**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549




**FORM
      10-QSB**




(Mark
      One)




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




For
      quarterly period ended **December
      31, 2006**




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




For
      the
      transition period from _________ to _________




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




**IMAGENETIX,
      INC.**


(Exact
      name of small business issuer as specified in its charter)




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





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




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




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




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
              
              10,721,400(Class)
              
              Outstanding
                  at February 12, 2007




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









**Imagenetix,
      Inc.**




**INDEX**


PagePART
                  I. FINANCIAL INFORMATIONItem
                  1.
              
              Financial
                  Statements:Consolidated
                  Balance Sheets as of December 31, 2006 (unaudited)and
                  March 31, 2006
              
              3Consolidated
                  Statements of Operations for the three and ninemonths
                  ended December 31, 2006 and 2005 (unaudited)
              
              4Consolidated
                  Statements of Cash Flows for the nine monthsended
                  December 31, 2006 and 2005 (unaudited)
              
              5Notes
                  to Unaudited Consolidated Financial Statements
              
              6Item
                  2.
              
              Management’s
                  Discussion and Analysis or Plan ofOperation
              
              15Item
                  3.
              
              Controls
                  and Procedures
              
              22PART
                  II. OTHER INFORMATIONItem
                  1.
              
              Legal
                  Proceedings
              
              23Item
                  2.
              
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              
              *Item
                  3.
              
              Defaults
                  Upon Senior Securities
              
              *Item
                  4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              *Item
                  5.
              
              Other
                  Information
              
              *Item
                  6.
              
              Exhibits
              
              23SIGNATURES
              
              
              
              24




*  No
      information provided due to inapplicability of the item.




2




**PART
      I - FINANCIAL INFORMATION**




**Item
      1. Financial Statements**




**Imagenetix,
        Inc.** **Consolidated
          Balance Sheets**


December
                  31,
              
              March
                  31,2006
              
              2006(Unaudited)ASSETSCurrent
                  assets:Cash
                  and cash equivalents
              
              $
              1,081,806
              
              $
              1,808,016Accounts
                  receivable, net
              
              
              954,101
              
              
              811,198Inventories,
                  net
              
              
              1,910,015
              
              
              1,741,468Prepaid
                  expenses
              
              
              180,644
              
              
              220,747Income
                  tax receivable
              
              
              340,824
              
              
              617,570Deferred
                  tax asset
              
              
              179,738
              
              
              94,200Total
                  current assets
              
              
              4,647,128
              
              
              5,293,199Property
                  and equipment, net
              
              
              109,681
              
              
              97,574Other
                  assets
              
              
              498,462
              
              
              503,301$
              5,255,271
              
              $
              5,894,074LIABILITIES
                  AND STOCKHOLDERS' EQUITYCurrent
                  liabilities:Accounts
                  payable
              
              $
              592,615
              
              $
              740,461Accrued
                  liabilities
              
              
              73,336
              
              
              51,949Customer
                  deposits
              
              
              248,525
              
              
              48,485Short
                  term license payable
              
              
              31,009
              
              
              29,209Total
                  current liabilities
              
              
              945,485
              
              
              870,104Long
                  term license payable
              
              
              45,386
              
              
              68,873Stockholders'
                  equityPreferred
                  stock, $.001 par value; 5,000,000 sharesauthorized:
                  none outstanding
              
              
              -
              
              
              -Common
                  stock, $.001par value; 50,000,000 sharesauthorized:
                  10,721,400 issued and outstanding atDecember
                  31 and March 31, 2006
              
              
              10,721
              
              
              10,721Capital
                  in excess of par value
              
              
              10,449,791
              
              
              10,342,395Accumulated
                  earnings (deficit)
              
              
              (6,196,112
              )
              
              (5,398,019
              )Total
                  stockholders' equity
              
              
              4,264,400
              
              
              4,955,097$
              5,255,271
              
              $
              5,894,074




*See
        accompanying summary of accounting policies and notes to unaudited consolidated
        financial statements.*
  3


**Imagenetix,
        Inc.** **Consolidated
          Statements of Operations**


(Unaudited)
  Three
                  Months Ended
              
              Nine
                  Months EndedDecember
                  31,
              
              December
                  31,
              
              December
                  31,
              
              December
                  31,2006
              
              2005
              
              2006
              
              2005Net
                  sales
              
              $
              1,062,373
              
              $
              1,742,979
              
              $
              3,326,958
              
              $
              6,629,019Cost
                  of sales
              
              
              617,975
              
              
              834,412
              
              
              1,791,645
              
              
              3,403,148Gross
                  profit
              
              
              444,398
              
              
              908,567
              
              
              1,535,313
              
              
              3,225,871Operating
                  expenses:General
                  and administrative
              
              
              362,867
              
              
              438,076
              
              
              913,763
              
              
              2,246,156Payroll
                  expense
              
              
              166,040
              
              
              171,543
              
              
              531,765
              
              
              512,419Consulting
                  expense
              
              
              352,590
              
              
              234,066
              
              
              1,019,983
              
              
              703,265Operating
                  expenses
              
              
              881,497
              
              
              843,685
              
              
              2,465,511
              
              
              3,461,840Operating
                  income
              
              
              (437,099
              )
              
              64,882
              
              
              (930,198
              )
              
              (235,969
              )Other
                  income (expense):Other
                  income
              
              
              5,101
              
              
              7,964
              
              
              22,089
              
              
              25,981Interest
                  expense
              
              
              (1,626
              )
              
              -
              
              
              (5,313
              )
              
              (17,532
              )Other
                  income (expense)
              
              
              3,475
              
              
              7,964
              
              
              16,776
              
              
              8,449Income
                  (loss) before income taxes
              
              
              (433,624
              )
              
              72,846
              
              
              (913,422
              )
              
              (227,520
              )Provision
                  for (benefits from) taxes
              
              
              (152,210
              )
              
              (24,800
              )
              
              (222,725
              )
              
              (138,500
              )Net
                  income (loss)
              
              $
              (281,414
              )
              $
              97,646
              
              $
              (690,697
              )
              $
              (89,020
              )Basic
                  income (loss) per share
              
              $
              (0.03
              )
              $
              0.01
              
              $
              (0.06
              )
              $
              (0.01
              )Diluted
                  income (loss) per share
              
              $
              (0.03
              )
              $
              0.01
              
              $
              (0.06
              )
              $
              (0.01
              )




*See
        accompanying summary of accounting policies and notes to unaudited consolidated
        financial statements.*
  4
 
 **Imagenetix,
            Inc.**
 **Consolidated
            Statements of Cash Flows**
 (Unaudited)
  Nine
                      Months Ended
                    December
                      31,2006
                  
                  2005Operating
                      activities:Net
                      income (loss)
                  
                  $
                  (690,697
                  )
                  $
                  (89,020
                  )Adjustments
                      to reconcile net incometo
                      cash provided by (used in) operating activities:Amortization
                      and depreciation
                  
                  
                  29,775
                  
                  
                  40,854Provision
                      for doubtful accounts , net
                  
                  
                  20,000
                  
                  
                  12,930Provision
                      for inventory obsolescence
                  
                  
                  15,756
                  
                  
                  78,225Non
                      cash expense related to warrants and stock options
                  
                  
                  -
                  
                  
                  975,687Stock
                      issued for services
                  
                  
                  -
                  
                  
                  87,750Deferred
                      taxes
                  
                  
                  (112,538
                  )
                  
                  (306,400
                  )Changes
                      in assets and liabilities:(Increase)
                      decrease in accounts receivable
                  
                  
                  (160,778
                  )
                  
                  1,050,329(Increase)
                      decrease in inventory
                  
                  
                  (184,303
                  )
                  
                  (53,821
                  )(Increase)
                      decrease in other assets
                  
                  
                  56,728
                  
                  
                  (644,847
                  )Increase
                      (decrease) in accounts payable
                  
                  
                  (147,846
                  )
                  
                  (470,606
                  )Increase
                      (decrease) in accrued liabilities
                  
                  
                  21,387
                  
                  
                  45,678Increase
                      (decrease) in customer deposits
                  
                  
                  200,040
                  
                  
                  (9,206
                  )Increase
                      (decrease) in income taxes payable
                  
                  
                  276,746
                  
                  
                  (437,784
                  )Net
                      cash provided by (used in) operating activities
                  
                  
                  (675,730
                  )
                  
                  279,769Investing
                      activities:Property
                      and equipment
                  
                  
                  (28,793
                  )
                  
                  (21,000
                  )Trademarks,
                      patents and infomercial
                  
                  
                  -
                  
                  
                  (147,747
                  )Net
                      cash used in investing activities
                  
                  
                  (28,793
                  )
                  
                  (168,747
                  )Financing
                      activities:Payments
                      on notes payable to related party
                  
                  
                  -
                  
                  
                  (225,000
                  )Payments
                      on patent license financed
                  
                  
                  (21,687
                  )
                  
                  -Proceeds
                      from exercise of stock options and warrants
                  
                  
                  -
                  
                  
                  278,692Net
                      cash provided by (used in) financing activities
                  
                  
                  (21,687
                  )
                  
                  53,692Net
                      increase (decrease) in cash
                  
                  
                  (726,210
                  )
                  
                  164,714Cash,
                      beginning of period
                  
                  
                  1,808,016
                  
                  
                  2,031,486Cash,
                      end of period
                  
                  $
                  1,081,806
                  
                  $
                  2,196,200Supplemental
                      Disclosure of Cash Flow Information:Cash
                      paid during the period for:Interest
                  
                  $
                  -
                  
                  $
                  17,532Income
                      taxes
                  
                  $
                  -
                  
                  $
                  734,066Non
                      Cash Investing and Financing Activities:Non-cash
                      dividend issued to certain warrant holders
                  
                  $
                  107,396
                  
                  $
                  4,698,819
 *See
            accompanying summary of accounting policies and notes to unaudited consolidated
            financial statements.*
  5


**IMAGENETIX,
      INC.**


**Notes
      to the Unaudited Consolidated Financial Statements**





**1.**
            **BASIS
                OF PRESENTATION**





The
      consolidated financial statements of Imagenetix, Inc. ("Imagenetix") presented
      herein have been prepared pursuant to the rules of the Securities and Exchange
      Commission for quarterly reports on Form 10-QSB and do not include all of the
      information and footnotes required by accounting principles generally accepted
      in the United States of America. These statements should be read in conjunction
      with our audited consolidated financial statements and notes thereto included
      in
      Form 10-KSB for the year ended March 31, 2006.





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





**Earnings
      Per Share**





We
      follow
      Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
      Share." Under SFAS No. 128, basic earnings per share is calculated as earnings
      available to common stockholders divided by the weighted average number of
      common shares outstanding. Diluted earnings per share is calculated as net
      income divided by the diluted weighted average number of common shares. The
      diluted weighted average number of common shares is calculated using the
      treasury stock method for common stock issuable pursuant to outstanding stock
      options and common stock warrants.





**Stock
      Options**





Prior
      to
      April 1, 2006, the Company applied Accounting Principles Board ("APB") Opinion
      25, "Accounting for Stock Issued to Employees," and related Interpretations
      in
      accounting for all stock option plans. Under APB Opinion 25, compensation cost
      was recognized for stock options granted to employees when the option price
      was
      less than the market price of the underlying common stock on the date of grant.





Effective
      April 1, 2006, the Company adopted the fair value recognition provisions of
      FASB Statement No. 123(R), “Share-Based Payment” ** (SFAS
      123R) *,* using
      the modified-prospective-transition method. Under that transition method,
      compensation cost recognized in 2006 includes compensation cost for all
      share-based payments granted subsequent to March 31, 2006, based on the
      grant-date fair value estimated in accordance with the provisions of SFAS
      123(R).  Through
      March 31, 2006, SFAS No. 123, "Accounting for Stock-Based Compensation," and
      SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and
      Disclosure," required the Company to provide pro forma information regarding
      net
      income as if compensation cost for the Company's stock option plans had been
      determined in accordance with the fair value based method prescribed in SFAS
      No.
      123. To provide the required pro forma information, the Company estimated the
      fair value of each stock option at the grant date by using the Black-Sholes
      option-pricing model. SFAS No. 148 also provides for alternative methods of
      transition for a voluntary change to the fair value based method of accounting
      for stock-based employee compensation.





Under
      the
      accounting provisions of SFAS No. 123, as of December 31, 2005, the Company’s
      net earnings (loss) per share would have been decreased or increased by the
      pro
      forma amounts indicated below:




6




**IMAGENETIX,
      INC.**


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


Three
                  months
                ended
              
              Nine
                  months
                endedDecember
                  31,
                2005
              
              December
                  31,
                2005Net
                  income (loss), as reported
              
              $
              97,646
              
              $
              (89,020
              )Stock-based
                  employee compensation,net
                  of tax effects, included in reported net loss
              
              
              -
              
              
              217,200Stock-based
                  employee compensation,net
                  of tax effects
              
              
              (447,429
              )
              
              (770,364
              )Proforma
                  net income (loss)
              
              $
              (349,783
              )
              $
              (642,184
              )Net
                  income (loss) per share:Basic-
                  as reported
              
              $
              0.01
              
              $
              (0.01
              )Basic-
                  proforma
              
              $
              (0.03
              )
              $
              (0.06
              )Diluted-
                  as reported
              
              $
              0.00
              
              $
              (0.01
              )Diluted-
                  proforma
              
              $
              (0.03
              )
              $
              (0.06
              )





The
      Company applies SFAS No. 123 in valuing options granted to consultants and
      estimates the fair value of such options using the Black-Sholes option-pricing
      model. The fair value is recorded as consulting expense as services are
      provided. Options granted to consultants for which vesting is contingent based
      on future performance are measured at their then current fair value at each
      period end, until vested.





**2.**  **RECENT
      ACCOUNTING PRONOUNCEMENTS**





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      123R, which requires companies to recognize in the statement of operations
      all
      share-based payments to employees, including grants of employee stock options,
      based on their fair values. Accounting for share-based compensation transactions
      using the intrinsic method supplemented by pro forma disclosures will no longer
      be permissible. The new statement is effective for public entities no later
      than
      the beginning of the first fiscal year beginning after June 15, 2005. The
      Company adopted the new statement on April 1, 2006. The adoption of this new
      statement did not affect the Company's results of operations or net income
      per
      share, but may have a significant future effect as the Company will be required
      to expense the fair value of all share-based payments.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections",
      a replacement of Accounting Principles Board Opinion No. 20, "Accounting
      Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
      Statements" ("SFAS 154"). SFAS 154 changes the requirements for the accounting
      for, and reporting of, a change in accounting principle. Previously, voluntary
      changes in accounting principles were generally required to be recognized by
      way
      of a cumulative effect adjustment within net income during the period of the
      change. SFAS 154 requires retrospective application to prior periods' financial
      statements, unless it is impracticable to determine either the period-specific
      effects or the cumulative effect of the change. SFAS 154 is effective for
      accounting changes made in fiscal years beginning after December 15, 2005;
      however, the statement does not change the transition provisions of any existing
      accounting pronouncements. The Company does not believe adoption of SFAS 154
      will have a material effect on its financial position, cash flows or results
      of
      operations.





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





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




7




**IMAGENETIX,
      INC.**


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


December
                  31,
              
              March
                  31,2006
              
              2006Accounts
                  receivable - trade
              
              $
              1,024,101
              
              $
              861,198Allowance
                  for doubtful accounts
              
              
              (70,000
              )
              
              (50,000
              )Accounts
                  receivable, net
              
              $
              954,101
              
              $
              811,198




**4.**  **INVENTORY**




Inventory
      consists of the following:


December
                  31,
              
              March
                  31,2006
              
              2006Raw
                  materials
              
              $
              1,472,191
              
              $
              1,554,417Finished
                  products
              
              
              503,981
              
              
              168,228Boxes,
                  labels, tubes & bottles
              
              
              146,067
              
              
              215,2912,122,239
              
              
              1,937,936Reserve
                  for obsolescence
              
              
              (212,224
              )
              
              (196,468
              )$
              1,910,015
              
              $
              1,741,468
  **5.**  **PROPERTY
      AND EQUIPMENT**





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


December
                  31,
              
              March
                  31,2006
              
              2006Office
                  equipment
              
              $
              53,091
              
              $
              40,922Lease-hold
                  improvements
              
              
              104,332
              
              
              87,708Leased
                  equipment
              
              
              12,341
              
              
              12,341169,764
              
              
              140,971Less
                  accumulated depreciation
              
              
              60,083
              
              
              43,397$
              109,681
              
              $
              97,574





Depreciation
      expense for the nine months ended December 31, 2006 and 2005 was $16,686 and
      $37,674, respectively.





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





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




8




**IMAGENETIX,
      INC.**


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


December
                  31,
              
              March
                  31,2006
              
              2006Trademarks
              
              $
              13,032
              
              $
              13,032Promotional
              
              
              -
              
              
              18,750Patent
              
              
              161,353
              
              
              161,353Deferred
                  tax asset
              
              
              357,200
              
              
              330,200531,585
              
              
              523,335Less
                  accumulated amortization
              
              
              33,123
              
              
              20,034$
              498,462
              
              $
              503,301





For
      the
      nine months ended December 31, 2006 and 2005 amortization expense was $1,078
      and
      $3,180, respectively.





**7.**  **LICENSES
      PAYABLE**





In
      May
      2005, the Company entered into an agreement with EHP Products, Inc. acquiring
      a
      non-exclusive world-wide license to make, use and sell products relating to
      Cetyl Myristoleate covered under U.S. Patent No. 5,569,676. The agreement
      provides for payments of $3,000 per month from May 2005 through April 2009,
      at
      which time EHP Products, Inc. has agreed to convey ownership in the product
      to
      the Company.





As
      of
      December 31, 2006 and March 31, 2006 the following obligations were outstanding
      related to this license:


December
                  31,
              
              March
                  31,2006
              
              2006Patent
                  License and Royalty Payable
              
              $
              76,395
              
              $
              98,082Less
                  current portion
              
              
              31,009
              
              
              29,209Long
                  term license payable
              
              $
              45,386
              
              $
              68,873





**8.**  **COMMITMENTS
      AND CONTINGENCIES**





Litigation




Effective
      December 31, 2006, Imagenetix terminated its agreement with Proprietary
      Nutritionals, Inc., for marketing of its product Celadrin. TM On
      September 28, 2006, the Company received a copy of a Complaint filed by
      Proprietary Nutritionals, Inc., *Proprietary Nutritionals, Inc. V. Imagenetix, Inc., Thomas Hall and Frank
      Sajovic* ,
      No.
      06CV2091 L POR (U.S. District Court, S.D. Cal.).   The Complaint
      alleges breach of contract by Imagenetix with respect to Imagenetix’s
      termination of the agreement, tortious interference with PNI’s business
      relations and economic advantages and quantum meruit claims.  The Company
      believes the allegations lack merit and the termination was proper under the
      terms of the agreement providing for termination upon a material breach
      including failure to meet sales goals.  Imagenetix intends to vigorously
      defend the litigation and has asserted claims on behalf of the Company against
      PNI for breach of the agreement. Management believes this action will not have
      a
      material effect on the financial position of the Company.




9




**IMAGENETIX,
      INC.**


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





**9.**  **CAPITAL
      STOCK**





Preferred
      Stock





The
      Company has authorized 5,000,000 shares of preferred stock, $.001 par value,
      with such rights, preferences and designations, and to be issued in such series
      as determined by the Board of Directors. No shares are issued and outstanding
      at
      December 31, 2006.





Common
      Stock





The
      Company has authorized 50,000,000 shares of common stock at $.001 par value.
      At
      December 31, 2006, the Company had 10,721,400 shares of common stock issued
      and
      outstanding.





During
      the nine months ended December 31, 2005, the Company issued 222,944 shares
      of
      common stock for proceeds of $253,944. The shares were issued upon shareholders
      exercising warrants with exercise prices ranging from $1.00 to $2.00 per
      share.





Also,
      during the nine months ended December 31, 2005, the Company issued 45,000 shares
      of common stock to three individuals in exchange for services they provided
      to
      the company. The services performed were valued based on the price of the common
      stock on the date of issuance, $1.95 per share or $87,750 in the aggregate.
      This
      amount was reflected as non-cash expense during the quarter ended December
      31,
      2005.





Stock
      Bonus Plan





During
      the year ended March 31, 2000, the Board of Directors of the Company adopted
      a
      stock bonus plan. The plan provides for the granting of awards of up to 724,500
      shares of common stock to officers, directors, consultants and employees. Awards
      under the plan will be granted as determined by the Board of Directors. At
      present, 499,500 shares have been granted under the plan.





Warrants





At
      December 31, 2006, there were outstanding warrants exercisable for up to
      4,107,100 shares of common stock with exercise prices ranging from $0.70 to
      $3.45 per share expiring in 2007 through 2010. There were no grants or exercises
      of warrants during the nine months ended December 31, 2006.





At
      December 31, 2005, there were outstanding warrants exercisable for up to
      4,155,904 shares of common stock with exercise prices ranging from $0.70 to
      $3.45 per share expiring in 2007 through 2010.





During
      the nine months ended December 31, 2005, the Company issued 222,944 shares
      of
      common stock for proceeds of $253,944. The shares were issued upon shareholders
      exercising warrants with exercise prices ranging from $1.00 to $2.00 per share.





In
      addition, during the nine months ended December 31, 2005 and 2006, the Company
      extended the expiration date on warrants exercisable for up to 2,757,782 and
      415,375 shares of common stock to October 23, 2007. These warrants were issued
      in 2000 and 2001 as part of an equity unit sale. By the terms of the warrants,
      the Company was to use its best efforts to maintain a registration statement
      under which the holders could resell the common shares on the exercise of the
      warrants. Since the Company failed to maintain a timely registration statement,
      it decided to extend the expiration date of the warrants.




10




**IMAGENETIX,
      INC.**


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





Due
      to
      this modification, the Company recorded a non-cash dividend of $4,698,819 and
      $107,396 for the nine months ended December 31, 2005 and 2006. The Company
      estimated the fair value of the dividend at the original date of expiration
      by
      using the Black-Scholes pricing model with the following weighted average
      assumptions: for the nine months ended December 31, 2005- dividend yield of
      zero
      percent; expected volatility of 90%; risk free interest rate of 3.64%; and
      expected lives of 25 months and for the nine months ended December 31, 2006-
      dividend yield of zero percent; expected volatility of 70-72%; risk free
      interest rate of 4.56-4.87%; and expected lives of 13 to 18 months.





Warrants
      to purchase 1,133,657 shares at $1.00 per share, 720,000 shares at $2.00 per
      share and 125,000 shares at $1.75 per share are redeemable at $.01 per warrant,
      at the option of the Company, if there is an effective
      registration of the securities and the closing bid or selling price of the
      Company’s common stock for 10 consecutive trading days is equal to three times
      the exercise price of the warrants.





Stock
      Option Plan




In
      August 2000 the Company adopted a Stock Option Plan, which is referred to
      as the "Plan," which provides for the grant of stock options intended to qualify
      as "incentive stock options" and "nonqualified stock options" (collectively
      "stock options") within the meaning of Section 422 of the United States
      Internal Revenue Code of 1986 (the "Code"). Stock options may be issued to
      any
      of our officers, directors, key employees or consultants.




Under
      the
      Plan, we have reserved 1.5 million shares underlying stock options for
      issuance, of which 1,129,000 options are outstanding as of December 31, 2006.
      The options have been granted to executive officers, employees and consultants
      at prices ranging from $.86 to $2.50 per share. The Plan is administered by
      the
      full Board of Directors, who determine which individuals shall receive stock
      options, the time period during which the stock options may be exercised, the
      number of shares of common stock that may be purchased under each stock option
      and the stock option price. There were no stock option grants or exercises
      during the nine months ended December 31, 2006.




**10.**  **INCOME TAXES**





The
      Company accounts for income taxes in accordance with Statement of Financial
      Accounting Standards No. 109. SFAS No. 109 requires the Company to provide
      a net
      deferred tax asset or liability equal to the expected future tax benefit or
      expense of temporary reporting differences between book and tax accounting
      and
      any available operating loss or tax credit carry-forwards. The Company used
      up
      its previous federal and state tax loss carry-forwards and it will be able
      to
      carry back to previous years the entire amount of the income tax benefit for
      federal tax purposes and carry forward as a deferred tax asset the amount of
      the
      tax benefit for state tax purposes.





At
      December 31 and March 31, 2006, the total of all deferred tax assets was
      $536,900 and $424,400, respectively. There are no deferred tax liabilities
      for
      either period. The amount of and ultimate realization of the benefits from
      the
      deferred tax assets for income tax purposes is dependent, in part, upon the
      tax
      laws in effect, the Company’s future earnings, and other future events, the
      effects of which cannot be determined.




11




**IMAGENETIX,
      INC.**


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





The
      temporary differences gave rise to the following deferred tax asset
      (liability):


December
                  31,
              
              March
                  31,2006
              
              2006Excess
                  of financial accountingover
                  tax depreciation
              
              $
              800
              
              $
              6,000State
                  income tax benefits
              
              
              59,600
              
              
              (11,300
              )Allowance
                  for obsolete inventory
              
              
              84,500
              
              
              78,300Allowance
                  for bad debts
              
              
              27,900
              
              
              19,900Valuation
                  of stock options and warrants
              
              
              356,400
              
              
              324,200Vacation
                  accrual
              
              
              7,700
              
              
              7,300Net
                  deferred tax asset
              
              $
              536,900
              
              $
              424,400


The
        reconciliation of income tax from continuing operations computed at the U.S.
        federal statutory tax rate to the Company’s effective rate is as follows for the
        periods ended:
 For
                    the Three Months Ended
                
                For
                    the Nine Months EndedDecember
                    31,
                
                December
                    31,2006
                
                2005
                
                2006
                
                2005Federal
                    income tax expense computed at
                  the
                    Federal statutory rate
                
                $
                (147,469
                )
                $
                24,700
                
                $
                (310,600
                )
                $
                (77,400
                )State
                    income tax expense net of Federal benefit
                
                
                (24,562
                )
                
                4,800
                
                
                (53,300
                )
                
                (11,800
                )Other
                
                
                19,821
                
                
                (54,300
                )
                
                141,175
                
                
                (49,300
                )Income
                    tax expense (benefit)
                
                $
                (152,210
                )
                $
                (24,800
                )
                $
                (222,725
                )
                $
                (138,500
                )




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




12




**IMAGENETIX,
      INC.**


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


Three
                  Months Ended
                December
                  31,
              
              Nine
                  Months Ended
                December
                  31,2006
              
              2005
              
              2006
              
              2005Current
                  income tax expense:Federal
              
              $
              (115,983
              )
              $
              7,800
              
              $
              (167,400
              )
              $
              195,900State
              
              
              (35,443
              )
              
              (21,600
              )
              
              (37,100
              )
              
              32,000Net
                  current tax expense
              
              $
              (151,426
              )
              $
              (13,800
              )
              $
              (204,500
              )
              $
              227,900Deferred
                  tax expense (benefit) resulted from:Excess
                  of financial accounting overtax
                  depreciation
              
              $
              (650
              )
              $
              (9,100
              )
              $
              5,125
              
              $
              (10,300
              )State
                  income tax benefits
              
              
              12,876
              
              
              -
              
              
              24,251
              
              
              -Other
              
              
              (2,112
              )
              
              (1,200
              )
              
              (1,195
              )
              
              (6,400
              )Valuation
                  of stock options and warrants
              
              
              (10,721
              )
              
              (10,700
              )
              
              (32,164
              )
              
              (313,500
              )Allowance
                  for obsolete inventory
              
              
              (177
              )
              
              13,900
              
              
              (6,276
              )
              
              (31,100
              )Allowance
                  for bad debts
              
              
              -
              
              
              (3,900
              )
              
              (7,966
              )
              
              (5,100
              )Net
                  deferred tax benefit
              
              $
              (784
              )
              $
              (11,000
              )
              $
              (18,225
              )
              $
              (366,400
              )Net
              
              $
              (152,210
              )
              $
              (24,800
              )
              $
              (222,725
              )
              $
              (138,500
              )





Deferred
      income tax expense results primarily from the reversal of temporary timing
      differences between tax and financial statement income.





**11.**  **EARNINGS
      PER SHARE**





The
      following data shows the amounts used in computing earnings per share of common
      stock for the period presented:




13





**IMAGENETIX,
      INC.**


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


For
                  the Three Months Ended
              
              For
                  the Nine Months EndedDecember
                  31,
              
              December
                  31,2006
              
              2005
              
              2006
              
              2005Income
                  (loss) available to commonshareholders
                  (Numerator)
              
              $
              (281,000
              )
              $
              98,000
              
              $
              (691,000
              )
              $
              (89,000
              )Weighted
                  average number of commonshares
                  outstanding used in basic incomeper
                  share during the period(Denominator)
              
              
              10,721,400
              
              
              10,678,710
              
              
              10,721,400
              
              
              10,580,411Weighted
                  average number of commonshares
                  outstanding used in diluted incomeper
                  share during the period(Denominator)
              
              
              10,721,400
              
              
              13,024,036
              
              
              10,721,400
              
              
              12,654,449





At
      December 31, 2006, the Company had warrants to purchase 4,107,100 shares of
      common stock at prices ranging from $0.70 to $3.45 per share and stock options
      to purchase 1,129,000 shares of common stock at prices ranging from $0.86 to
      $2.50 that were not included in the computation of earnings per share because
      their effects are anti-dilutive due to the Company reporting losses for the
      three and nine months ended December 31, 2006.





At
      December 31, 2005, the Company had warrants to purchase 50,000 shares of common
      stock at prices ranging from $2.78 to $3.45 per share that were not included
      in
      the computation of earnings per share because their effects are anti-dilutive
      due to the exercise price being higher than the average market price. For the
      three and nine months ended December 31, 2005, the basic and dilutive weighted
      average number of common shares outstanding were the same because the effects
      are anti-dilutive due to the net loss for each of the periods.





14


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





THE
      FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING STATEMENTS WITH RESPECT TO OUR
      FUTURE FINANCIAL PERFORMANCE. ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
      CURRENTLY ANTICIPATED AND FROM HISTORICAL RESULTS DEPENDING UPON A VARIETY
      OF
      FACTORS, INCLUDING THOSE DESCRIBED BELOW UNDER THE SUB-HEADING, "RISK FACTORS."
      SEE ALSO OUR ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED MARCH 31,
      2006.




**Overview**




We
      develop, formulate and market on a private label basis over-the-counter,
      natural-based nutritional supplements and skin care products. Our products
      are
      proprietary, often supported by scientific studies which we request and are
      offered through multiple channels of distribution, including direct marketing
      companies, also known as network marketing or multi-level marketing companies,
      and chain store retailers. Our primary product is Celadrin® which we offer as a
      part of product formulation which we sell under our own brand name, Inflame
      Away. We also offer Celadrin® as an ingredient which wholesale customers may use
      in their own products.





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





We
      have
      developed and sold over 60 products and formulations to businesses and
      organizations that market these products through multiple channels of
      distribution, including direct marketing companies, mass marketing companies,
      medical, health and nutritional professionals, medical newsletters and direct
      response radio and television. We have also begun to offer Celadrin® products to
      mass market retailers under our own brand name, Inflame Away.





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





**Critical
      Accounting Policies and Estimates**





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





*1.*  *Accounts receivable.*




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





*2.
      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.





15




*3.
      Revenue Recognition*




Revenue
      is recognized when the product is shipped. The Company evaluates whether an
      allowance for estimated returns is required based on historical returns. The
      Company has not had significant returns and, accordingly, has not established
      an
      estimated allowance for returns at December 31, 2006.





*4.
      Income Taxes*




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





**Results
      of Operations**





*Nine
      months Ended December 31, 2006 Compared to Nine months Ended December 31,
      2005*


Nine
                    Months Ended
                  December
                    31,2006
              
              2005
              
              Increase (Decrease)
              
              %Statements
                  of Operations:Net
                  sales
              
              $
              3,327,000
              
              $
              6,629,000
              
              $
              (3,302,000
              )
              
              -49.8
              %Cost
                  of goods sold
              
              
              1,792,000
              
              
              3,403,000
              
              
              (1,611,000
              )
              
              -47.3
              %%
                  of net sales
              
              
              54
              %
              
              51
              %
              
              3
              %
              
              4.9
              %Gross
                  profit
              
              
              1,535,000
              
              
              3,226,000
              
              
              (1,691,000
              )
              
              -52.4
              %%
                  of net sales
              
              
              46
              %
              
              49
              %
              
              -3
              %
              
              -5.2
              %Operating
                  expensesGeneral
                  and administrative
              
              
              914,000
              
              
              2,246,000
              
              
              (1,332,000
              )
              
              -59.3
              %Payroll
                  expense
              
              
              532,000
              
              
              513,000
              
              
              19,000
              
              
              3.7
              %Consulting
                  expense
              
              
              1,020,000
              
              
              703,000
              
              
              317,000
              
              
              45.1
              %Total
                  operating expenses
              
              
              2,466,000
              
              
              3,462,000
              
              
              (996,000
              )
              
              -28.8
              %Interest
                  expense
              
              
              (5,000
              )
              
              (18,000
              )
              
              (13,000
              )
              
              -72.2
              %Other
                  income
              
              
              22,000
              
              
              26,000
              
              
              (4,000
              )
              
              15.4
              %Provision
                  for (benefit from) taxes
              
              
              (223,000
              )
              
              (139,000
              )
              
              84,000
              
              
              60.4
              %Net
                  income (loss)
              
              
              (691,000
              )
              
              (89,000
              )
              
              (602,000
              )
              
              676.4
              %Net
                  income (loss) per share basic
              
              
              (0.06
              )
              
              (0.01
              )
              
              (0.05
              )
              
              500.0
              %Net
                  income (loss) per share diluted
              
              
              (0.06
              )
              
              (0.01
              )
              
              (0.05
              )
              
              500.0
              %




Net
      Sales




Net
      sales
      for the nine months ended December 31, 2006 decreased $3,302,000, 49.8%, to
      $3,327,000 compared to $6,629,000 for the nine months ended December 31, 2005.
      The primary reason for the sales decrease was that, during the nine months
      ended
      December 31, 2005, sales to a single distributor of Celadrin â as an
      ingredient and sales of our bulk topical cream product containing
      Celadrin â did not
      repeat during the nine months ended December 31, 2006. During the last nine
      months, we started to address this reduction in sales by embarking on a direct
      mass market strategy with our own product, Inflame Away, that will be identified
      to Celadrin â as its
      marquee ingredient. The strategy consists of a nationwide launch supported
      by a
      commensurate advertising campaign. Although we anticipate the balance of our
      current fiscal year, which will end March 31, 2007, to continue to reflect
      the
      slow down in distributor sales, we do anticipate, if the new marketing program
      begins to successfully penetrate the market, that the Inflame Away product
      launch will result in improved sales during the first half of our next fiscal
      year.




Cost
      of Goods Sold




Cost
      of
      goods sold as a percentage of net sales increased to 54% for the nine months
      ended December 31, 2006 compared to 51% for the nine months ended December
      31,
      2005. This increase was a result of the product mix sold during the current
      reporting period. We anticipate the cost of goods sold as a percentage of net
      sales will decrease proportionately to the increase in sales of Inflame Away
      to
      the mass markets.




16




General
      and Administrative




General
      and administrative expenses decreased by $1,332,000, a 59.3% decrease, to
      $914,000 for the nine months ended December 31, 2006 from $2,246,000 for the
      nine monts ended December 31, 2005. The primary reasons for the decrease were
      during the nine months ended December 31, 2005, approximately $415,000 in
      commissions associated with a media campaign to brand Celadrin â ,
      approximately $307,000 charged to marketing expenses related to the issuance
      of
      stock and warrants to several individuals who are marketing Celadrin â ,
      approximately $433,000 non-cash expense as a result of changing the terms on
      stock options and approximately $39,000 in charges to bad debts were not
      repeated in the nine months ended December 31, 2006. We anticipate future
      general and administrative expense to increase as we incur additional costs
      as a
      result of our introduction of the Inflame Away product.




Payroll
      Expense




Payroll
      expense increased to $532,000 for the nine months ended December 31, 2006,
      an
      increase of 3.7% or $19,000, compared to $513,000 for the nine months ended
      December 31, 2005. This increase was a result of normal payroll increases during
      the current reporting period. We anticipate an increase in future payroll
      expense as a result of our introduction of the Inflame Away
      product.




Consulting
      Expenses




Consulting
      expenses increased to $1,020,000 for the nine months ended December 31, 2006,
      an
      increase of 45.1% or $317,000, compared to $703,000 for the nine months ended
      December 31, 2005. This increase was a result of approximately $264,000 related
      to preparing for the introduction of Inflame Away. We anticipate additional
      increases in consulting expenses as a result of our introduction of the Inflame
      Away product.




Provision
      for Income Taxes




As
      a
      result of the loss for the nine months ended December 31, 2006, an income tax
      benefit of $223,000 was recognized during the current nine months compared
      to
      $139,000 of tax benefit being recognized during the nine months ended December
      31, 2005.




*Three
      Months Ended December 31, 2006 Compared to Three Months Ended December 31,
      2005*


Three
                    Months Ended
                  December
                    31,2006
              
              2005
              
              Increase(Decrease)
              
              %Statements
                  of Operations:Net
                  sales
              
              $
              1,062,000
              
              $
              1,743,000
              
              $
              (681,000
              )
              
              -39.1
              %Cost
                  of goods sold
              
              
              618,000
              
              
              834,000
              
              
              (216,000
              )
              
              -25.9
              %%
                  of net sales
              
              
              58
              %
              
              48
              %
              
              10
              %
              
              21.6
              %Gross
                  profit
              
              
              444,000
              
              
              909,000
              
              
              (465,000
              )
              
              -51.2
              %%
                  of net sales
              
              
              42
              %
              
              52
              %
              
              -10
              %
              
              -19.8
              %Operating
                  expensesGeneral
                  and administrative
              
              
              363,000
              
              
              438,000
              
              
              (75,000
              )
              
              -17.1
              %Payroll
                  expense
              
              
              166,000
              
              
              172,000
              
              
              (6,000
              )
              
              -3.5
              %Consulting
                  expense
              
              
              352,000
              
              
              234,000
              
              
              118,000
              
              
              50.4
              %Total
                  operating expenses
              
              
              881,000
              
              
              844,000
              
              
              37,000
              
              
              4.4
              %Interest
                  expense
              
              
              (1,000
              )
              
              -
              
              
              1,000
              
              
              NMOther
                  income
              
              
              5,000
              
              
              8,000
              
              
              (3,000
              )
              
              -37.5
              %Provision
                  for (benefit from) taxes
              
              
              (152,000
              )
              
              (25,000
              )
              
              127,000
              
              
              508.0
              %Net
                  income (loss)
              
              
              (281,000
              )
              
              98,000
              
              
              (379,000
              )
              
              NMNet
                  income (loss) per share basic
              
              
              (0.03
              )
              
              0.01
              
              
              (0.04
              )
              
              NMNet
                  income (loss) per share diluted
              
              
              (0.03
              )
              
              0.01
              
              
              (0.04
              )
              
              NM




17




Net
      Sales


Net
        sales
        for the nine months ended December 31, 2006 decreased $3,302,000, 49.8%,
        to
        $3,327,000 compared to $6,629,000 for the nine months ended December 31,
        2005.
        The primary reason for the sales decrease was that, during the nine months
        ended
        December 31, 2005, sales to a single distributor of Celadrin â as an
        ingredient and sales of our bulk topical cream product containing
        Celadrin â did not
        repeat during the nine months ended December 31, 2006. During the last nine
        months, we started to address this reduction in sales by embarking on a direct
        mass market strategy with our own product, Inflame Away, that will be identified
        to Celadrin â as its
        marquee ingredient. The strategy consists of a nationwide launch supported
        by a
        commensurate advertising campaign. Although we anticipate the balance of
        our
        current fiscal year, which will end March 31, 2007, to continue to reflect
        the
        slow down in distributor sales, we do anticipate, if the new marketing program
        begins to successfully penetrate the market, that the Inflame Away product
        launch will result in improved sales during the first half of our next fiscal
        year.




Cost
      of Goods Sold




Cost
      of
      goods sold as a percentage of net sales increased from 48% for the quarter
      ended
      December 31, 2005 to 58% for the quarter ended December 31, 2006. This increase
      was a result of the product mix sold during the current reporting period. We
      anticipate the cost of goods sold as a percentage of net sales will decrease
      proportionately to the increase in sales of Inflame Away to the mass
      markets.




General
      and Administrative




General
      and administrative expenses decreased by $75,000, a 17.1% decrease, to $363,000
      for the quarter ended December 31, 2006 from $438,000 for the quarter ended
      December 31, 2005. The primary reason for the decrease was during the quarter
      ended December 31, 2005, approximately $86,000 in commissions associated with
      a
      media campaign to brand Celadrin â was not
      repeated in the quarter ended December 31, 2006. We anticipate future general
      and administrative expense to increase as we incur additional costs as a result
      of our introduction of the Inflame Away product.




Payroll
      Expense




Payroll
      expense decreased to $166,000 for the quarter ended December 31, 2006, a
      decrease of 3.5% or $6,000, compared to $172,000 for the quarter ended December
      31, 2005. This decrease was a result of approximately $109,000 non-cash expense
      as a result of changing the terms on stock options during the quarter ended
      December 31, 2005 was not repeated during the current quarter offset by an
      increase in payroll during the current quarter. We anticipate an increase in
      future payroll expense as a result of our introduction of the Inflame Away
      product.




Consulting
      Expenses




Consulting
      expenses increased to $352,000 for the quarter ended December 31, 2006, an
      increase of 50.4% or $118,000, compared to $234,000 for the quarter ended
      December 31, 2005. This increase was a result of approximately $121,000 related
      to preparing for the introduction of Inflame Away. We anticipate additional
      increases in consulting expenses as a result of our introduction of the Inflame
      Away product.




Provision
      for Income Taxes




As
      a
      result of the loss for the quarter ended December 31, 2006, an income tax
      benefit of $152,000 was recognized during the current quarter compared to an
      income tax benefit of $25,000 being recognized during the quarter ended December
      31, 2005.




18




**Capital
      Resources**


Working
                  CapitalDecember
                  31, 2006
              
              March
                  31, 2006
              
              Increase(Decrease)Current
                  assets
              
              $
              4,647,128
              
              $
              5,293,199
              
              $
              (646,071
              )Current
                  liabilities
              
              
              945,485
              
              
              870,104
              
              
              75,381Working
                  capital
              
              $
              3,701,643
              
              $
              4,423,095
              
              $
              (721,452
              )Long-term
                  debt
              
              $
              45,386
              
              $
              68,873
              
              $
              (23,487
              )Stockholders'
                  equity
              
              $
              4,264,400
              
              $
              4,955,097
              
              $
              (690,697
              )


Statements
                    of Cash Flows Select InformationNine
                    Months Ended
                  December
                    31,2006
                
                2005
                
                Increase(Decrease)Net
                    cash provided by (used in):Operating
                    activities
                
                $
                (675,730
                )
                $
                279,769
                
                $
                (955,499
                )Investing
                    activities
                
                $
                (28,793
                )
                $
                (168,747
                )
                $
                139,954Financing
                    activities
                
                $
                (21,687
                )
                $
                53,692
                
                $
                (75,379
                )


Balance
                  Sheet Select InformationDecember
                  31, 2006
              
              March
                  31, 2006
              
              Increase(Decrease)Cash
                  and cash equivalients
              
              $
              1,081,806
              
              $
              1,808,016
              
              $
              (726,210
              )Accounts
                  receivable, net
              
              $
              954,101
              
              $
              811,198
              
              $
              142,903Inventory,
                  net
              
              $
              1,910,015
              
              $
              1,741,468
              
              $
              168,547Accounts
                  payable and accrued expenses
              
              $
              665,951
              
              $
              792,410
              
              $
              (126,459
              )




**Liquidity**




We
      have
      historically financed our operations internally and through debt and equity
      financings. At December 31, 2006, we had cash holdings of $1,081,806, a decrease
      of $726,210 compared to March 31, 2006. Our net working capital position at
      December 31, 2006, was $3,701,643 compared to $4,423,095 as of March 31, 2006.
      We have a single source and exclusive supplier arrangement with our
      Celadrin â supplier. We use Celadrin â in
      approximately 67% of our products representing approximately 84% of our sales
      for the year ended March 31, 2006. The interruption of raw material from this
      supplier would adversely affect our business and financial condition. Although
      our client base is growing, the loss of any of our four largest customers would
      have a material adverse effect on our revenue and earnings. We are embarking
      on
      a direct mass market strategy with our own product, Inflame Away. A significant
      portion of our working capital may be needed to implement this strategy. We
      believe that our cash position is sufficient to implement the mass market
      strategy and fund our operating activities for at least the next 12 months.




19




**New
      Accounting Pronouncements**





In
      December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
      123R, which requires companies to recognize in the statement of operations
      all
      share-based payments to employees, including grants of employee stock options,
      based on their fair values. Accounting for share-based compensation transactions
      using the intrinsic method supplemented by pro forma disclosures will no longer
      be permissible. The new statement is effective for public entities no later
      than
      the beginning of the first fiscal year beginning after June 15, 2005. The
      Company adopted the new statement on April 1, 2006. The adoption of this new
      statement did not affect the Company's results of operations or net income
      per
      share, but may have a significant future effect as the Company will be required
      to expense the fair value of all share-based payments.





In
      May
      2005, the FASB issued SFAS No. 154, "Accounting Changes and Error Corrections",
      a replacement of Accounting Principles Board Opinion No. 20, "Accounting
      Changes", and SFAS No. 3, "Reporting Accounting Changes in Interim Financial
      Statements" ("SFAS 154"). SFAS 154 changes the requirements for the accounting
      for, and reporting of, a change in accounting principle. Previously, voluntary
      changes in accounting principles were generally required to be recognized by
      way
      of a cumulative effect adjustment within net income during the period of the
      change. SFAS 154 requires retrospective application to prior periods' financial
      statements, unless it is impracticable to determine either the period-specific
      effects or the cumulative effect of the change. SFAS 154 is effective for
      accounting changes made in fiscal years beginning after December 15, 2005;
      however, the statement does not change the transition provisions of any existing
      accounting pronouncements. The Company does not believe adoption of SFAS 154
      will have a material effect on its financial position, cash flows or results
      of
      operations.




**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.





**We
      Are Currently Involved In A Legal Dispute Which Could Impact Our Future Results
      Of Operations And Working Capital**





We
      are
      being sued by a previous distributor of Celadrin®. We believe that the
      distributor’s claim lacks merit, a claim which we dispute and which we intend to
      defend vigorously. Should we not prevail in this dispute, the amount payable
      to
      the distributor could affect our business and operations. In addition, if we
      are
      required to litigate this matter, or otherwise settle the matter outside of
      court, the cost of resolving this matter may impact our future reported results
      of operations and consume a significant amount of cash.





**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 67% of our
      products and which represented approximately 84% of our sales for the year
      ended
      March 31, 2006. We rely upon Celadrin® to expand our product lines and revenue
      in the future. If our Celadrin® supplier goes out of business or elects for any
      reason not to supply us with Celadrin®, we would have to find another Celadrin®
supplier or suffer a significant reduction in our revenue.




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





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




20




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





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





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





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





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





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





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





We
      are
      subject to laws and regulations which cover:





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


·
              the
                    health and safety of food and drugs;
 ·
                trade
                      practice and direct selling laws; and
 ·
                  product
                          claims and advertising by us; or for which we may be held
                          responsible.


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





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





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





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





We
      have
      10,721,400 common shares outstanding, all of which are freely tradeable or
      saleable under Rule 144. We also have outstanding common stock warrants and
      stock options exercisable into up to 5,236,100 shares of common stock which
      could become free trading if exercised. If our stockholders sell substantial
      amounts of our common stock, the market price of our common stock could
      decrease.




21





**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:


·
              Thelack 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 pennystocks;
 ·
                  All
                            compensation received by the broker-dealer in connection
                            with the
                            transaction;
 ·
                    Current
                              quotation prices and other relevant market data; and
 ·
                      Monthly
                                  account statements reflecting the fair market value
                                  of the securities. In
                                  addition, theserules
                                  require that a broker-dealer obtain financial and
                                  other information from a
                                  customer, determinethat
                                  transactions in penny stocks are suitable for such
                                  customer and deliver a
                                  written statement tosuch
                                  customer setting forth the basis for this determination.


**ITEM
      3.     CONTROLS AND PROCEDURES.**




(a)
            Evaluation
                of disclosure controls and procedures. Our Chief Executive Officer
                and
                Principal Financial Officer, after evaluating the effectiveness of
                our
                "disclosure controls and procedures" (as defined in the Securities
                Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end
                of the
                period covered by this Quarterly Report on Form 10-QSB (the "Evaluation
                Date"), have concluded that as of the Evaluation Date, our disclosure
                controls and procedures are effective to provide reasonable assurance
                that
                information we are required to disclose in reports that we file or
                submit
                under the Exchange Act is recorded, processed, summarized and reported
                within the time periods specified in the Securities and Exchange
                Commission rules and forms, and that such information is accumulated and
                communicated to our management, including our Chief Executive Officer
                and
                Principal Financial Officer, as appropriate, to allow timely decisions
                regarding required disclosure.





22


(b)
            Changes
                in internal control over financial reporting. There were no significant
                changes in our internal control over financial reporting during our
                most
                recent fiscal quarter that materially affected, or were reasonably
likely
                to materially affect, our internal control over financial
                reporting.




**PART
      II.**  **OTHER
      INFORMATION**




**ITEM
      1.**  **LEGAL
      PROCEEDINGS.**




Effective
      December 31, 2006, Imagenetix terminated its agreement with Proprietary
      Nutritionals, Inc., for marketing of its product Celadrin. TM On
      September 28, 2006, the Company received a copy of a Complaint filed by
      Proprietary Nutritionals, Inc., *Proprietary Nutritionals, Inc. V. Imagenetix, Inc., Thomas Hall and Frank
      Sajovic* ,
      No.
      06CV2091 L POR (U.S. District Court, S.D. Cal.).   The Complaint
      alleges breach of contract by Imagenetix with respect to Imagenetix’s
      termination of the agreement, tortious interference with PNI’s business
      relations and economic advantages and quantum meruit claims.  The Company
      believes the allegations lack merit and the termination was proper under the
      terms of the agreement providing for termination upon a material breach
      including failure to meet sales goals.  Imagenetix intends to vigorously
      defend the litigation and has asserted claims on behalf of the Company against
      PNI for breach of the agreement. Management believes this action will not have
      a
      material effect on the financial position of the Company.




**ITEM
      6.**  **EXHIBITS.**


**Exhibit
                  No.**
              
              **Title**31.1
              
              302
                  Certification of William P. Spencer, Chief Executive
                  Officer31.2
              
              302
                  Certification of Lowell W. Giffhorn, Chief Financial
                  Officer32.1
              
              906
                  Certification of William P. Spencer, Chief Executive
                  Officer32.2
              
              906
                  Certification of Lowell W. Giffhorn, Chief Financial
                  Officer





23




**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:
                February 14, 2007
            By:
            /s/
                WILLIAM P. SPENCERWilliam
                P. Spencer
                Chief
                  Executive Officer(Principal
                Executive Officer and duly authorized
              to
                sign on behalf of the Registrant)





24