and nine months ended December 31, 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
      December 31, 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 nine months ended December 31, 2005, the Company had four significant
      customers which accounted for 25%, 14%, 12%, and 12% of sales.





During
      the nine months ended December 31, 2004, the Company had four significant
      customers which accounted for 23%, 15%, 15% and 14% of sales.





Accounts
      Receivable





At
      December 31, 2005, the Company had four customers which accounted for 28%,
      16%,
      12%, and 12% 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.





15


**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.











16





*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 December 31, 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.










17




**Results
      of Operations**




*Three
      Months Ended December 31, 2005 Compared to Three Months Ended December 31,
      2004*




**Selected
      Financial Information**




Three
                  Months EndedIncrease12/31/05
              
              12/31/04
              
              (Decrease)
              
              
              
              %Statements
                  of Operations:Net
                  sales
              
              $
              1,743,000
              
              $
              2,740,000
              
              $
              (997,000
              )
              
              
              
              -36
              %Cost
                  of goods sold
              
              
              834,000
              
              
              1,603,000
              
              
              (769,000
              )
              
              
              
              -48
              %%
                  of net sales
              
              
              48
              %
              
              59
              %
              
              -11
              %
              
              
              
              -18
              %Gross
                  profit
              
              
              909,000
              
              
              1,137,000
              
              
              (228,000
              )
              
              
              
              -20
              %%
                  of net sales
              
              
              52
              %
              
              41
              %
              
              11
              %
              
              
              
              26
              %Operating
                  expensesGeneral
                  and administrative
              
              
              411,000
              
              
              302,000
              
              
              109,000
              
              
              
              
              36
              %Payroll
                  expense
              
              
              172,000
              
              
              148,000
              
              
              24,000
              
              
              
              
              16
              %Consulting
                  expense
              
              
              234,000
              
              
              89,000
              
              
              145,000
              
              
              
              
              163
              %Total
                  operating expenses
              
              
              817,000
              
              
              539,000
              
              
              278,000
              
              
              
              
              52
              %Interest
                  expense
              
              
              -
              
              
              (7,000
              )
              
              (7,000
              )
              
              
              
              NMCosts
                  relatted to stock option and warrants
              
              
              (27,000
              )
              
              -
              
              
              (27,000
              )
              
              
              
              NMOther
                  income
              
              
              8,000
              
              
              -
              
              
              8,000
              
              
              
              
              NMProvision
                  for (benefit from) taxes
              
              
              (25,000
              )
              
              244,000
              
              
              269,000
              
              
              
              
              NMNet
                  (loss) income
              
              
              98,000
              
              
              347,000
              
              
              (249,000
              )
              
              
              
              -72
              %Net
                  (loss) income per share basic
              
              
              0.01
              
              
              0.04
              
              
              (0.03
              )
              
              
              
              -75
              %Net
                  (loss) income per share diluted
              
              
              0.01
              
              
              0.04
              
              
              (0.03
              )
              
              
              
              -75
              %




Net
      Sales




Net
      sales
      for the quarter ended December 31, 2005 decreased $997,000, 36%, to $1,743,000
      compared to $2,740,000 for the quarter ended December 31, 2004. The primary
      reason for the sales decrease was a reduction in the sales of
      Celadrin â as an
      ingredient. 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. One significant customer’s inventory during
      the current quarter was sufficient that repeat orders were down compared to
      the
      corresponding quarter of the previous fiscal year. We are unable to determine
      if
      this trend will continue.




Cost
      of Goods Sold




Cost
      of
      goods sold as a percentage of net sales decreased from 59% for the quarter
      ended
      December 31, 2004 to 48% for the quarter ended December 31, 2005. This decrease
      was primarily due to decreased 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 increase as the sale of Celadrin â returns
      to previous levels.




General
      and Administrative




General
      and administrative expenses increased by $109,000, a 36% increase, to $411,000
      for the quarter ended December 31, 2005 from $302,000 for the quarter ended
      December 31, 2004. The primary reasons for the increase were approximately
      $39,000 increase in commissions associated with a media campaign to brand
      Celadrin â ,
      approximately $44,000 charged to research and development for continued clinical
      testing of our products, and $22,000 increase in facilities expenses related
      to
      a change in our corporate headquarters. We anticipate future general and
      administrative expense to increase as we prepare for the launch of two new
      product lines.







18









Payroll
      Expense




Payroll
      expense increased to $172,000 for the quarter ended December 31, 2005, an
      increase of 16% or $24,000, compared to $148,000 for the quarter ended December
      31, 2004. This increase was a result additional personnel hired to support
      the
      increased selling and clinical research activities. We anticipate future payroll
      expense to increae as we prepare for the launch of two new product lines.




Consulting
      Expenses




Consulting
      expenses increased to $234,000 for the quarter ended December 31, 2005, an
      increase of 163% or $145,000, compared to $89,000 for the quarter ended December
      31, 2004. This increase was a result of approximately $103,000 related to
      product presentations, public relations and investor relations and approximately
      $25,000 related to increased accounting expenses. We anticipate additional
      increases in consulting expenses as we continue with clinical testing and
      developing new markets.




Provision
      for Income Taxes




As
      a
      result of the loss for the quarter ended December 31, 2005, income tax benefits
      of $25,000 were recognized during the current quarter compared to $244,000
      of
      tax expense being recognized during the quarter ended December 31, 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.








*Nine
      months ended December 31, 2005 Compared to Nine months ended December 31,
      2004*




**Selected
      Financial Information**


Nine
                  Months EndedIncrease12/31/05
              
              12/31/04
              
              (Decrease)
              
              
              
              %Statements
                  of Operations:Net
                  sales
              
              $
              6,629,000
              
              $
              4,960,000
              
              $
              1,669,000
              
              
              
              
              34
              %Cost
                  of goods sold
              
              
              3,403,000
              
              
              2,786,000
              
              
              617,000
              
              
              
              
              22
              %%
                  of net sales
              
              
              51
              %
              
              56
              %
              
              -5
              %
              
              
              
              -9
              %Gross
                  profit
              
              
              3,226,000
              
              
              2,174,000
              
              
              1,052,000
              
              
              
              
              48
              %%
                  of net sales
              
              
              49
              %
              
              44
              %
              
              5
              %
              
              
              
              11
              %Operating
                  expensesGeneral
                  and administrative
              
              
              1,459,000
              
              
              649,000
              
              
              810,000
              
              
              
              
              125
              %Payroll
                  expense
              
              
              513,000
              
              
              351,000
              
              
              162,000
              
              
              
              
              46
              %Consulting
                  expense
              
              
              703,000
              
              
              243,000
              
              
              460,000
              
              
              
              
              189
              %Total
                  operating expenses
              
              
              2,675,000
              
              
              1,243,000
              
              
              1,432,000
              
              
              
              
              115
              %Interest
                  expense
              
              
              (18,000
              )
              
              (21,000
              )
              
              (3,000
              )
              
              
              
              -14
              %Costs
                  related to stock options and warrants
              
              
              (5,312,000
              )
              
              -
              
              
              (5,312,000
              )
              
              
              
              NMOther
                  income
              
              
              26,000
              
              
              -
              
              
              26,000
              
              
              
              
              NMProvision
                  for (benefit from) taxes
              
              
              (79,000
              )
              
              212,000
              
              
              291,000
              
              
              
              
              NMNet
                  (loss) income
              
              
              (4,674,000
              )
              
              698,000
              
              
              (5,372,000
              )
              
              
              
              NMNet
                  (loss) income per share basic
              
              
              (0.44
              )
              
              0.08
              
              
              (0.52
              )
              
              
              
              NMNet
                  (loss) income per share diluted
              
              
              -
              
              
              0.07
              
              
              (0.07
              )
              
              
              
              NM







Net
      Sales




Net
      sales
      for the nine months ended December 31, 2005 increased $1,669,000, 34%, to
      $6,629,000 compared to $4,960,000 for the nine months ended December 31, 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.




19


Cost
      of Goods Sold




Cost
      of
      goods sold as a percentage of net sales was 51% for the nine months ended
      December 31, 2005 compared to 56% for the nine months ended December 31, 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 $810,000, a 125% increase, to
      $1,459,000 for the nine months ended December 31, 2005 from $649,000 for the
      nine months ended December 31, 2004. The primary reasons for the increase were
      approximately $481,000 increase in commissions associated with a media campaign
      to brand Celadrin â ,
      approximately $94,000 charged to marketing expenses, $49,000 increase to bad
      debts before recoveries, $50,000 increase in travel costs associated with
      clinical research, and $36,000 increase in the costs of delivery services.
      We
      anticipate a reduction in future general and administrative expense as a result
      of a decrease in future commission expense discussed above.




Payroll
      Expense




Payroll
      expense increased to $513,000 for the nine months ended December 31, 2005,
      an
      increase of 46% or $162,000, compared to $351,000 for the nine months ended
      December 31, 2004. This increase was a result of additional personnel hired
      to
      support the increased selling and clinical research activities. We anticipate
      future increases to payroll expense to be slow down.




Consulting
      Expenses




Consulting
      expenses increased to $703,000 for the nine months ended December 31, 2005,
      an
      increase of 189% or $460,000, compared to $243,000 for the nine months ended
      December 31, 2004. This increase was a result of an approximate $116,000
      increase in clinical research and selling activities, an approximate $165,000
      increase in accounting expenses inclusive of the costs of changing to a new
      auditing firm, and an approximate $44,000 increase in litigation expenses.
      We
      anticipate additional increases as we continue with clinical testing and
      approaching new markets.




Costs
      Related to Stock Options and Warrants




We
      recorded non-cash expense of $5,312,000 during the nine months ended December
      31, 2005, related primarily 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 nine months ended December 31, 2005, the Company
      reflected an income tax benefit of $79,000 compared to income tax expense of
      $212,000 for the nine months ended December 31, 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.







20




**Capital
      Resources**




Working
        Capital
  Increase12/31/05
              
              3/31/05
              
              (Decrease)Current
                  assets
              
              $
              5,260,000
              
              $
              5,546,000
              
              $
              (286,000
              )Current
                  liabilities
              
              
              503,000
              
              
              1,600,000
              
              
              1,097,000Working
                  capital
              
              $
              4,757,000
              
              $
              3,946,000
              
              $
              811,000Long-term
                  debt
              
              $
              -
              
              $
              -
              
              $
              -Stockholders'
                  equity
              
              $
              5,365,000
              
              $
              4,172,000
              
              $
              1,193,000
  Statements
        of Cash Flows Select Information
 Nine
                  Months Ended
              
              Increase12/31/05
              
              12/31/04
              
              (Decrease)Net
                  cash provided by (used in):Operating
                  activities
              
              $
              280,000
              
              $
              395,000
              
              $
              (115,000
              )Investing
                  activities
              
              $
              (169,000
              )
              $
              (75,000
              )
              $
              (94,000
              )Financing
                  activities
              
              $
              54,000
              
              $
              -
              
              $
              54,000
  Balance
          Sheet Select Information
 Increase12/31/05
              
              3/31/05
              
              (Decrease)Cash
                  and cash equivalients
              
              $
              2,196,000
              
              $
              2,031,000
              
              $
              165,000Accounts
                  receivable
              
              $
              1,001,000
              
              $
              2,064,000
              
              $
              (1,063,000
              )Inventory
              
              $
              1,358,000
              
              $
              1,382,000
              
              $
              (24,000
              )Accounts
                  payable and accrued expenses
              
              $
              437,000
              
              $
              862,000
              
              $
              (425,000
              )




**Liquidity**


We
      have
      historically financed our operations internally and through debt and equity
      financings. At December 31, 2005, we had cash holdings of $2,196,000, an
      increase of $165,000 compared to March 31, 2005. Our net working capital
      position at December 31, 2005, was $4,757,000 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.





21


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.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections"
      ("SFAS 154") which replaces Accounting Principles Board Opinions No. 20
      "Accounting Changes" and SFAS No. 3, "Reporting Accounting Changes in Interim
      Financial Statements-An Amendment of APB Opinion No. 28." SFAS 154 provides
      guidance on the accounting for and reporting of accounting changes and error
      corrections. It establishes retrospective application, or the latest practicable
      date, as the required method for reporting a change in accounting principle
      and
      the reporting of a correction of an error. SFAS 154 is effective for accounting
      changes and a correction of errors made in fiscal years beginning after December
      15, 2005 and is required to be adopted by the Company in the first quarter
      of
      fiscal 2007. The Company is currently evaluating the effect that the adoption
      of
      SFAS 154 will have on its consolidated results of operations and financial
      condition.







**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 nine
      months ended December 31, 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 25%, 14%, 12% and 12% of our sales for the
      nine
      months ended December 31, 2005. The loss of any of these customers would
      significantly reduce our revenue and adversely affect our cash flow and
      earnings, if any.




22


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





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





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





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





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





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





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





We
      are
      subject to laws and regulations which cover:





•
            theformulation, manufacturing, packaging, labeling, distribution,
                importation, sale and storage of our products;




•
            the
                health and safety of food and drugs;





•
            trade
                practice and direct selling laws; and





•
            product
                claims and advertising by us; or for which we may be held
                responsible.





Compliance
      with these laws and regulations is time consuming and expensive. Moreover,
      new
      regulations could be adopted that would severely restrict the products we sell
      or our ability to continue our business.





**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.**





As
      of
      December 31, 2005, we have 10,687,344 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 5,270,156 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.





23


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





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





• The
      lack
      of readily available price quotations;





•
The
      absence of consistent administrative supervision of "bid" and "ask" quotations;





•
Lower
      trading volume; and





•
Market
      conditions.





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





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





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





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





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





•
            A
                standardized risk disclosure document identifying the risks inherent
                in
                investment in pennystocks;





•
            All
                compensation received by the broker-dealer in connection with the
                transaction;





•
            Current
                quotation prices and other relevant market data; and





•
            Monthly
                account statements reflecting the fair market value of the securities.
                In
                addition, theserules
                require that a broker-dealer obtain financial and other information
                from a
                customer, determinethat
                transactions in penny stocks are suitable for such customer and deliver
                a
                written statement to such customer setting forth the basis for this
                determination.






24




**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 nine months ended December 31, 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:





|· | 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.**




In
      June
      2005, we filed a lawsuit in the Superior Court of the State of California-
      County of San Diego, case number GIC8448564, against ABCO Laboratories, Inc.,
      a
      vendor of ours. We are requesting the court to award damages for a breach of
      a
      written contractors agreement, breach of implied warranty of merchantability
      ,
      intentional interference with a contractual relationship and unfair
      competition.




**ITEM
      2.     UNREGISTERED SALES OF EQUITY SECURITIES AND USE
      OF PROCEEDS.**




None.




**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
      corporation




Date:
              February 13, 2006
            By:
            /s/
              WILLIAM P. SPENCERWilliam
              P. SpencerChief
              Executive Officer(Principal
              Executive and duly authorizedto
              sign on behalf of the Registrant)





EX-1