UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549




FORM
10-Q




(Mark
One)




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




For
quarterly period ended September 30,
2010




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




For the
transition period from _____ to _____




COMMISSION
FILE NUMBER 033-24138-D




IMAGENETIX,
INC.


(Exact
name of registrant as specified in its charter)




NEVADA
                
                87-0463772(State
      or other jurisdiction of incorporation or
                  organization)
                
                (I.R.S.
      Employer Identification
No.)





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




Registrant’s
telephone number (including area code)  (858)
674-8455




Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.


Yes xNo ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes  ̈   No
 ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.


Large
      accelerated filer o
            
            Accelerated
      filer o
            
            Non-accelerated
      filer o
            
            Smaller
      reporting company x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes  ̈ Nox




State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date:




Common Stock, $.001 par
    value
              11,811,288(Class)
              Outstanding
      at November 15, 2010







Imagenetix,
Inc.




INDEX





PagePART I.
                                      FINANCIAL INFORMATIONItem 1.
                                      Financial Statements:Condensed Consolidated Balance Sheets as of September 30, 2010
      (unaudited) and March 31, 2010
                                      
                                      3Condensed Consolidated Statements of Operations for the three
      and six months ended September 30, 2010 and 2009 (unaudited)
                                      
                                      4Condensed Consolidated Statements of Cash Flows for the six
      months ended September 30, 2010 and 2009 (unaudited)
                                      
                                      5Notes to Unaudited Condensed Consolidated Financial
      Statements
                                      
                                      6Item 2.
                                      Management’s Discussion and Analysis of Financial Conditionand Results of Operations
                                      
                                      13Item 3.
                                      Quantitative and Qualitative Disclosures About Market Risk
                                      
                                      *Item 4T.
                                      Controls and Procedures
                                      
                                      20PART II.
                                      OTHER INFORMATIONItem 1.
                                      Legal Proceedings
                                      
                                      21Item 1A.
                                      Risk Factors
                                      
                                      21Item 2.
                                      Unregistered Sales of Equity Securities and Use of Proceeds
                                      
                                      24Item 3.
                                      Defaults Upon Senior Securities
                                      
                                      *Item 4.
                                      Reserved
                                      
                                      *Item 5.
                                      Other Information
                                      
                                      *Item 6.
                                      Exhibits
                                      
                                      24SIGNATURES*       No
      information provided due to inapplicability of the item.




2




PART
I – FINANCIAL INFORMATION




Item
1.  Financial Statements




Imagenetix,
Inc.


Condensed
Consolidated Balance Sheets





September 30,
                              
                              
                              March 31,2010
                              
                              
                              2010(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                              
                              $
                              371,268
                              
                              
                              $
                              981,510Accounts
      receivable, net
                              
                              
                              2,602,839
                              
                              
                              
                              1,049,047Inventories,
      net
                              
                              
                              1,287,008
                              
                              
                              
                              1,350,041Prepaid
      expenses and other current assets
                              
                              
                              275,526
                              
                              
                              
                              150,690Deferred
      tax asset
                              
                              
                              1,170,800
                              
                              
                              
                              932,800Total
      current assets
                              
                              
                              5,707,441
                              
                              
                              
                              4,464,088Property and equipment,net
                              
                              
                              74,821
                              
                              
                              
                              89,137Long-term
      prepaid expenses
                              
                              
                              12,000
                              
                              
                              
                              18,000Other
      assets
                              
                              
                              119,519
                              
                              
                              
                              124,598Total
      Assets
                              
                              $
                              5,913,781
                              
                              
                              $
                              4,695,823LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Secured
      note payable to a bank
                              
                              $
                              890,000
                              
                              
                              $
                              -Convertible
      notes
                              
                              
                              288,895
                              
                              
                              
                              -Accounts
      payable
                              
                              
                              1,031,019
                              
                              
                              
                              996,827Accrued
      liabilities
                              
                              
                              81,715
                              
                              
                              
                              82,392Customer
      deposits
                              
                              
                              21,481
                              
                              
                              
                              25,374Contract
      payable
                              
                              
                              9,913
                              
                              
                              
                              85,972Total
      current liabilities
                              
                              
                              2,323,023
                              
                              
                              
                              1,190,565Stockholders'
      equityPreferred
      stock, $.001 par value; 5,000,000 sharesauthorized:
      none outstanding
                              
                              
                              -
                              
                              
                              
                              -Common
      stock, $.001 par value; 50,000,000 sharesauthorized:
      11,811,288 and 11,010,788 issued and outstanding atSeptember
      30 and March 31, 2010, respectively
                              
                              
                              11,810
                              
                              
                              
                              11,010Capital
      in excess of par value
                              
                              
                              13,419,429
                              
                              
                              
                              12,801,171Accumulated
      deficit
                              
                              
                              (9,840,481
                              )
                              
                              
                              (9,306,923
                              )Total
      stockholders' equity
                              
                              
                              3,590,758
                              
                              
                              
                              3,505,258Total
      Liabilities and Stockholders' Equity
                              
                              $
                              5,913,781
                              
                              
                              $
                              4,695,823


See
accompanying  notes to unaudited condensed consolidated financial
statements.


3




Imagenetix,
Inc.


Condensed
Consolidated Statements of Operations


(Unaudited)





Three Months Ended
                          
                          
                          Six Months EndedSeptember 30,
                          
                          
                          September 30,
                          
                          
                          September 30,
                          
                          
                          September 30,2010
                          
                          
                          2009
                          
                          
                          2010
                          
                          
                          2009Net
      sales
                          
                          $
                          3,220,022
                          
                          
                          $
                          1,900,619
                          
                          
                          $
                          4,304,986
                          
                          
                          $
                          3,602,909Cost
      of sales
                          
                          
                          1,431,867
                          
                          
                          
                          1,039,454
                          
                          
                          
                          2,181,501
                          
                          
                          
                          2,094,652Gross
      profit
                          
                          
                          1,788,155
                          
                          
                          
                          861,165
                          
                          
                          
                          2,123,485
                          
                          
                          
                          1,508,257Operating
      expenses:General
      and administrative
                          
                          
                          876,029
                          
                          
                          
                          574,976
                          
                          
                          
                          1,471,808
                          
                          
                          
                          1,382,925Payroll
      expense
                          
                          
                          319,682
                          
                          
                          
                          269,122
                          
                          
                          
                          562,212
                          
                          
                          
                          523,539Consulting
      expense
                          
                          
                          342,519
                          
                          
                          
                          294,506
                          
                          
                          
                          752,553
                          
                          
                          
                          574,906Operating
      expenses
                          
                          
                          1,538,230
                          
                          
                          
                          1,138,604
                          
                          
                          
                          2,786,573
                          
                          
                          
                          2,481,370Operating
      income (loss)
                          
                          
                          249,925
                          
                          
                          
                          (277,439
                          )
                          
                          
                          (663,088
                          )
                          
                          
                          (973,113
                          )Other
      income (expense):Other
      income
                          
                          
                          355
                          
                          
                          
                          781
                          
                          
                          
                          1,172
                          
                          
                          
                          2,198Gain
      on settlement
                          
                          
                          -
                          
                          
                          
                          1,250,000
                          
                          
                          
                          -
                          
                          
                          
                          1,250,000Interest
      expense
                          
                          
                          (25,358
                          )
                          
                          
                          -
                          
                          
                          
                          (114,442
                          )
                          
                          
                          (2,405
                          )Other
      income (expense):
                          
                          
                          (25,003
                          )
                          
                          
                          1,250,781
                          
                          
                          
                          (113,270
                          )
                          
                          
                          1,249,793Income
      (loss) before income taxes
                          
                          
                          224,922
                          
                          
                          
                          973,342
                          
                          
                          
                          (776,358
                          )
                          
                          
                          276,680Income
      tax expense (provision)
                          
                          
                          154,900
                          
                          
                          
                          420,800
                          
                          
                          
                          (242,800
                          )
                          
                          
                          138,800Net
      income (loss)
                          
                          $
                          70,022
                          
                          
                          $
                          552,542
                          
                          
                          $
                          (533,558
                          )
                          
                          $
                          137,880Basic
      net income (loss) per share
                          
                          $
                          0.01
                          
                          
                          $
                          0.05
                          
                          
                          $
                          (0.05
                          )
                          
                          $
                          0.01Diluted
      net income (loss) per share
                          
                          $
                          0.01
                          
                          
                          $
                          0.05
                          
                          
                          $
                          (0.05
                          )
                          
                          $
                          0.01Basic
      weighted average common shares outstanding
                          
                          
                          11,810,903
                          
                          
                          
                          11,010,788
                          
                          
                          
                          11,560,296
                          
                          
                          
                          11,010,788Diluted
      weighted average common shares outstanding
                          
                          
                          11,927,902
                          
                          
                          
                          11,059,348
                          
                          
                          
                          11,560,296
                          
                          
                          
                          11,095,768





See
accompanying  notes to unaudited condensed consolidated financial
statements.


4




Imagenetix,
Inc.


Consolidated
Statements of Cash Flows


(Unaudited)





Six Months Ended September 30,2010
                                  
                                  
                                  2009Operating
      activities:Net
      income (loss)
                                  
                                  $
                                  (533,558
                                  )
                                  
                                  $
                                  137,880Adjustments
      to reconcile net income (loss)to
      cash provided by (used in) operating activities:Amortization
      and depreciation
                                  
                                  
                                  25,957
                                  
                                  
                                  
                                  26,570Provision
      for doubtful accounts
                                  
                                  
                                  (25,000
                                  )
                                  
                                  
                                  11,000Provision
      for returns and discounts
                                  
                                  
                                  38,000
                                  
                                  
                                  
                                  -Provision
      for inventory obsolescence
                                  
                                  
                                  (7,005
                                  )
                                  
                                  
                                  (24,551
                                  )Non
      cash expense related to issuance of warrantsand
      granting of stock options
                                  
                                  
                                  207,729
                                  
                                  
                                  
                                  42,165Changes
      in assets and liabilities:(Increase)
      decrease in accounts receivable
                                  
                                  
                                  (1,566,792
                                  )
                                  
                                  
                                  (3,195
                                  )(Increase)
      decrease in other receivables
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,250,000
                                  )(Increase)
      decrease in inventories
                                  
                                  
                                  70,038
                                  
                                  
                                  
                                  263,888(Increase)
      decrease in other assets
                                  
                                  
                                  (118,836
                                  )
                                  
                                  
                                  (109,785
                                  )(Increase)
      decrease in deferred taxes
                                  
                                  
                                  (242,800
                                  )
                                  
                                  
                                  138,800Increase
      (decrease) in accounts payable
                                  
                                  
                                  34,192
                                  
                                  
                                  
                                  223,100Increase
      (decrease) in accrued liabilities
                                  
                                  
                                  (677
                                  )
                                  
                                  
                                  1,725Increase
      (decrease) in customer deposits
                                  
                                  
                                  (3,893
                                  )
                                  
                                  
                                  (21,576
                                  )Increase
      (decrease) in income taxes payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (69,803
                                  )Net
      cash used in operating activities
                                  
                                  
                                  (2,122,645
                                  )
                                  
                                  
                                  (633,782
                                  )Investing
      activities:Purchases
      of property and equipment
                                  
                                  
                                  (1,762
                                  )
                                  
                                  
                                  -Net
      cash used in investing activities
                                  
                                  
                                  (1,762
                                  )
                                  
                                  
                                  -Financing
      activities:Payments
      on contracts payable
                                  
                                  
                                  (76,059
                                  )
                                  
                                  
                                  (43,645
                                  )Payments
      on patent license financed
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,980
                                  )Proceeds
      from bridge loans, convertible notesand
      bank financings
                                  
                                  
                                  1,600,000
                                  
                                  
                                  
                                  -Payments
      on bridge loans
                                  
                                  
                                  (410,000
                                  )
                                  
                                  
                                  -Proceeds
      from exericse of warrants
                                  
                                  
                                  224
                                  
                                  
                                  
                                  -Proceeds
      from sale of common stock
                                  
                                  
                                  400,000
                                  
                                  
                                  
                                  -Net
      cash (used in) provided by financing activities
                                  
                                  
                                  1,514,165
                                  
                                  
                                  
                                  (46,625
                                  )Net
      decrease in cash and cash equivalents
                                  
                                  
                                  (610,242
                                  )
                                  
                                  
                                  (680,407
                                  )Cash and cash
      equivalents, beginning of period
                                  
                                  
                                  981,510
                                  
                                  
                                  
                                  1,225,723Cash and cash
      equivalents, end of period
                                  
                                  $
                                  371,268
                                  
                                  
                                  $
                                  545,316Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the period for:Interest
                                  
                                  $
                                  42,120
                                  
                                  
                                  $
                                  2,405Income
      taxes
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  69,803Non
      Cash Investing and Financing Activities:Debt
      discount on convertible notes
                                  
                                  $
                                  11,105
                                  
                                  
                                  $
                                  -


See
accompanying  notes to unaudited condensed consolidated financial
statements.




5




IMAGENETIX,
INC.




Notes
to the Unaudited Condensed Consolidated Financial Statements





1.
            BASIS OF
      PRESENTATION





The
consolidated financial statements of Imagenetix, Inc. ("Imagenetix") presented
herein have been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-Q and do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America. These statements should be read in conjunction
with our audited consolidated financial statements and notes thereto included in
Form 10-K for the year ended March 31, 2010.





In the
opinion of management, the interim consolidated financial statements reflect all
adjustments of a normal recurring nature necessary for a fair statement of the
results for interim periods. Operating results for the three and six month
periods are not necessarily indicative of the results that may be expected for
the year.





Earnings Per
Share





We follow
the Financial Accounting Standards Board Accounting Standards Codification
("ASC") No. 260.  Under ASC No. 260, 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 8 for a discussion
of commitments to issue additional shares of common stock and
warrants.





Stock Based
Compensation





We
account for stock based compensation under ASC Nos. 718 and 505. ASC Nos. 718
and 505 require all share-based payments to employees, including grants of
employee stock options, to be recognized in the financial statements based on
their fair values.





We have
selected the Black-Scholes method of valuation for share-based compensation. The
charge is recognized in non-cash compensation, which is included in stock-based
compensation expense, on a straight-line basis over the remaining service period
based on the options’ original estimate of fair value.





We apply
ASC Nos. 718 and 505 in valuing options granted to consultants and estimate the
fair value of such options using the Black-Scholes option-pricing model. The
fair value is recorded as consulting expense as services are provided. Options
granted to consultants for which vesting is contingent based on future
performance are measured at their then current fair value at each period end,
until vested.





Research
and Development





We incur
expenses to further develop our products and formulas, commission entities to
perform clinical trials and evaluate potential products to expand our
portfolio.  In addition, we recently received a new patent for a drug
candidate which, if successful, will address periodontal diseases.  We
have started the initial new drug process and have completed several animal
studies.  During the three and six months ended September 30, 2010 we
incurred research and development expenses of $0 and $19,491, respectively,
compared to $11,220 and $50,895 for the corresponding periods of the previous
fiscal year.


6





IMAGENETIX,
INC.


Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)





2.
            NEW
      ACCOUNTING STANDARDS





In
February 2010, the FASB issued a standards update on improving disclosures about
subsequent events so that SEC filers no longer are required to disclose the date
through which subsequent events have been evaluated in originally issued and
revised financial statements.  This update to the standards is
effective for this interim report.  The adoption of this update to the
standards did not impact our financial statements as it only impacts the
footnote disclosures.  We have included the applicable disclosure in
Note 10- Subsequent Events.





A variety
of proposed or otherwise potential accounting standards are currently under
study by standard-setting organizations and various regulatory
agencies.  Because of the tentative and preliminary nature of these
proposed standards, management has not determined whether implementation of such
proposed standards would be material to the Company’s consolidated financial
statements.





3.
            ACCOUNTS
      RECEIVABLE





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


September 30,
                    
                    
                    March 31,2010
                    
                    
                    2010Accounts
      receivable - trade
                    
                    $
                    2,751,839
                    
                    
                    $
                    1,185,047Allowance
      for doubtful accounts
                    
                    
                    (25,000
                    )
                    
                    
                    (50,000
                    )Allowance
      for returns and discounts
                    
                    
                    (124,000
                    )
                    
                    
                    (86,000
                    )Accounts
      receivable, net
                    
                    $
                    2,602,839
                    
                    
                    $
                    1,049,047





At
September 30, 2010, we had three customers which accounted for 49%, 26% and 14%,
respectfully, of our accounts receivable balances.At March 31,
2010, we had three customers which accounted for 48%, 21% and 10%, respectfully,
of our accounts receivable balances.





For the
six months ended September 30, 2010, we had three significant customers which
accounted for 52%, 17% and 13%, respectfully, of sales.  For the six
months ended September 30, 2009, we had three significant customers which
accounted for 26%, 23%, and 16%, respectfully, of sales.


7




IMAGENETIX,
INC.


Notes
to the Unaudited Condensed Consolidated Financial Statements (Continued)




4.
            INVENTORIES




Inventories
consist of the following:





September 30,
                    
                    
                    March 31,2010
                    
                    
                    2010Raw
      materials
                    
                    $
                    756,784
                    
                    
                    $
                    1,032,817Finished
      products
                    
                    
                    433,968
                    
                    
                    
                    216,099Boxes,
      labels, tubes & bottles
                    
                    
                    239,256
                    
                    
                    
                    251,1301,430,008
                    
                    
                    
                    1,500,046Reserve
      for obsolescence
                    
                    
                    (143,000
                    )
                    
                    
                    (150,005
                    )$
                    1,287,008
                    
                    
                    $
                    1,350,041





5.
            OTHER
      ASSETS





The
following is a summary of intangible assets which are included in “Other Assets”
on the face of the balance sheet:





September 30,
                    
                    
                    March 31,2010
                    
                    
                    2010Trademarks
                    
                    $
                    13,032
                    
                    
                    $
                    13,032Patent
                    
                    
                    172,965
                    
                    
                    
                    172,965Deferred
      tax asset
                    
                    
                    29,400
                    
                    
                    
                    24,600215,397
                    
                    
                    
                    210,597Less
      accumulated amortization
                    
                    
                    (95,878
                    )
                    
                    
                    (85,999
                    )$
                    119,519
                    
                    
                    $
                    124,598





6.
            SECURED NOTE PAYABLE TO A
      BANK





In June
2010, we entered into an asset based line of credit with a bank.  The
terms of the agreement enable us to borrow up to 65% of our accounts receivables
and up to $300,000 of our inventory subject to certain
limitations.  The maximum amount we can borrow is $1,500,000 of which
$890,000 was outstanding at September 30, 2010.  The interest rate on
the outstanding balance is the greater of the prime rate plus 1.75% or 5% plus a
monthly maintenance fee of 0.25% and an annual facility fee of 1% of the maximum
borrowing amount.  The bank has been given a secured position in the
assets of the company.





7.
            CONVERTIBLE
      NOTES





Overview. In May 2010 and
September 2010, we sold an aggregate of $710,000 of 7% convertible notes to a
group of 6 individual investors.   The notes issued in May 2010
aggregating to $410,000 were repaid by the Company in June 2010 under a call
provision which included a 7% premium payment to the note
holders.  The convertible notes entitle the note holder, unless a call
provision is exercised by the Company before the initial maturity date of the
note, to convert the principal into our common stock.  Interest on the
notes  is payable quarterly in cash or at the earlier of maturity,
conversion in common stock, or on the exercise of the call provision previous to
maturity by  the Company.


8





IMAGENETIX,
INC.


Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)





Number of Shares Notes May Be
Converted Into. The notes can be converted into a number of our common
shares at a conversion price equal to $0.50 per share.





Warrants. Concurrent with the
issuance of the convertible notes, we issued to the note holders warrants to
purchase shares of our common stock. These warrants are exercisable for five
years from the date of issuance at an exercise price of $0.50 per
share.  At the option of the note holder, at the conclusion of the
initial six month term, the convertible notes may be renewed for additional six
month terms.  Should the note be extended, an additional like warrant
will be issued to the note holder.





The
following table presents the status, as of September 30 and March 31, 2010, of
our convertible
debentures:





As ofSeptember 30, 2010
                    
                    
                    March 31, 2010Convertible
      debentures issued
                    
                    $
                    300,000
                    
                    
                    $
                    -Less
      debt discount
                    
                    
                    (11,105
                    )
                    
                    
                    -288,895
                    
                    
                    
                    -Less
      current portion
                    
                    
                    (288,895
                    )
                    
                    
                    -Long
      term portion
                    
                    $
                    -
                    
                    
                    $
                    -Maturity
      dates of outstandingconvertible
      debenturesMarch
      2011
                    
                    $
                    300,000
                    
                    
                    $
                    -




8.
            EQUITY
      TRANSACTIONS





In May
2010, we issued 800,000 shares of restricted common stock to two institutional
investors for an aggregated amount of $400,000, or $0.50 per share.





During
the three and six months ended September 30, 2010, we recorded non-cash interest
of $9,622 and $67,175 as a result of  notes we entered into and paid
off during the periods.  We also recorded non-cash compensation of
$116,545 and $122,250 and non-cash general and administrative expense of $9,152
and $18,304 for stock options and warrants issued to employees and
consultants.  For the three and six months ended September 30, 2009,
we recorded non-cash compensation and general and administrative expense of
$5,705 and $42,165.  The significant assumptions used in the Black
Sholes model to estimate the expenses for the issuance of stock options and
warrants are as follows:


9




IMAGENETIX,
INC.


Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)





Three months ended September 30,
                    
                    
                    Six months ended September 30,2010
                    
                    
                    2009
                    
                    
                    2010
                    
                    
                    2009Expected
      term of options and warrants
                    
                    5
      years
                    
                    
                    
                    -
                    
                    
                    5 years
                    
                    
                    5 yearsExpected
      volatility
                    
                    78%
                    
                    
                    
                    -
                    
                    
                    78% to 79%
                    
                    
                    73%Expeceted
      dividends
                    
                    None
                    
                    
                    
                    -
                    
                    
                    None
                    
                    
                    NoneRisk-free
      interest rate
                    
                    1.28% to 1.47%
                    
                    
                    
                    -
                    
                    
                    1.28%
      to 2.01%
                    
                    
                    2.95%Forteitures
                    
                    0%
                    
                    
                    
                    -
                    
                    
                    0%
                    
                    
                    0%




A summary
of the options outstanding follows:





For the Six Months EndedSeptember 30, 2010WeightedAverageExerciseOptions
                          
                          Shares
                          
                          
                          PriceOutstanding
      at beginning of year
                          
                          
                          1,589,000
                          
                          
                          $
                          1.26Granted
                          
                          
                          895,000
                          
                          
                          
                          0.38Cancelled
                          
                          
                          (594,000
                          )
                          
                          
                          2.04Exercised
                          
                          
                          -
                          
                          
                          
                          -Outstanding
      at end of the period
                          
                          
                          1,890,000
                          
                          
                          $
                          0.60Exercisable
      at end of the the period
                          
                          
                          1,442,500
                          
                          
                          $
                          0.67Weighted
      average fair value of optionsgranted
      during the period
                          
                          
                          895,000
                          
                          
                          $
                          0.24





As of
September 30, 2010, the unamortized portion of stock compensation expense on all
existing stock options was $98,615.


10




IMAGENETIX,
INC.


Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)





A summary
of other warrants outstanding follows:





For the Six Months EndedSeptember 30, 2010WeightedAverageExerciseWarrants
                          
                          Shares
                          
                          
                          PriceOutstanding
      at beginning of year
                          
                          
                          3,960,707
                          
                          
                          $
                          1.15Granted
                          
                          
                          501,341
                          
                          
                          
                          0.47Cancelled
                          
                          
                          (200,000
                          )
                          
                          
                          2.11Exercised
                          
                          
                          (500
                          )
                          
                          
                          0.45Outstanding
      at end of the period
                          
                          
                          4,261,548
                          
                          
                          $
                          1.03Exercisable
      at end of the the period
                          
                          
                          4,261,548
                          
                          
                          $
                          1.03Weighted
      average fair value of warrantsgranted
      during the period
                          
                          
                          501,341
                          
                          
                          $
                          0.28





9.
            INCOME
      TAXES





We have
adopted ASC 740 which prescribes a comprehensive model of how a company should
recognize, measure, present, and disclose in its financial statements uncertain
tax positions that the company has taken or expects to take on a tax
return.  ASC 740 states that a tax benefit from an uncertain position
may be recognized if it is "more likely than not" that the position is
sustainable, based upon its technical merits. The tax benefit of a qualifying
position is the largest amount of tax benefit that is greater


than 50
percent likely of being realized upon ultimate settlement with a taxing
authority having full knowledge of all relevant information.





Upon
adoption of ASC 740, there was no impact to our consolidated financial
statements.  We estimate that the unrecognized tax benefit will not
change significantly within the next twelve months.  We will continue
to classify income tax penalties and interest as part of general and
administrative expense in our statements of operations.  Accrued
interest on uncertain tax positions is not significant.  There are no
penalties accrued as of September 30, 2010.  The following table
summarizes the open tax years for each major jurisdiction:





Jurisdiction
                  
                  Open Tax
                    YearsFederal
                  
                  2007
      – 2009California
                  
                  2007
      – 2009





As we
have had significant net operating loss carry forwards, even if certain of our
tax positions were disallowed, it is not foreseen that we would have to pay any
taxes in the near future. Consequently, we do not calculate the impact of
interest or penalties on amounts that might be disallowed.


11




IMAGENETIX,
INC.


Notes
to the Unaudited Condensed Consolidated Financial Statements
(Continued)





10.
            FAIR
      VALUE OF FINANCIAL INSTRUMENTS





In
January 2010, the Financial Accounting Standards Board (FASB) issued
authoritative guidance for fair value measurements, which requires additional
disclosures and clarifications to existing disclosures. This authoritative
guidance requires a reporting entity to disclose separately the amounts of
significant transfers in and out of Level 1 and Level 2 investments
and describe the reasons for these transfers. This authoritative guidance also
requires enhanced disclosure of activity in Level 3 investments. The new
disclosures and clarifications of existing disclosures became effective for
Imagenetix in the first quarter of fiscal year 2011 and had no impact on our
consolidated financial position, results of operations or cash
flows.





11.
            SUBSEQUENT
      EVENTS





In
accordance with FASB ASC Topic 855- Subsequent Events, general standards are
established for the accounting and disclosures of events that occurred after the
balance sheet date but before financial statements are issued or are available
to be issued.  For the three months ended September 30, 2010, we
evaluated, for potential recognition and disclosure, events that occurred
through the date of the filing of our Quarterly Report on form 10Q for the three
and six months ended September 30, 2010, and determined no adjustment or
additional disclosure is needed.


12





ITEM
2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.





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-K FOR THE YEAR ENDED MARCH 31,
2010.




Overview




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





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





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





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





Critical Accounting Policies and
Estimates





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





1. 
Accounts receivable


Accounts
receivable are carried at the expected net realizable value. The allowance for
doubtful accounts is based on management’s assessment of the collectability 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.


13




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




We
recognize revenue in accordance with the SEC’s Staff Accounting Bulletin
No. 104, “Revenue Recognition in Financial Statements” (SAB104) and ASC
605.   SAB 104 requires that four basic criteria be met before
revenue can be recognized: 1) there is evidence that an arrangement exists; 2)
delivery has occurred; 3) the fee is fixed or determinable; and 4)
collectability is reasonably assured. ASC 605 states that revenue from sales
transactions where the buyer has the right to return the product shall be
recognized at the time of sale only if (1) the seller’s price to the buyer
is substantially fixed or determinable at the date of sale; (2) the buyer
has paid the seller, or the buyer is obligated to pay the seller and the
obligation is not contingent on  resale of the product; (3) the
buyer’s obligation to the seller would not be changed in the event of theft or
physical destruction or damage of the product; (4) the buyer acquiring the
product for resale has economic substance apart from that provided by the
seller; (5) the seller does not have significant obligations for future
performance to directly bring about resale of the product by the buyer; and
(6) the amount of future returns can be reasonably estimated. We recognize
revenue upon determination that all criteria for revenue recognition have been
met. The criteria are usually met at the time title passes to the customer,
which usually occurs upon shipment. Revenue from shipments where title passes
upon delivery is deferred until the shipment has been delivered.




We
account for payments made to customers in accordance with ASC 605, which states
that cash consideration (including a sales incentive) given by a vendor to a
customer is presumed to be a reduction of the selling prices of the vendor’s
products or services and, therefore, should be characterized as a reduction of
revenue when recognized in the vendor’s income statement, rather than a sales
and marketing expense. We have various agreements with customers that provide
for discounts and rebates. These agreements are classified as a reduction of
revenue. Certain other costs associated with customers that meet the
requirements of ASC 605 are recorded as sales and marketing
expense.




We
guarantee customer satisfaction. Our policy requires the customer to return the
unused product to the retailer from whom they originally purchased
it.  We pay the retailer for the returned product plus a handling
cost. We periodically assess the adequacy of this policy and record a reserve as
necessary.   At September 30, 2010, we had established a reserve
of $124,000 to allow for potential customer returns, advertising and
discounts.




We review
gross revenue for estimated returns of private label contract manufacturing
products and direct-to-consumer products. The estimated returns are based upon
the trailing six months of private label contract manufacturing gross sales and
our historical experience for both private label contract manufacturing and
direct-to-consumer product returns. However, the estimate for product returns
does not reflect the impact of a large product recall resulting from product
nonconformance or other factors as such events are not predictable nor is the
related economic impact estimable.   For the three months ended
September 30, 2010, there were no returns that would suggest a liability needed
to be recorded.




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





4.  Income
Taxes


Deferred
income taxes are provided using the liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carry forwards and deferred tax liabilities are recognized for taxable
temporary differences.  Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax
bases.  Deferred tax assets are reduced by a valuation allowance when,
in the opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.  Deferred tax
assets and liabilities are adjusted for the effects of the changes in tax laws
and rates of the date of enactment.


14





When tax
returns are filed, it is highly certain that some positions taken would be
sustained upon examination by the taxing authorities, while others are subject
to uncertainty about the merits of the position taken or the amount of the
position that would be ultimately sustained.  The benefit of a tax
position is recognized in the financial statements in the period during which,
based on all available evidence, management believes it is more likely than not
that the position will be sustained upon examination, including the resolution
of appeals or litigation processes, if any.  Tax positions taken are
not offset or aggregated with other portions.  Tax positions that meet
the more-likely-than-not recognition threshold are measured as the largest
amount of tax benefit that is more than 50 percent likely of being realized upon
settlement with the applicable taxing authority.  The portion of the
benefits associated with the tax positions taken that exceed the amount measured
as described above is reflected as a liability for unrecognized tax benefits in
the accompanying balance sheet along with any associated interest and penalties
that would be payable to the taxing authorities upon
examination.




Selected
Financial Information




Results
of Operations




Three
Months Ended September 30, 2010 Compared to Three Months Ended September 30,
2009




Three Months EndedIncrease9/30/2010
                
                
                9/30/2009
                
                
                (Decrease)
                
                
                %Statements
      of Operations:Net
      sales
                
                $
                3,220,022
                
                
                $
                1,900,619
                
                
                $
                1,319,403
                
                
                
                69.4
                %Cost
      of goods sold
                
                
                1,431,867
                
                
                
                1,039,454
                
                
                
                392,413
                
                
                
                37.8
                %%
      of net sales
                
                
                44.5
                %
                
                
                54.7
                %
                
                
                -10.2
                %
                
                
                -18.7
                %Gross
      profit
                
                
                1,788,155
                
                
                
                861,165
                
                
                
                926,990
                
                
                
                107.6
                %%
      of net sales
                
                
                55.5
                %
                
                
                45.3
                %
                
                
                10.2
                %
                
                
                22.6
                %Operating
      expensesGeneral
      and administrative
                
                
                876,029
                
                
                
                574,976
                
                
                
                301,053
                
                
                
                52.4
                %Payroll
      expense
                
                
                319,682
                
                
                
                269,122
                
                
                
                50,560
                
                
                
                18.8
                %Consulting
      expense
                
                
                342,519
                
                
                
                294,506
                
                
                
                48,013
                
                
                
                16.3
                %Total
      operating expenses
                
                
                1,538,230
                
                
                
                1,138,604
                
                
                
                399,626
                
                
                
                35.1
                %Interest
      expense
                
                
                (25,358
                )
                
                
                -
                
                
                
                (25,358
                )
                
                NMSettlement
      income
                
                
                -
                
                
                
                1,250,000
                
                
                
                (1,250,000
                )
                
                NMOther
      income
                
                
                355
                
                
                
                781
                
                
                
                (426
                )
                
                
                -54.5
                %Provision
      for taxes
                
                
                154,900
                
                
                
                420,800
                
                
                
                265,900
                
                
                
                63.2
                %Net
      income
                
                
                70,022
                
                
                
                552,542
                
                
                
                (482,520
                )
                
                
                -87.3
                %Net
      income per share basic
                
                
                0.01
                
                
                
                0.05
                
                
                
                (0.04
                )
                
                
                -80.0
                %Net
      income per share diluted
                
                
                0.01
                
                
                
                0.05
                
                
                
                (0.04
                )
                
                
                -80.0
                %




Net
Sales




Net sales
for the quarter ended September 30, 2010 increased $1,319,403, a 69.4% increase,
to $3,220,022 compared to $1,900,619 for the quarter ended September 30,
2009.  The primary reason for the sales increase are increases in
sales of our own branded products, Celadrinâ and BioGuardâ, to the mass market as
follows:


15




Breakdown
of net sales





Three Months Ended September 30,2010
                        
                        
                        2009
                        
                        
                        Increase$
                        
                        
                        %
                        
                        
                        $
                        
                        
                        %
                        
                        
                        (Decrease)Wholesale
                        
                        $
                        26,075
                        
                        
                        
                        1
                        %
                        
                        $
                        751,834
                        
                        
                        
                        40
                        %
                        
                        $
                        (725,759
                        )Mass
      market
                        
                        
                        2,680,343
                        
                        
                        
                        83
                        %
                        
                        
                        735,585
                        
                        
                        
                        39
                        %
                        
                        
                        1,944,758Distibutors
                        
                        
                        513,604
                        
                        
                        
                        16
                        %
                        
                        
                        413,200
                        
                        
                        
                        22
                        %
                        
                        
                        100,404$
                        3,220,022
                        
                        
                        
                        100
                        %
                        
                        $
                        1,900,619
                        
                        
                        
                        100
                        %
                        
                        $
                        1,319,403




With the
expansion to all Costco stores of both Celadrin® and BioGuard®, the initial
shipment of Celadrin® to 800 Walmart stores and expansion of BioGuard® to all
RiteAid stores, we anticipate mass market sales to continue to be our leading
revenue generator.




Cost of Goods
Sold




Cost of
goods sold as a percentage of net sales decreased to 44% for the quarter ended
September 30, 2010 compared to 55% for the quarter ended September 30,
2009.  This decrease was the result of the product mix and increased
gross revenue providing economies of scale for both product costs and
advertising allowances.  We anticipate this percentage to remain
stable as a result of continued mass market penetration.




General and
Administrative




General
and administrative expenses increased $301,053, a 52% increase, to $876,029 for
the quarter ended September 30, 2010 compared to $574,976 for the quarter ended
September 30, 2009.   This increase was primarily due to an
increase in advertising expenses of approximately $291,000.  We
anticipate future increases in general and administrative expenses as we
increase our advertising campaign for Celadrin® and BioGuard® and increase
clinical research studies related to our periodontal drug development
candidate.




Payroll
Expense




Payroll
expense increased to $319,682 for the quarter ended September 30, 2010, an
increase of 19% or $50,560 compared to $269,122 for the quarter ended September
30, 2009.   This increase was a result of non-cash compensation
decreases related to employee stock options for the current fiscal period
compared to the previous year fiscal period.




Consulting
Expenses




Consulting
expenses increased to $342,519 for the quarter ended September 30, 2010, an
increase of 16% or $48,013 compared to $294,506 for the quarter ended September
30, 2009.  This increase was a result of increased legal expenses of
approximately $47,000.




Interest
Expense




Interest
expense of $25,358 was recognized during the quarter ended September 30, 2010
compared to $0 for the quarter ended September 30, 2009.  This
increase was the result of non-cash interest of $9,622 coupled with cash
payments of $15,736 related to the issuance of bridge loans and an asset based
line of credit with a bank.




Provision for Income
Taxes




An income
tax expense of $154,900 was recognized during the current quarter compared to
$420,800 recognized during the quarter ended September 30,
2009.


16




Six
Months Ended September 30, 2010 Compared to Six Months Ended September 30,
2009




Six Months EndedIncrease9/30/2010
                
                
                9/30/2009
                
                
                (Decrease)
                
                
                %Statements
      of Operations:Net
      sales
                
                $
                4,304,986
                
                
                $
                3,602,909
                
                
                $
                702,077
                
                
                
                19.5
                %Cost
      of goods sold
                
                
                2,181,501
                
                
                
                2,094,652
                
                
                
                86,849
                
                
                
                4.1
                %%
      of net sales
                
                
                50.7
                %
                
                
                58.1
                %
                
                
                -7.4
                %
                
                
                -12.7
                %Gross
      profit
                
                
                2,123,485
                
                
                
                1,508,257
                
                
                
                615,228
                
                
                
                40.8
                %%
      of net sales
                
                
                49.3
                %
                
                
                41.9
                %
                
                
                7.4
                %
                
                
                17.7
                %Operating
      expensesGeneral
      and administrative
                
                
                1,471,808
                
                
                
                1,382,925
                
                
                
                88,883
                
                
                
                6.4
                %Payroll
      expense
                
                
                562,212
                
                
                
                523,539
                
                
                
                38,673
                
                
                
                7.4
                %Consulting
      expense
                
                
                752,553
                
                
                
                574,906
                
                
                
                177,647
                
                
                
                30.9
                %Total
      operating expenses
                
                
                2,786,573
                
                
                
                2,481,370
                
                
                
                305,203
                
                
                
                12.3
                %Interest
      expense
                
                
                (114,442
                )
                
                
                (2,405
                )
                
                
                (112,037
                )
                
                
                4658.5
                %Settlement
      income
                
                
                -
                
                
                
                1,250,000
                
                
                
                (1,250,000
                )
                
                
                -100.0
                %Other
      income
                
                
                1,172
                
                
                
                2,198
                
                
                
                (1,026
                )
                
                
                -46.7
                %Income
      tax expense (provision)
                
                
                (242,800
                )
                
                
                138,800
                
                
                
                (381,600
                )
                
                
                -274.9
                %Net
      income  (loss)
                
                
                (533,558
                )
                
                
                137,880
                
                
                
                (671,438
                )
                
                
                -487.0
                %Net
      income (loss) per share basic
                
                
                (0.05
                )
                
                
                0.01
                
                
                
                (0.06
                )
                
                
                -600.0
                %Net
      income (loss) per share diluted
                
                
                (0.05
                )
                
                
                0.01
                
                
                
                (0.06
                )
                
                
                -600.0
                %


Net
Sales




Net sales
for the six months ended September 30, 2010 increased $702,077, a 19.5%
increase, to $4,304,986 compared to $3,602,909 for the six months ended
September 30, 2009.  The primary reasons for the sales increase are an
increase in sales of our own branded product, Celadrinâ and BioGuardâ, to the mass market offset
by a decrease in wholesale sales as follows:




Breakdown
of net sales





Six Months Ended September 30,2010
                  
                  
                  2009
                  
                  
                  Increase$
                  
                  
                  %
                  
                  
                  $
                  
                  
                  %
                  
                  
                  (Decrease)Wholesale
                  
                  $
                  539,048
                  
                  
                  
                  13
                  %
                  
                  $
                  1,859,006
                  
                  
                  
                  52
                  %
                  
                  $
                  (1,319,958
                  )Mass
      market
                  
                  
                  3,022,021
                  
                  
                  
                  70
                  %
                  
                  
                  963,376
                  
                  
                  
                  27
                  %
                  
                  
                  2,058,645Distibutors
                  
                  
                  743,917
                  
                  
                  
                  17
                  %
                  
                  
                  780,527
                  
                  
                  
                  22
                  %
                  
                  
                  (36,610
                  )$
                  4,304,986
                  
                  
                  
                  100
                  %
                  
                  $
                  3,602,909
                  
                  
                  
                  100
                  %
                  
                  $
                  702,077




With the
expansion to all Costco stores of both Celadrin® and BioGuard®, the initial
shipment of Celadrin® to 800 Walmart stores and the expansion of BioGuard® to
all RiteAid stores, we anticipate mass market sales to continue to be our
leading revenue generator.


17




Cost of Goods
Sold




Cost of
goods sold as a percentage of net sales decreased to 51% for the six months
ended September 30, 2010 compared to 58% for the six months ended September 30,
2009.  This decrease was the result of the product mix, increased
gross revenue and the economies of scale related to both product costs and
advertising allowances on our mass market sales.  We anticipate this
percentage to stabilize as the increase in our mass market sales allows for a
continuing economy of scale to be recognized on both product costs and
advertising allowances.




General and
Administrative




General
and administrative expenses increased $88,883, a 6% increase, to $1,471,808 for
the six months ended September 30, 2010 compared to $1,382,925 for the six
months ended September 30, 2009.   This increase was primarily
due to an increase in advertising expenses.  We anticipate future
increases in general and administrative expenses as we increase our advertising
campaign for Celadrin® and BioGuard® and increase clinical research studies
related to our periodontal drug development candidate.




Payroll
Expense




Payroll
expense increased to $562,212 for the six months ended September 30, 2010, an
increase of 7% or $38,673 compared to $523,539 for the six months ended
September 30, 2009.   This increase was a result of non-cash
compensation decreases related to employee stock options for the current fiscal
period compared to the previous year fiscal period.




Consulting
Expenses




Consulting
expenses increased to $752,553 for the six months ended September 30, 2010, an
increase of 31% or $177,647 compared to $574,906 for the six months ended
September 30, 2009.  This increase was a result of expenses related to
doing both a debt and equity financing during the current period of
approximately $45,000, the costs of an investor relations program of
approximately $16,000, and increased legal expenses of approximately
$108,000.




Interest
Expense




Interest
expense of $114,442 was recognized during the six months ended September 30,
2010 compared to $2,405 for the six months ended September 30,
2009.  This increase was the result of non-cash interest of $67,175
coupled with cash payments of $47,267 related to the issuance of bridge loans
and an asset based line of credit with a bank.




Provision for Income
Taxes




An income
tax benefit of $242,800 was recognized during the current six months compared to
an income tax expense of $138,800 recognized during the six months ended
September 30, 2009.


18




Capital
Resources




Working
Capital





Increase9/30/2010
                  
                  
                  3/31/2010
                  
                  
                  (Decrease)Current
      assets
                  
                  $
                  5,707,441
                  
                  
                  $
                  4,464,088
                  
                  
                  $
                  1,243,353Current
      liabilities
                  
                  
                  2,323,022
                  
                  
                  
                  1,190,565
                  
                  
                  
                  1,132,457Working
      capital
                  
                  $
                  3,384,419
                  
                  
                  $
                  3,273,523
                  
                  
                  $
                  110,896Long-term
      debt
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Stockholders'
      equity
                  
                  $
                  3,590,758
                  
                  
                  $
                  3,505,258
                  
                  
                  $
                  85,500





Statements
of Cash Flows Select Information


Six Months Ended
                  
                  
                  Increase9/30/2010
                  
                  
                  9/30/2009
                  
                  
                  (Decrease)Net
      cash provided by (used in):Operating
      activities
                  
                  $
                  (2,122,645
                  )
                  
                  $
                  (633,782
                  )
                  
                  $
                  (1,488,863
                  )Investing
      activities
                  
                  $
                  (1,762
                  )
                  
                  $
                  -
                  
                  
                  $
                  (1,762
                  )Financing
      activities
                  
                  $
                  1,514,165
                  
                  
                  $
                  (46,625
                  )
                  
                  $
                  1,560,790





Balance
Sheet Select Information


Increase9/30/2010
                  
                  
                  3/31/2010
                  
                  
                  (Decrease)Cash
      and cash equivalients
                  
                  $
                  371,268
                  
                  
                  $
                  981,510
                  
                  
                  $
                  (610,242
                  )Accounts
      receivable, net
                  
                  $
                  2,602,839
                  
                  
                  $
                  1,049,047
                  
                  
                  $
                  1,553,792Inventories,
      net
                  
                  $
                  1,287,008
                  
                  
                  $
                  1,350,041
                  
                  
                  $
                  (63,033
                  )Notes
      payable
                  
                  $
                  1,178,895
                  
                  
                  $
                  -
                  
                  
                  $
                  1,178,895




Liquidity




We have
historically financed our operations internally and through debt and equity
financings. At September 30, 2010, we had cash holdings of $371,268, a decrease
of $610,242 compared to March 31, 2010.  Our net working capital
position at September 30, 2010, was $3,384,419 compared to $3,273,523 as of
March 31, 2010.  We have initiated a direct mass market strategy with
our own products, Celadrin® and BioGuard.  We continue to develop our
drug candidate which, if the drug is successfully commercialized, will address
periodontal diseases.  We have started the initial new drug process
and have completed several animal studies.
A significant portion of our working capital may be needed to implement the mass
market advertising campaign, increase inventory to accommodate an increase in
orders, finance an increase in receivables as a result of increased sales
activity and fund new drug development trials.





During
the six months ended September 30, 2010, we sold common stock for cash
aggregating $400,000 to two institutional investors.  In June 2010, we
entered into an asset based line of credit with a bank for up to $1,500,000 to
finance accounts receivable, inventory and advertising.  At September
30, 2010, the line of credit had a balance of $890,000.  The bank has
been given a secured position in the assets of the company.   In
September 2010, we also issued $300,000 of convertible notes. We believe that
our cash position plus potential debt or equity financings will be sufficient to
fund our operating activities for at least the next 12 months.


19





New
Accounting Standards





See Note
2- Recent Accounting Pronouncements- to our condensed consolidated financial
statements included in Item 1 of this Form 10-Q for discussion of recent
accounting pronouncements.




ITEM
4T.     CONTROLS AND PROCEDURES.




Disclosure Controls and
Procedures


The
Company maintains disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be disclosed in
reports filed under the Securities Exchange Act of 1934 (“Exchange Act”) is
recorded, processed, summarized, and reported within the specified time periods
and accumulated and communicated to the Company’s management, including its
Principal Executive Officer and Principal Financial Officer, as appropriate, to
allow timely decisions regarding required disclosure.





The
Company’s management, under the supervision and with the participation of its
Principal Executive Officer and its Principal Financial Officer, evaluated the
effectiveness of its disclosure controls and procedures (as defined in
Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of the
end of the period covered by this report. Based on that evaluation, the
Company’s Principal Executive Officer and Principal Financial Officer concluded
that the Company’s disclosure controls and procedures were effective as of
September 30, 2010 to provide reasonable assurance in the Company’s financial
reporting.





Management
believes that there are no material inaccuracies or omissions of material fact
and, to the best of its knowledge, believes that the condensed consolidated
financial statements for the quarter ended September 30, 2010, fairly present in
all material respects the financial condition and results of operations for the
Company in conformity with accounting principles generally accepted in the
United States of America.





There
have not been any changes in the Company’s internal control over financial
reporting during the quarter ended September 30, 2010, which have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.





Limitations on the Effectiveness of
Controls





A control
system, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance that the control system’s objectives will be met. The
Company’s management, including its Principal Executive Officer and its
Principal Financial Officer, do not expect that the Company’s disclosure
controls will prevent or detect all errors and all fraud. Further, the design of
a control system must reflect the fact that there are resource constraints, and
the benefits of controls must be considered relative to their costs. Because of
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Controls can also be
circumvented by the individual acts of some persons, by collusion of two or more
people, or by management override of the controls. The design of any system of
controls is based in part upon certain assumptions about the likelihood of
future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions. Over time,
controls may become inadequate because of changes in conditions or deterioration
in the degree of compliance with associated policies or procedures. Because of
the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.


20





PART
II.  OTHER INFORMATION





ITEM
1.  LEGAL PROCEEDINGS





TriPharma
Arbitration





On April
30, 2010, TriPharma, Inc., a customer of Imagenetix, filed a legal action
in the United States Southern District Court of California, case number
10CV0933IEG, related to an Exclusive Marketing and Supply Agreement, as amended
on June 19, 2008.   TriPharma asserts that Imagenetix breached
the terms of the Agreement and seeks injunctive relief and unspecified
damages.  The Company denies the allegations and believes the claims
to be frivolous and totally devoid of merit. The Company has retained litigation
counsel and intends to vigorously defend the claims. The amount, if any, of
ultimate liability with respect to the foregoing cannot be determined. Despite
the inherent uncertainties of litigation, the Company at this time does not
believe that TriPharma's claim will have a material adverse impact on its
financial condition, results of operations, or cash flows.





ITEM
1A.  RISK FACTORS.




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 61% of our
products and which represented approximately 72% of our sales for the year ended
March 31, 2010. We will rely upon Celadrin® to expand our product lines and
revenue in the future. If our Celadrin® supplier goes out of business or elects
for any reason not to supply us with Celadrin®, we would have to find another
Celadrin® supplier or suffer a significant reduction in our
revenue.





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





Our
largest customers accounted for 52%, 17% and 13% of our net sales for the six
months ended September 30, 2010 and 42%and 15% for the year ended March 31,
2010.  During the previous fiscal year, we entered into a buyout
agreement with our largest customer at that time which will result in no
significant revenue from that customer in future periods.  We have
several other customers with increased revenue during the three months ended
September 30, 2010 which offset the loss of this significant
customer.  If not replaced by other large customers, the loss of any
significantly large customer could reduce our revenue and adversely affect our
cash flow and earnings, if any.





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





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


21





Product
Liability Claims Against Us Could Be Costly.





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





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





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





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





We are
subject to laws and regulations which cover:





·
              the
      formulation, manufacturing, packaging, labeling, distribution,
      importation, sale and storage of our
  products;
 
 ·
              the
      health and safety of food and
drugs;
 
 ·
              trade
      practice and direct selling laws;
and
 
 ·
              product
      claims and advertising by us; or for which we may be held
      responsible.
  Compliance
with these laws and regulations is time consuming and expensive. Moreover, new
regulations could be adopted that would severely restrict the products we sell
or our ability to continue our business. We are unable to predict the nature of
any future laws, regulations, interpretations or applications, nor can we
predict what effect additional governmental regulations or administrative
orders, when and if promulgated, would have on our business in the future. These
future changes could, however, require the reformulation or elimination of
certain products; imposition of additional record keeping and documentation
requirements; imposition of new federal reporting and application requirements;
modified methods of importing, manufacturing, storing or distributing certain
products; and expanded or different labeling and substantiation requirements for
certain products and ingredients. Any or all of these requirements could harm
our business.





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





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





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





We have
11,811,288 common shares outstanding which are freely tradable or saleable under
Rule 144.  We also have outstanding common stock warrants, convertible
notes and stock options exercisable into up to 3,952,362 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.


22





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 an investor from obtaining a market price equal to
his purchase price when he attempts to sell our securities in the open market.
In these situations, the investor may be required to either sell our securities
at a market price which is lower than his purchase price, or to hold our
securities for a longer period of time than he planned.





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





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





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





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





·
            A
      standardized risk disclosure document identifying the risks inherent in
      investment in penny stocks;





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





·
            Current
      quotation prices and other relevant market data;
  and





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


23




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




During
the quarter ended September 30, 2010, we issued common stock purchase warrants
and convertible notes as follows:





Common
Stock Purchase Warrants





Name
                            
                            Date of Issuance
                            
                            Number of Shares
                            
                            
                            Exercise Price
                            
                            Expiraton DateJames
      & Josephine Zolin
                            
                            9/29/2010
                            
                            
                            75,000
                            
                            
                            $
                            0.50
                            
                            9/29/2015Anthony
      W. & Barbara Opperman
                            
                            9/29/2010
                            
                            
                            75,000
                            
                            
                            $
                            0.50
                            
                            9/29/2015





Convertible
Notes





Note Holder
                                
                                Date of Issuance
                                
                                Number of Shares
                                
                                Conversion Price
                                
                                Amount of NoteJames
      & Josephine Zolin
                                
                                9/29/2010
                                
                                
                                300,000
                                
                                $
                                0.50
                                
                                $
                                150,000Anthony
      W. & Barbara Opperman
                                
                                9/29/2010
                                
                                
                                300,000
                                
                                $
                                0.50
                                
                                $
                                150,000





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





The
proceeds received from the issuance of the convertible notes will be used for
working capital purposes.  There were no proceeds received from the
issuance of the common stock purchase warrants.




ITEM
6.     EXHIBITS.




Exhibit
      No.
              
              Title31.1
              
              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




24





SIGNATURES




In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





IMAGENETIX,
      INC.a
      Nevada corporationDate:  November
      15, 2010
            
            By:
            /s/ WILLIAM P. SPENCERWilliam
      P. SpencerChief
      Executive Officer(Principal
      Executive Officer and duly authorizedto
      sign on behalf of the
Registrant)


25