GPFT 10-Q Quarterly Report March 31, 2010

GRAPEFRUIT USA, INC

10-Ks and 10-Qs

10-Q	Quarter ended Sept. 30, 2022
10-Q	Quarter ended June 30, 2022
10-Q	Quarter ended March 31, 2022
10-K	Fiscal year ended Dec. 31, 2021
10-Q	Quarter ended Sept. 30, 2021
10-Q	Quarter ended June 30, 2021
10-Q	Quarter ended March 31, 2021
10-K	Fiscal year ended Dec. 31, 2020
10-Q	Quarter ended Sept. 30, 2020
10-Q	Quarter ended June 30, 2020
10-Q	Quarter ended March 31, 2020
10-K	Fiscal year ended Dec. 31, 2019
10-Q	Quarter ended Sept. 30, 2019
10-Q	Quarter ended June 30, 2019
10-Q	Quarter ended March 31, 2019
10-K	Fiscal year ended Dec. 31, 2018
10-Q	Quarter ended Sept. 30, 2018
10-Q	Quarter ended June 30, 2018
10-Q	Quarter ended March 31, 2018
10-K	Fiscal year ended Dec. 31, 2017
10-Q	Quarter ended Sept. 30, 2017
10-Q	Quarter ended June 30, 2017
10-Q	Quarter ended March 31, 2017
10-K	Fiscal year ended Dec. 31, 2016
10-Q	Quarter ended Sept. 30, 2016
10-Q	Quarter ended June 30, 2016
10-Q	Quarter ended March 31, 2016
10-K	Fiscal year ended Dec. 31, 2015
10-Q	Quarter ended Sept. 30, 2015
10-Q	Quarter ended June 30, 2015
10-Q	Quarter ended March 31, 2015
10-K	Fiscal year ended Dec. 31, 2014
10-Q	Quarter ended Sept. 30, 2014
10-Q	Quarter ended June 30, 2014
10-Q	Quarter ended March 31, 2014
10-K	Fiscal year ended Dec. 31, 2013
10-Q	Quarter ended Sept. 30, 2013
10-Q	Quarter ended June 30, 2013
10-Q	Quarter ended March 31, 2013
10-K	Fiscal year ended Dec. 31, 2012
10-Q	Quarter ended Sept. 30, 2012
10-Q	Quarter ended June 30, 2012
10-Q	Quarter ended March 31, 2012
10-K	Fiscal year ended Dec. 31, 2011
10-Q	Quarter ended Sept. 30, 2011
10-Q	Quarter ended June 30, 2011
10-Q	Quarter ended March 31, 2011
10-K	Fiscal year ended Dec. 31, 2010
10-Q	Quarter ended Sept. 30, 2010
10-Q	Quarter ended June 30, 2010
10-Q	Quarter ended March 31, 2010
10-K	Fiscal year ended Dec. 31, 2009

PROXIES

DEF 14A	Filed on Oct. 3, 2017
DEF 14A	Filed on Dec. 10, 2010

10-Q 1 i310qmarch312010vfinal.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [ X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarterly Period Ended March 31, 2010 or [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from _______________ to ______________ Commission File Number: 000-50099 ---------------------------------------------------------------- IMAGING3, INC. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) CALIFORNIA 95-4451059 ------------------------------------- ------------------------------------ (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 3200 WEST VALHALLA DRIVE, BURBANK, CALIFORNIA 91505 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (818) 260-0930 -------------------------------------------------------------------------------- Registrant's telephone number, including area code -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the proceeding 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[__] No[_X_] Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes[__] No[_X_] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check One). Large accelerated filer [___] Accelerated filer [___] Non-accelerated filer [___] Smaller reporting company [_X_] (Do not check if a smaller reporting company) Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes[__] No[_X_] Indicate the number of shares outstanding of each of the issuer's classes of common stock as of the latest practicable date. As of May 3, 2010, the number of shares outstanding of the registrant's class of common stock was 375,709,898. TABLE OF CONTENTS PAGE ---- PART I. FINANCIAL INFORMATION.............................................1 ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)..................................1 BALANCE SHEETS AT MARCH 31, 2010 (UNAUDITED) AND DECEMBER 31, 2009 .............................................................2 STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND MARCH 31, 2009 (UNAUDITED)...............................3 STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2010 AND MARCH 31, 2009 (UNAUDITED)...............................4 NOTES TO FINANCIAL STATEMENTS (UNAUDITED).........................5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS........................................12 ITEM 4T. CONTROLS AND PROCEDURES..........................................16 PART II. OTHER INFORMATION............................................... 18 ITEM 1. LEGAL PROCEEDINGS................................................18 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS......18 ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................18 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.............18 ITEM 5. OTHER INFORMATION................................................18 ITEM 6. EXHIBITS.........................................................19 SIGNATURES .................................................................20 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) -1-

-2-

-3-

-4- Imaging3,Inc. Notes to Financial Statements (Unaudited) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Imaging3, Inc. (the "Company") is a California corporation incorporated on October 29, 1993, as Imaging Services, Inc. The Company filed a certificate of amendment of articles of incorporation to change its name to Imaging3, Inc. on August 20, 2002. The Company's primary business is production and sale of medical equipment, parts and services to hospitals, surgery centers, research labs, physician offices and veterinarians. Equipment sales include new c-arms, c-arm tables, remanufactured c-arms, used c-arm and surgical tables. Sales of parts consist of new or renewed replacement parts for c-arms. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A summary of the Company's significant accounting policies consistently applied in the preparation of the accompanying financial statements follows: The accompanying unaudited interim financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission for the presentation of interim financial information, but do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's annual report on Form 10-K for the fiscal year ended December 31, 2009. The Company follows the same accounting policies in preparation of interim reports. Results of operations for the interim periods are not indicative of annual results. USE OF ESTIMATES In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. DUE TO OFFICER At March 31, 2010 and December 31, 2009, the Company had a balance due to the Chief Executive Officer of the Company amounting to $86,766 and $50,766, respectively, for accrued consulting fees and amounts borrowed. The amount is due on demand, is interest free and secured by the assets of the Company. EQUIPMENT DEPOSITS Equipment deposits represent amounts received from customers against future sales of goods since the Company recognizes revenue upon shipment of goods. These deposits are applied to the invoices when the equipment is shipped to the customers. The balance at March 31, 2010 and December 31, 2009, was $181,425 and $201,637, respectively. -5- Imaging3,Inc. Notes to Financial Statements (Unaudited) REVENUE RECOGNITION The Company recognizes its revenue in accordance with the Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). SAB 104 revises or rescinds portions of the interpretative guidance included in Topic 13 of the codification of staff accounting bulletins in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. Revenue is recognized upon shipment, provided that evidence of an arrangement exists, title and risk of loss have passed to the customer, fees are fixed or determinable and collection of the related receivable is reasonably assured. Revenue is recorded net of estimated product returns, which is based upon the Company's return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. The Company accrues for warranty costs, sales returns, and other allowances based on its experience. Generally, the Company extends credit to its customers and does not require collateral. The Company performs ongoing credit evaluations of its customers and historic credit losses have been within management's expectations. The Company sells warranties and recognizes warranty revenue over the term of the warranty period. Deferred revenue is recognized at the time of warranty sales. INCOME TAXES The Company accounts for income taxes using the liability method. Deferred tax assets are recognized for deductible temporary differences and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. BASIC AND DILUTED NET LOSS PER SHARE Basic net loss per share is based upon the weighted average number of common shares outstanding. Diluted net loss per share is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company had no common stock equivalents or other potentially dilutive securities at March 31, 2010 or December 31, 2009. RECENT PRONOUNCEMENTS On January 1, 2009, the Company adopted a new accounting standard issued by the FASB related to accounting for business combinations using the acquisition method of accounting (previously referred to as the purchase method). Among the significant changes, this standard requires a redefining of the measurement date of a business combination, expensing direct transaction costs as incurred, capitalizing in-process research and development costs as an intangible asset and recording a liability for contingent consideration at the measurement date with subsequent re-measurements recorded in the results of operations. This standard also requires costs for business restructuring and exit activities related to the acquired company to be included in the post-combination financial results of operations and also provides new guidance for the recognition and measurement of contingent assets and liabilities in a business combination. In addition, this standard requires several new -6- Imaging3,Inc. Notes to Financial Statements (Unaudited) disclosures, including the reasons for the business combination, the factors that contribute to the recognition of goodwill, the amount of acquisition related third-party expenses incurred, the nature and amount of contingent consideration, and a discussion of pre-existing relationships between the parties. The application of this standard was not material for 2009, however, it is likely to have a significant impact on how the Company allocates the purchase price of certain future business combinations, including the recognition and measurement of assets acquired and liabilities assumed and the expensing of direct transaction costs and costs to integrate the acquired business. On January 1, 2009, the Company adopted a new accounting standard issued by the FASB related to the disclosure of derivative instruments and hedging activities. This standard expanded the disclosure requirements about an entity's derivative financial instruments and hedging activities, including qualitative disclosures about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. Effective June 30, 2009, the Company adopted a newly issued accounting standard related to accounting for and disclosure of subsequent events in its consolidated financial statements. This standard provides the authoritative guidance for subsequent events that was previously addressed only in United States auditing standards. This standard establishes general accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued and requires the Company to disclose the date through which it has evaluated subsequent events and whether that was the date the financial statements were issued or available to be issued. This standard does not apply to subsequent events or transactions that are within the scope of other applicable GAAP that provide different guidance on the accounting treatment for subsequent events or transactions. The adoption of this standard did not have a material impact on the Company's financial statements. In June 2009, the FASB issued an amendment to the accounting standards related to the consolidation of variable interest entities ("VIE"). This standard provides a new approach for determining which entity should consolidate a VIE, how and when to reconsider the consolidation or deconsolidation of a VIE and requires disclosures about an entity's significant judgments and assumptions used in its decision to consolidate or not consolidate a VIE. Under this standard, the new consolidation model is a more qualitative assessment of power and economics that considers which entity has the power to direct the activities that "most significantly impact" the VIE's economic performance and has the obligation to absorb losses or the right to receive benefits that could be potentially significant to the VIE. This standard is effective for the Company as of January 1, 2010 and the Company does not expect the impact of its adoption to be material to its financial statements. In October 2009, the FASB issued an amendment to the accounting standards related to the accounting for revenue in arrangements with multiple deliverables including how the arrangement consideration is allocated among delivered and undelivered items of the arrangement. Among the amendments, this standard eliminates the use of the residual method for allocating arrangement consideration and requires an entity to allocate the overall consideration to each deliverable based on an estimated selling price of each individual deliverable in the arrangement in the absence of having vendor-specific objective evidence or other third party evidence of fair value of the undelivered items. This standard also provides further guidance on how to determine a separate unit of accounting in a multiple-deliverable revenue arrangement and expands the disclosure requirements about the judgments made in applying the estimated selling price method and how those judgments affect the -7- Imaging3,Inc. Notes to Financial Statements (Unaudited) timing or amount of revenue recognition. This standard, for which the Company is currently assessing the impact, will become effective for the Company on January 1, 2011. In October 2009, the FASB issued an amendment to the accounting standards related to certain revenue arrangements that include software elements. This standard clarifies the existing accounting guidance such that tangible products that contain both software and non-software components that function together to deliver the product's essential functionality, shall be excluded from the scope of the software revenue recognition accounting standards. Accordingly, sales of these products may fall within the scope of other revenue recognition accounting standards or may now be within the scope of this standard and may require an allocation of the arrangement consideration for each element of the arrangement. This standard, for which the Company is currently assessing the impact, will become effective for the Company on January 1, 2011. In January 2010, the FASB issued an amendment to the accounting standards related to the disclosures about an entity's use of fair value measurements. Among these amendments, entities will be required to provide enhanced disclosures about transfers into and out of the Level 1 (fair value determined based on quoted prices in active markets for identical assets and liabilities) and Level 2 (fair value determined based on significant other observable inputs) classifications, provide separate disclosures about purchases, sales, issuances and settlements relating to the tabular reconciliation of beginning and ending balances of the Level 3 (fair value determined based on significant unobservable inputs) classification and provide greater disaggregation for each class of assets and liabilities that use fair value measurements. Except for the detailed Level 3 roll-forward disclosures, the new standard is effective for the Company for interim and annual reporting periods beginning after December 31, 2009. The requirement to provide detailed disclosures about the purchases, sales, issuances and settlements in the roll-forward activity for Level 3 fair value measurements is effective for the Company for interim and annual reporting periods beginning after December 31, 2010. The Company does not expect that the adoption of this new standard will have a material impact to its financial statements. 3. ACCOUNTS RECEIVABLE All accounts receivable are trade related. These receivables are current and management believes are collectible except for those for which a reserve has been provided. The balance of accounts receivable as of March 31, 2010 was $57,916 as compared to $220,938 as of December 31, 2009. The reserve amount for uncollectible accounts was $1,375 as of March 31, 2010 and December 31, 2009, respectively. -8- Imaging3,Inc. Notes to Financial Statements (Unaudited) 4. INVENTORIES Inventory consisted of the following: 03/31/10 12/31/09 -------------- ------------- Parts inventory $ 186,297 $ 174,756 Finished goods 282,600 305,212 Inventory reserve (229,972) (229,972) ------------ ------------- Total, net $ 238,925 $ 249,996 ============ ============= 5. PROPERTIES AND EQUIPMENT Property and equipment consisted of the following: 03/31/10 12/31/09 -------------- ------------- Furniture and office equipment $ 78,695 $ 78,695 Tools and shop equipment 54,183 54,183 Vehicles 105,871 105,871 -------------- ------------- 238,749 238,749 Less Accumulated depreciation (213,046) (211,897) -------------- ------------- Total, net $ 25,703 $ 26,852 ============== ============= Depreciation expenses were $1,149 and $4,957 for the three months ended March 31, 2010 and 2009, respectively. 6. ACCRUED EXPENSES Accrued expenses consisted of the following: 03/31/10 12/31/09 -------------- ------------- Accrued payroll taxes $ 151,540 $ 14,557 Other accrued expenses 25,746 174,442 Accrued legal fees 401,109 401,109 Accrued ongoing litigation 1,657,721 1,662,971 -------------- ------------- Total $ 2,236,116 $ 2,253,079 ============== ============= 7. STOCKHOLDERS' EQUITY COMMON STOCK During the three month period ended March 31, 2010, the Company had not issued common stock for either cash or consulting services. During the three month period ended March 31, 2009, the Company issued 8,425,000 shares of common stock for cash proceeds of $338,801 net of offering costs of $4,199 as part of its private placement. -9- Imaging3,Inc. Notes to Financial Statements (Unaudited) During the three month period ended March 31, 2009, the Company issued 687,500 shares of common stock for consulting services. The Company recorded $34,375 as consulting fees expense to settle the payment as agreed on the date of invoice at the fair market value. 8. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS The Company paid income taxes of $0 and interest of $2,641 during the period ended March 31, 2010. The Company paid income taxes of $0 and interest of $3,609 during the period ended March 31, 2009. 9. GOING CONCERN The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. In the three month periods ended March 31, 2010 and 2009, the Company incurred losses of $432,686 and $326,445, respectively. The Company has an accumulated deficit of $13,031,856 and $12,599,170 as of March 31, 2010 and December 31, 2009, respectively. The continuing losses have adversely affected the liquidity of the Company. In view of the matters described in the preceding paragraph, recoverability of a major portion of the recorded asset amounts shown in the accompanying balance sheets is dependent upon continued operations of the Company, which in turn is dependent upon the Company's ability to raise additional capital, obtain financing and to succeed in its future operations. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management has taken the following steps to meet its operating and financial requirements, which it believes are sufficient to provide the Company with the ability to continue as a going concern: Management devoted considerable effort during the three month period ended March 31, 2010, towards (i) obtaining approval from the Food and Drug Administration for its proprietary medical imaging device so that the Company can commence marketing and selling it, (ii) controlling salaries and general and administrative expenses, (iii) management of accounts payable, (iv) evaluation of its distribution and marketing methods in order to increase sales of existing products and services, and (v) increasing marketing and sales of its products and services. In order to control general and administrative expenses, the Company has established internal financial controls in all areas, specifically in hiring and overhead cost. The Company has also established a hiring policy under which the Company will refrain from hiring additional employees unless approved by the CEO and CFO. Accounts payable are reviewed and approved or challenged on a daily basis and the sales staff is questioned as to the validity of any expense on a monthly basis. Senior management reviews the annual budget to ascertain and question any variance from plan, on a quarterly basis, and to anticipate and make adjustments as may be feasible. 10. RELATED PARTY TRANSACTION The Company has a consulting agreement with the Chief Executive Officer of the Company for compensation of $12,000 per month. The CEO provides services to the Company for management, administrative, marketing, and financial matters pursuant to the consulting agreement terminable on 30 days notice by either -10- Imaging3,Inc. Notes to Financial Statements (Unaudited) party. The consulting agreement commenced on January 1, 2002, and will continue until such time as the Company withdraws the agreement or the CEO resigns. The accrued compensation has been included in amounts due to officer and is payable by the Company on demand. During the normal course of business from time to time, the Chief Executive Officer advances funds to the Company or defers the payment of his consulting fees from the Company. These transactions are recorded as due to officer. The balance of due to officer amounts to $86,766 as of March 31, 2010 and $50,766 as of December 31, 2009, payable on demand. The outstanding balance does not bear interest. 11. CONCENTRATIONS Four customers represented 17%, 14%, 11% and 10% of the Company's accounts receivable, respectively, as of March 31, 2010. Three customers represented 27%, 25%, and 11% of the Company's accounts receivable, respectively, as of December 31, 2009. 12. SUBSEQUENT EVENTS There have been no significant subsequent events through the date the financial statements were issued. -11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAUTIONARY STATEMENTS This Form 10-Q may contain "forward-looking statements," as that term is used in federal securities laws, about Imaging3, Inc.'s financial condition, results of operations and business. These statements include, among others: o statements concerning the potential benefits that Imaging3, Inc. ("Imaging3" or the "Company") may experience from its business activities and certain transactions it contemplates or has completed; and o statements of Imaging3's expectations, beliefs, future plans and strategies, anticipated developments and other matters that are not historical facts. These statements may be made expressly in this Form 10-Q. You can find many of these statements by looking for words such as "believes," "expects," "anticipates," "estimates," "opines," or similar expressions used in this Form 10-Q. These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause Imaging3's actual results to be materially different from any future results expressed or implied by Imaging3 in those statements. The most important facts that could prevent Imaging3 from achieving its stated goals include, but are not limited to, the following: (a) volatility or decline of Imaging3's stock price; (b) potential fluctuation in quarterly results; (c) failure of Imaging3 to earn revenues or profits; (d) inadequate capital to continue or expand its business, inability to raise additional capital or financing to implement its business plans; (e) failure to commercialize Imaging3's technology or to make sales; (f) changes in demand for Imaging3's products and services; (g) rapid and significant changes in markets; (h) litigation with or legal claims and allegations by outside parties; (i) insufficient revenues to cover operating costs, resulting in persistent losses; and (j) failure of Imaging3 to obtain approval of its proprietary medical imaging technology and device from the Federal Food and Drug Administration. There is no assurance that Imaging3 will be profitable. Imaging3 may not be able to successfully develop, manage or market its products and services. Imaging3 may not be able to attract or retain qualified executives and technology personnel. Imaging3 may not be able to obtain customers for its products or services. Imaging3's products and services may become obsolete. Government regulation may hinder Imaging3's business. Imaging3 may not be able -12- to obtain the required approvals from the United States Food and Drug Administration for its products and services. Additional dilution in outstanding stock ownership may be incurred due to the issuance of more shares, warrants and stock options, or the exercise of outstanding warrants and stock options. Imaging3 is exposed to other risks inherent in its businesses. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. Imaging3 cautions you not to place undue reliance on the statements, which speak only as of the date of this Form 10-Q. The cautionary statements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that Imaging3 or persons acting on its behalf may issue. Imaging3 does not undertake any obligation to review or confirm analysts' expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-Q, or to reflect the occurrence of unanticipated events. CURRENT OVERVIEW Though our efforts have been to market our refurbished equipment, a significant portion of our sales and revenues derive from services and the sale of parts, either from extended warranty purchases at the time of purchase of the refurbished equipment, or service contracts and time and material revenue realized upon warranty expiration, the majority of which is realized one year from equipment purchase as warranties expire. Our sales effort through direct mail, broadcast facsimile and broadcast email to thousands of potential customers throughout the United States generates leads of potential customers desiring to purchase equipment either immediately or in the course of one year. This lead generation through direct mail, broadcast facsimile and email will continue on a quarterly basis with the goal of increasing the total number of our leads for our sales staff. Management expects that the marketing program will also eventually help stabilize the amount of refurbished equipment sold on a monthly basis, since the carry-over of leads not looking for immediate purchase will overlap with the immediate sales leads. The greater the number of leads generated, whether immediate or long term, the greater the opportunity to eventually create a consistent number of sales. CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We monitor our estimates on an on-going basis for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. We base our estimates on historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. We have identified the policies below as critical to our business operations and the understanding of our results of operations. REVENUE RECOGNITION. We recognize revenue in accordance with the Securities and Exchange Commission's ("SEC") Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"). We recognize revenue upon shipment, provided that evidence of an arrangement exists, title and risk -13- of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. We record revenue net of estimated product returns, which is based upon our return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. We accrue for warranty costs, sales returns, and other allowances based on our experience. Generally, we extend credit to our customers and do not require collateral. We perform ongoing credit evaluations of our customers and historic credit losses have been within our expectations. We do not ship a product until we have either a purchase agreement or rental agreement signed by the customer with a payment arrangement. This is a critical policy, because we want our accounting to show only sales which are "final" with a payment arrangement. We do not make consignment sales, nor inventory sales subject to a "buy back" or return arrangement from customers. PROVISION FOR SALES RETURNS, ALLOWANCES AND BAD DEBTS. The Company maintains a provision for sales allowances, returns and bad debts. Sales returns and allowances result from equipment damaged in delivery or customer dissatisfaction, as provided by agreement. The provision is provided for by reducing gross revenue by a portion of the amount invoiced during the relevant period. The amount of the reduction is estimated based on historical experience. RESERVE FOR OBSOLETE/EXCESS INVENTORY. Inventories are stated at the lower of cost or market. We regularly review our inventories and, when required, will record a provision for excess and obsolete inventory based on factors that may impact the realizable value of our inventory including, but not limited to, technological changes, market demand, regulatory requirements and significant changes in our cost structure. If ultimate usage varies significantly from expected usage, or other factors arise that are significantly different than those anticipated by management, inventory write-downs or increases in reserves may be required. A fire in 2002 incinerated our inventory, so we have not had to deal with significant amounts of obsolete inventory since that time. Our procedure is now to maintain only limited inventory, based on our experience in service and repair, necessary for current service and repair contracts or orders anticipated within the following 60 days. We have supply relationships with long term suppliers to provide additional parts on an as needed, prompt basis for the vast majority of repair and service parts, so obsolescence is no longer a factor in our business. We have not recorded any material amounts as charges to obsolescence since the fire in 2002 destroyed our warehouse. Rental income is recognized when earned and expenses are recognized when incurred. The rental periods vary based on customer's needs ranging from 5 days to 6 months. An operating lease agreement is utilized. The rental revenues were insignificant in the three month periods ended March 31, 2010 and 2009. Written rental agreements are used in all instances. OTHER ACCOUNTING FACTORS The effects of inflation have not had a material impact on our operation, nor are they expected to in the immediate future. Although we are unaware of any major seasonal aspect that would have a material effect on the financial condition or results of operations, the first quarter of each fiscal year is always a financial concern due to slow collections after the holidays. The deposits that are shown in the financials are for pending sales of existing products and not any new patented product. These are deposits received from our customers for sales of equipment and services and are only removed as -14- deposits upon completion of the sale. If for whatever reason a customer order is cancelled the deposit would be returned as stated in the terms of sale, minus a restocking fee. No depositor is a related party of any officer or employee of Imaging3, Inc. Our terms of deposit typically are 50% down with the balance of the sale price due upon delivery. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2010 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2009 We had revenues in the first quarter of 2010 of $265,586 compared to $314,369 in 2009, which represents an18% decrease. The decrease in revenue is due in part to the Company's focus on obtaining approval for its new proprietary medical device but this year we intend to focus on the marketing, sale and provision of our historic products and services as well. Our equipment sales were $139,125 in the first three months of 2010, compared to $148,691 in the first three months of 2009, representing a decrease in equipment sales of $9,566 in 2010 or 7%. Our service and parts sales for the first quarter of 2009 were $45,615 compared to $60,016 in the first three months of 2009. The Company will continue to focus on increasing its revenue in this area as well. Our cost of revenue was $125,993 in the first quarter of 2009 compared to $142,233 in the first quarter of 2010, which represents an increase of $16,240 or 12%. This is due in large part to the fact that the cost for some of the equipment was higher as a result of the sale of newer models, thus costing more. We had a decrease in gross profit margin in the first quarter of 2010 of $123,353 compared to $188,376 in the first quarter of 2009. Our operating expenses increased from $499,240 in the first quarter of 2009 to $547,853 in the first quarter of 2010, a 10% increase mostly due to the increased price of equipment. Our loss on operations increased to $424,500 in the first quarter of 2010 compared to $310,864 in the first quarter of 2009, a 36% increase. This increase is attributed to the overall decrease in revenue for this same period. Our net loss was $432,686 in the first quarter of 2010 compared to $326,445 in the first quarter of 2009, a 32% increase, again as a result of a decreased revenue stream and higher cost of goods sold for the period. LIQUIDITY AND CAPITAL RESOURCES The Company's cash position was $370,217 at March 31, 2010, compared to $633,443 at December 31, 2009. The reason for the decrease in cash at the end of the first quarter of 2010 as compared to December 31, 2009 is primarily due to repayment of indebtedness, decreased revenue and increased expenses. As of March 31, 2010, the Company has current assets of $694,532, non-current assets of $25,703, and current liabilities of $2,794,542, and as of December 31, 2009, current assets of $1,134,654, non-current assets of $26,852 and current liabilities of $2,803,127. The reason for the decrease in current assets at the end of the first quarter of 2010 as compared to December 31, 2009 is primarily due to repayment of indebtedness, decreased revenue and increased expenses. Net cash used in operating activities amounted to $(299,226) for the three month period ended March 31, 2010, as compared to net cash provided by operating activities of $205,061 for the three month period ended March 31, 2009. The decrease in 2010 as compared to 2009 resulted from increased net loss, accrued expenses and equipment deposits. Net cash provided by (used for) used for financing activities amounted to $36,000 and $(272,399) for the three month periods ended March 31, 2010 and -15- 2009, respectively. The increase in 2010 as compared to 2009 resulted from the non-payment of money owed to the chief executive officer as opposed to payment extended in 2009. The Company does not have sufficient capital to meet its current cash needs, which include the costs of compliance with the continuing reporting requirements of the Securities Exchange Act of 1934, as amended. The Company intends to seek additional capital and long term debt financing to attempt to overcome its working capital deficit. The Company will need between $50,000 to $100,000 annually to maintain its reporting obligations. The Company may attempt to do more private placements of its stock in the future to raise capital, but there is no assurance that the Company can raise sufficient capital or obtain sufficient financing to enable it to obtain approval of its prototype from the Federal Food and Drug Administration and to sustain monthly operations. In order to address its working capital deficit, the Company also intends to endeavor to (i) reduce operating costs, (ii) reduce general, administrative and selling costs, (iii) increase sales of its existing products and services, and (iv) obtain the approval of the United States Food and Drug Administration to the Company's proprietary medical imaging device so that the Company can commence marketing and selling it. There may not be sufficient funds available to the Company to enable it to remain in business and the Company's needs for additional financing are likely to persist. GOING CONCERN QUALIFICATION The Company has incurred significant losses from operations, and such losses are expected to continue. The Company's auditors have included a "Going Concern Qualification" in their report for the year ended December 31, 2009. In addition, the Company has limited working capital. The foregoing raises substantial doubt about the Company's ability to continue as a going concern. Management's plans include seeking additional capital and/or debt financing. There is no guarantee that additional capital and/or debt financing will be available when and to the extent required, or that if available, it will be on terms acceptable to the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The "Going Concern Qualification" might make it substantially more difficult to raise capital. ITEM 4T. CONTROLS AND PROCEDURES Our management is responsible for establishing and maintaining disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the "SEC"), and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 15d-15(e) under the Exchange Act. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. At the end of the period covered by this Quarterly Report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2010, the disclosure controls -16- and procedures of our Company were not effective to ensure that the information required to be disclosed in our Exchange Act reports was recorded, processed, summarized and reported on a timely basis. Imaging 3 is undertaking to improve its internal control over financial reporting and improve its disclosure controls and procedures. As of December 31, 2009, we had identified the following material weaknesses which still exist as of March 31, 2010 and through the date of this report: 1. As of December 31, 2009 and as of the date of this report, we did not maintain effective controls over the control environment. Specifically, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness. 2. As of December 31, 2009 and as of the date of this report, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements. Accordingly, management has determined that this control deficiency constitutes a material weakness. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING There were no changes in internal controls over financial reporting that occurred during the quarter ended March 31, 2010, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. This report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. -17- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company may be involved in legal actions and claims arising in the ordinary course of business from time to time, none of which at this time is considered to be material to the Company's business or financial condition. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the three month period ended March 31, 2010, the Company had not issued common stock for either cash or consulting services. ITEM 3. DEFAULTS UPON SENIOR SECURITIES None. ITEM 4. REMOVED AND RESERVED None. ITEM 5. OTHER INFORMATION None. -18- ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(b) The following is a list of Current Reports on Form 8-K filed by the Company during and subsequent to the quarter for which this report is filed. None. -19- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 7, 2010 IMAGING3, INC. By:/s/ Dean Janes ------------------------------------------- Dean Janes, Chief Executive Officer and Chairman (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/Dean Janes Dated: May 7, 2010 ---------------------------------------------- Dean Janes, Chief Executive Officer and Chairman (Principal Executive Officer) By: /s/Christopher Sohn Dated: May 7, 2010 ---------------------------------------------- Christopher Sohn, Director, President and Chief Operating Officer By: /s/Xavier Aguilera Dated: May 7, 2010 ---------------------------------------------- Xavier Aguilera, Chief Financial Officer, Secretary, and Executive Vice President (Principal Financial/Accounting Officer) -20-

TABLE OF CONTENTS

GPFT 10-Q Quarter ended March 31, 2010