GPFT 10-Q Quarterly Report March 31, 2012

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 imaging3-10q033112.htm imaging3-10q033112.htm

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, 2012

o 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 of incorporation or organization)	(I.R.S. Employer Identification No.)

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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

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 (§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

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	o		Accelerated filer	o
Non-accelerated filer (Do not check if a smaller reporting company)	o		Smaller reporting company	x

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

Yes

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 15, 2012, the number of shares outstanding of the registrant’s class of common stock was 489,329,607.

Table of Contents

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1
	Balance Sheets at September 30, 2011 (Unaudited) and December 31, 2010	1
	Statements of Operations for the Three and Nine Months Ended September 30, 2010 and September 30, 2011 (Unaudited)	2
	Statements of Cash Flows for the Nine Months Ended September 30, 2010 and September 30, 2011 (Unaudited)	3
	Notes to Financial Statements (Unaudited)	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 4.	Controls and Procedures	19

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Removed and Reserved	27
Item 5.	Other Information	27
Item 6.	Exhibits	27

SIGNATURES		28

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

IMAGING3 , INC.

BALANCE SHEETS

AT MARCH 31, 2012 (UNAUDITED) AND DECEMBER 31, 2011

	3/31/2012			12/31/2011

ASSETS

CURRENT ASSETS:
Cash and cash equivalents	$	95,486		$	449,733
Accounts receivable, net		51,286			49,772
Inventory, net		249,697			148,914
Deferred financing costs, net		7,730			11,532
Prepaid expenses		7,215			10,797
Total current assets		411,414			670,748

PROPERTY AND EQUIPMENT, net		10,863			12,013

OTHER ASSETS		31,024			31,024
Total assets	$	453,301		$	713,785

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
Accounts payable	$	302,894		$	275,684
Accrued expenses		1,747,598			1,805,136
Deferred revenue		143,784			168,974
Equipment deposits		150,600			89,250
Due to an officer		330,938			344,938
Convertible notes payable, net of discount		591,781			292,603
Derivative liability		17,563,088			17,555,812
Total current liabilities		20,830,683			20,532,397

STOCKHOLDERS' DEFICIT:
Preferred stock, authorized shares 1,000,000; 3,000 and 0 shares issued and outstanding; 350,000 votes per share at March 31, 2012 and December 31, 2011		532,391			-
Preferred stock payable		-			288,014
Common stock, no par value; authorized shares 750,000,000; 425,291,513 and 414,388,151 issued and outstanding at March 31, 2012 and December 31, 2011		15,119,255			14,344,878
Common stock payable		275,000			275,000
Accumulated deficit		(36,304,028	)		(34,726,504	)
Total stockholders' deficit		(20,377,382	)		(19,818,612	)
Total liabilities and stockholders' deficit	$	453,301		$	713,785

The accompanying notes form an integral part of these unaudited financial statements

Table of Contents

IMAGING3 , INC.

STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED

MARCH 31, 2012 AND MARCH 31, 2011

(UNAUDITED)

	2012			2011

Net revenues	$	209,478		$	266,762

Cost of goods sold		49,351			128,984
Gross profit		160,127			137,778

Operating expenses
General and administrative expenses		893,752			558,680
Total operating expense		893,752			558,680

Loss from operations		(733,625	)		(420,902	)

Other income (expense):
Interest expense		(360,882	)		(10,567	)
Other income		71,987			-
Gain (Loss) on change in derivative liability		(555,003	)		215,868
Total other income (expense)		(843,898	)		205,301

Loss before income tax		(1,577,523	)		(215,601	)

Provision for income taxes		-			800

Net loss	$	(1,577,523	)	$	(216,401	)

Basic and diluted net loss per share	$	-		$	-

Basic and diluted weighted average common shares outstanding		417,221,377			380,420,723

The accompanying notes form an integral part of these unaudited financial statements

Table of Contents

IMAGING3 , INC.

STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED

MARCH 31, 2012 AND MARCH 31, 2011

(UNAUDITED)

	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,577,523	)	$	(216,401	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation		1,150			1,150
Preferred stock issued to officer		244,377			-
Amortization of deferred financing costs		3,802			-
Amortization of debt discount		299,178			-
Shares issued for services		37,500			-
Loss (Gain) on change in derivative liability		555,003			(215,868	)
(Increase) / decrease in current assets:
Accounts receivable		(1,514	)		(9,671	)
Inventory		(100,783	)		(106,627	)
Prepaid expenses and other assets		3,582			10,960
Increase / (decrease) in current liabilities:
Accounts payable		27,209			(18,397	)
Accrued expenses		(57,538	)		48,421
Deferred revenue		(25,190	)		7,675
Equipment deposits		61,350			49,000
Net cash used for operating activities		(529,397	)		(449,758	)


CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from officer		36,000			91,743
Repayments to officer		(50,000	)		-
Proceeds from sale of stock, net of offering costs		89,150			-
Proceeds from exercise of warrants		100,000			-
Net cash provided by financing activities		175,150			91,743

NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS		(354,247	)		(358,015	)

CASH & CASH EQUIVALENTS, BEGINNING BALANCE		449,733			367,578

CASH & CASH EQUIVALENTS, ENDING BALANCE	$	95,486		$	9,563

NON-CASH ACTIVITIES:
Impact of exercise of warrants on derivative liability	$	547,727		$	-
	$	547,727		$	-

The accompanying notes form an integral part of these unaudited financial statements

Table of Contents

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, 2011. 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, 2012 and December 31, 2011, the Company had a balance due to the Chief Executive Officer of the Company amounting to $330,938 and $344,938, 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, 2012 and December 31, 2011, was $150,600 and $89,250, respectively.

Table of Contents

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. All potentially dilutive securities were anti-dilutive for the periods presented and basic and diluted net loss per share were equal.

Recent Pronouncements

In September 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-08, Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment. The guidance in ASU 2011-08 is intended to reduce complexity and costs by allowing an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The amendments also improve previous guidance by expanding upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. Also, the amendments improve the examples of events and circumstances that an entity having a reporting unit with a zero or negative carrying amount should consider in determining whether to measure an impairment loss, if any, under the second step of the goodwill impairment test. The amendments in this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011, if an entity’s financial statements for the most recent annual or interim period have not yet been issued. The adoption of this guidance is not expected to have a material impact on the Company’s financial position or results of operations.

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

In June 2011, the FASB issued ASU 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income”, which is effective for annual reporting periods beginning after December 15, 2011. ASU 2011-05 will become effective for the Company on April 1, 2012. This guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. In addition, items of other comprehensive income that are reclassified to profit or loss are required to be presented separately on the face of the financial statements. This guidance is intended to increase the prominence of other comprehensive income in financial statements by requiring that such amounts be presented either in a single continuous statement of income and comprehensive income or separately in consecutive statements of income and comprehensive income. The adoption of ASU 2011-05 is not expected to have a material impact on our financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs” (ASU 2011-04), which is effective for annual reporting periods beginning after December 15, 2011. This guidance amends certain accounting and disclosure requirements related to fair value measurements. Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 will become effective for the Company on January 1, 2012. We are currently evaluating ASU 2011-04 and have not yet determined the impact that adoption will have on our financial statements.

Fair Value of Financial Instruments

On January 1, 2008, the Company adopted a new standard related to the accounting for financial assets and financial liabilities and items that are recognized or disclosed at fair value in the financial statements on a recurring basis, at least annually. This standard provides a single definition of fair value and a common framework for measuring fair value as well as new disclosure requirements for fair value measurements used in financial statements. Fair value measurements are based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants exclusive of any transaction costs, and are determined by either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability. Absent a principal market to measure fair value, the Company would use the most advantageous market, which is the market that the Company would receive the highest selling price for the asset or pay the lowest price to settle the liability, after considering transaction costs. However, when using the most advantageous market, transaction costs are only considered to determine which market is the most advantageous and these costs are then excluded when applying a fair value measurement. The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.

On January 1, 2009, the Company adopted an accounting standard for applying fair value measurements to certain assets, liabilities and transactions that are periodically measured at fair value. The adoption did not have a material effect on the Company’s financial position, results of operations or cash flows.

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

In August 2009, the FASB issued an amendment to the accounting standards related to the measurement of liabilities that are routinely recognized or disclosed at fair value. This standard clarifies how a company should measure the fair value of liabilities, and that restrictions preventing the transfer of a liability should not be considered as a factor in the measurement of liabilities within the scope of this standard. This standard became effective for the Company on October 1, 2009. The adoption of this standard did not have a material impact on the Company’s financial statements.

The fair value accounting standard creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below with Level 1 having the highest priority and Level 3 having the lowest.

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

Level 3: Valuations derived from valuation techniques in which one or more significant inputs are unobservable.

The following table presents assets and liabilities that are measured and recognized at fair value as of December 31, 2011 on a recurring basis:

December 31, 2011

Description	Level 1		Level 2		Level 3		Total Gains and (Losses)
Derivative Liability		-		-		17,555,812		(15,297,390	)
Total	$	-	$	-	$	17,555,812	$	(15,297,390	)

March 31, 2012

Description	Level 1		Level 2		Level 3		Total Gains and (Losses)
Derivative Liability		-		-		17,563,088		(555,003	)
Total	$	-	$	-	$	17,563,088	$	(555,003	)

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, 2012 was $51,286 as compared to $49,772 as of December 31, 2011. The reserve amount for uncollectible accounts was $3,181 and $4,909 as of March 31, 2012 and December 31, 2011, respectively.

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

4. INVENTORIES

Inventory consisted of the following:

	03/31/12			12/31/11
Parts inventory	$	186,297		$	98,773
Finished goods		293,372			280,113
Inventory reserve		(229,972	)		(229,972	)
Total, net	$	249,697		$	148.914

5. PROPERTIES AND EQUIPMENT

Property and equipment consisted of the following:

	03/31/12			12/31/11
Furniture and office equipment	$	78,695		$	78,695
Tools and shop equipment		57,683			54,183
Vehicles		105,871			105,871
		242,249			238,749
Less Accumulated depreciation		(231,386	)		(226.736	)
Total, net	$	10,863		$	12,013

Depreciation expenses were $1,150 and $1,150 for the three months ended March 31, 2012 and 2011, respectively.

6. ACCRUED EXPENSES

Accrued expenses consisted of the following:

	03/31/12		12/31/011
Accrued wages	$	115,605	$	128,077
Other accrued expenses		65,887		39,953
Accrued ongoing litigation		1,566,106		1,637,106
Total	$	1,747,598	$	1,805,136

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

7. CONVERTIBLE NOTES

During the year ended December 31, 2011, the Company issued secured convertible promissory notes in the total principal amount of $1,200,000 from which the Company received $1,000,000 of cash. The notes have no stated rate of interest. The convertible promissory note is convertible into shares of the Company’s common stock at a rate the lesser of (a) $0.10 per share, or (b) 80% of the average of the three (3) lowest daily VWAP’s (volume weighted average prices) during the 22 consecutive trading days immediately preceding the applicable conversion date, but not less than $0.05 per share, subject to full ratchet anti-dilution provisions. The notes included a total of 12,000,000 warrants that also have full ratchet anti-dilution provisions and other potential adjustments. On their face, they are exercisable at $0.10 per share for a period of five years from the date of issue. The Company has subsequently agreed to reduce the conversion and exercise price to $0.0119 per share. The notes are secured by all personal property of the company, including inventory, equipment, contract rights including all intangible assets, etc. The Company incurred financing costs of $15,250 related to the issuance of the convertible note and warrants. These financing costs have been deferred and are being amortized on a straight line basis over the life of convertible promissory note. It was determined that the convertible notes and warrants included embedded derivatives.

A discount on the convertible promissory notes totaled $1,200,000. This discount is amortized using the effective interest method over the term of the note. The debt discount amortization during the period ended March 31, 2012 was $299,178.

8. STOCKHOLDERS' EQUITY

Preferred Stock

On November 17, 2011, the Company authorized the issuance of up to 1,000,000 shares of preferred stock. The Company also granted 1,000 shares of Series A Preferred Stock on this date to the Company’s Chief Executive Officer. The Company granted an additional 2,000 shares on March 9, 2012. A total of 3,000 shares were issued on March 20, 2012.

Series A Preferred Stock

These shares have the right to receive dividends, when declared, on a ratable basis with the holders of the Company’s common stock based on the number of shares of Series A Preferred Stock then outstanding in relation to the total number of shares of Series A Preferred Stock and common stock then outstanding. These shares have voting rights that permit the holders to vote 350,000 votes for each share of Series A Preferred Stock. The holders of Series A Preferred Stock will vote with the holders of common stock as one class. In the event of liquidation, dissolution, or winding up of the Company, the Series A Preferred Stock then outstanding will be entitled to be paid a preference of $0.001 per share of the then outstanding Series A Preferred Stock.

The Company estimated the Series A Preferred Stock at the fair market value of $532,391. The shares granted on November 17, 2011 were valued at $288,014. The shares granted on March 9, 2012 were valued at $244,377. The holder of this preferred stock along with other common share holdings, represent a controlling voting interest in the Company. As a result, a determination of the control premium was determined to estimate the value of the shares. The control premium is based on publicly traded companies or comparable entities which have been recently acquired in arm’s length transactions. This control premium was determined to be 10% of the market value of the common shares required for control on the date the shares were granted. The market value of the shares required for control was calculated to be $2,880,140 and $2,443,767 at November 17, 2011 and March 9, 2012, respectively. The number of common shares required for control is based on the number required to be held by the holder of the preferred stock in order for the preferred stock to give that holder control of the Company. The Company performed the valuation with the assistance of a valuations specialist.

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

Effective March 20, 2012, the Company issued 3,000 shares of Series A Preferred Stock to Dean Janes, our chief executive officer. Each share of Series A Preferred Stock has a par value of $0.001 and the equivalent of 350,000 votes. The Series A Preferred Stock is not convertible into the Company’s common stock. The holder of the Series A Preferred Stock is entitled to dividends only to the extent of the number of shares of Series A Preferred Stock held by him (i.e. 3,000) in proportion to the total number of outstanding shares of preferred and common stock. The liquidation preference of each share of the Series A Preferred Stock is equal to $0.001 per share.

Common Stock

During the three month period ended March 31, 2012, the Company issued 10,403,362 of common stock for $200,000 dollars. A total of 8,403,362 shares were issued due to the exercise of warrants for cash received of $100,000. An additional 2,000,000 shares were issued for cash received of $100,000, and paid offering costs of $10,850.

During the three month period ended March 31, 2012, the Company issued 500,000 of common stock for $37,500 dollars for services rendered. The shares were valued using the stock price on the date of grant.

9. WARRANTS

During the year ended December 31, 2010, the Company issued 13,990,829 warrants to purchase 13,990,829 shares of common stock, (a) 4,587,157 of which are exercisable at a price of $0.2725 per share for a period of five (5) years from the date of issuance, (b) 4,587,157 of which are exercisable at a price of $0.218 per share for a period of 18 months from the date of issuance, (c) 4,587,157 of which are exercisable at a price of $0.2725 per share for a period of five (5) years from the date of issuance, exercisable only to the extent that the warrants described in (b) of this paragraph are exercised, and (d) 229,358 of which are exercisable at a price of $0.31 per share for a period of five years from the date of issuance. The number of shares issuable upon the exercise of the warrants described in (a), (b), and (c) of this paragraph and the exercise prices of the warrants described in (a), (b), and (c) of this paragraph may be adjusted pursuant to the full-ratchet anti dilution provisions contained in those warrants.

During the year ended December 31, 2011, the Company issued 12,000,000 warrants to purchase 12,000,000 shares of common stock in connection with the issuance of a secured convertible promissory note in the principal amount of $1,200,000 from which the Company received $1,000,000 of cash. The 12,000,000 warrants also have full ratchet anti-dilution provisions and other potential adjustments. On their face, they are exercisable at $0.10 per share for a period of five years from the date of issue.

Warrant Activity

12/31/2011	Balance	222,313,442

	Warrants issued	-

	Warrants exercised	(8,403,362	)

	Warrants expired	-

	Adjustments due to reset provisions	88,840,336

3/31/2012	Balance	302,750,416

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

10. DERIVATIVE LIABILITY

The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with its warrants to purchase common stock.

During the year ended December 31, 2010, in conjunction with the Company’s issuance of 4,587,157 shares of common stock for cash amounting to $1,000,000, the Company issued 13,761,471 warrants in three series (A, B, and C) each consisting of 4,587,157 common stock warrants, which have exercise prices that are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than $0.2725, $0.2180, and $0.2725, respectively. If these provisions are triggered, the exercise price of all their warrants will be reduced. Accordingly, the warrants are not considered to be solely indexed to the Company’s own stock and are not afforded equity treatment. On March 28, 2012, the Company settled litigation with the holders of these warrants. The settlement specified an exercise price under which 160,084,072 additional warrant shares would be issuable pursuant to the exercise price “reset” provisions. The number of additional warrant shares issuable was included in the derivative valuation as of December 31, 2011.

During the year ended December 31, 2011, the Company issued secured convertible promissory notes in the total principal amount of $1,200,000 from which the Company received $1,000,000 of cash. The convertible promissory note is convertible into shares of the Company’s common stock at a rate the lesser of (a) $0.10 per share, or (b) 80% of the average of the three (3) lowest daily VWAP’s (volume weighted average prices) during the 22 consecutive trading days immediately preceding the applicable conversion date, but not less than $0.05 per share, subject to full ratchet anti-dilution provisions. The notes included a total of 12,000,000 warrants that also have full ratchet anti-dilution provisions and other potential adjustments. On their face, they are exercisable at $0.10 per share for a period of five years from the date of issue. If these provisions are triggered, the exercise price of all their warrants and convertible notes will be reduced. Accordingly, the warrants and convertible notes are not considered to be solely indexed to the Company’s own stock and are not afforded equity treatment.

As a result, the Company’s securities containing exercise price reset provisions were classified as a derivative liability, in accordance with ASC 815. As of December 31, 2011, the fair value of the warrants issued was $17,555,812 and recognized as an expense and an increase in derivative liability. The change in fair value during the period from December 31, 2011 to March 31, 2012 of $555,003 is recorded as a loss on change in fair market value of derivative in the accompanying Statements of Operations. As of March 31, 2012, the fair value of these warrants was $17,563,088. The derivative liability decreased by $547,727 due to the exercise of warrants during the three months ended March 31, 2012.

The Company classifies the fair value of these warrants under level three of the fair value hierarchy of financial instruments. The fair value of the derivative liability was calculated using a Monte Carlo simulation model that values the embedded derivatives based on several inputs, assumptions and probabilities. This model is based on future projections of the various potential outcomes. The embedded derivatives that were analyzed and incorporated into the model included the exercise feature with the full ratchet reset.

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

The following inputs and assumptions were used to value the warrants originally issued in October 2010 as of March 31, 2011:

·	The warrant term is 60 months for series A and C; 9 months for series B.

·	The warrant exercise prices were $0.2725 for series A and C; $0.2180 for series B, with a ratchet exercise price being $0.0119 based on recent transactions.

·	The computed volatility was 126% and risk free rate of 1.10% for all three series.

·	The probability of the company obtaining future financing was 90% for series A and C; 0% for series B.

·	The series C warrants are only exercisable if the series B warrants are exercised and only in the same percentage as the series B warrants are exercised. All series B warrants were exercised during the period.

·	Full ratchet anti-dilution includes exercise price adjustment upon subsequent financings at a lower price and an increase in the warrants issued upon an exercise price adjustment.

The following inputs and assumptions were used to value the secured convertible notes and warrants originally issued in October 2011 as of March 31, 2011:

·	The warrant term is 60 months.

·	The warrant exercise prices were $0.10, adjusted to $0.0119 as of March 31, 2011.

·	The computed volatility was 120% and risk free rate of 1.04%.

·	The probability of the company obtaining future financing was 90%.

·	Full ratchet anti-dilution includes exercise price adjustment upon subsequent financings at a lower price and an increase in the warrants issued upon an exercise price adjustment.

The following inputs and assumptions were used in the current year to value the warrants that were issued in October 2010 (229,358 warrants) but initially included in the derivative liability in the three months ended March 31, 2011 due to the fact that the Company’s equity environment became tainted during that time period:

·	The warrant remaining term was 3.5 years.

·	The warrant exercise price was $0.31.

·	Computed volatility was 136.9% and risk free rate was 0.51%.

·	The warrants do not have ratchet anti-dilution provisions.

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

The following shows the changes in the level three liability measured on a recurring basis for the period ended March 31, 2012:

Balance at December 31, 2011	$	17,555,812
Decrease in derivative value due to exercise of warrants		(547,727	)
Derivative loss		555,003
Balance at March 31, 2012	$	17,563,088

11. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS

The Company paid income taxes of $800 and interest of $298 during the period ended March 31, 2011. The Company paid income taxes of $0 and interest of $664 during the period ended March 31, 2012.

12. 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, 2012 and 2011, the Company incurred losses of $1,577,523 and $216,401, respectively. The Company has an accumulated deficit of $36,304,028 and $34,726,504 as of March 31, 2011 and December 31, 2012, 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, 2011, 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.

Table of Contents

IMAGING3, INC.

Notes to Financial Statements

(Unaudited)

13. 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 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 $330,938 as of March 31, 2021 and $344,938 as of December 31, 2011, payable on demand. The outstanding balance does not bear interest.

During the period ended March 31, 2012, the Company paid $5,000 to Kathryn Janes, the sister of the Chief Executive Officer, for counsulting services.

14. CONCENTRATIONS

Four customers represent 22%, 13%, 12%, and 10%, respectively, of accounts receivable as of March 31, 2012.

No customers represented more than 10% of the Company’s accounts receivable as of December 31, 2011.

Four customers represent 50% of revenue for the three months ended March 31, 2012. Three customers represent 90% of revenue for the three months ended March 31, 2011.

15. SUBSEQUENT EVENTS

On or about April 17, 2012, the Company issued 4,200,000 shares of its common stock pursuant to the cashless exercise of 6,273,859 Series A Warrants.

From April 17, 2012 until May 10, 2012, the Company issued a total of 22,689,076 shares of its common stock pursuant to the conversion of $270,000 outstanding principal amount of convertible promissory notes, and a total of 37,149,018 shares of its common stock pursuant to the cashless exercise of a total of 47,115,751 outstanding warrants.

Table of Contents

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:

·	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

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;

(j)

dilution in the ownership of the Company through the issuance by us of additional securities and the conversion of outstanding warrants, notes and other securities; and

(k)

failure of Imaging3 to obtain approval of its proprietary medical imaging technology and device from the Federal Food and Drug Administration.

Table of Contents

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 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, or the conversion of notes. 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.

Table of Contents

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 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.

Table of Contents

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 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, 2011 Compared to the Three Months Ended March 31, 2012

We had revenues in the first quarter of 2011 of $266,762 compared to $209,478 in 2012, which represents a 27% decrease. The decrease in revenue is due to decreased sales. Our equipment sales were $161,742 in the first three months of 2011, compared to $55,535 in the first three months of 2012, representing a decrease in equipment sales of $106,207 in 2012 or 65%. Our service and parts sales for the first quarter of 2012 were $19,058 compared to $24,555 in the first three months of 2011. We will continue to focus on increasing its revenue in this area as well.

Our cost of revenue was $128,984 in the first quarter of 2011 compared to $49,351 in the first quarter of 2012, which represents a decrease of $79,633 or 61%. This decrease is due in part to a decrease in sales and in part to the decrease in cost of parts and service parts. We had an increase in gross profit margin in the first quarter of 2012 to $160,127 compared to $137,778 in the first quarter of 2011. Our operating expenses increased to$897,555 in the first quarter of 2012 as compared to $558,680 in the first quarter of 2011, a 60% increase mostly due to increased legal fees. Our loss on operations increased to $733,625 ($733,428 MJR) in the first quarter of 2012 compared to $420,902 in the first quarter of 2011, a 75% increase. This increase is attributed to the overall increase in general operating expense for this same period. Our net loss was $1,577,523 in the first quarter of 2012 compared to $216,401 in the first quarter of 2011, primarily as a result of an increased loss on change in derivative liability and increased interest expense.

Liquidity and Capital Resources

The Company's cash position was $95,486 at March 31, 2012, compared to $449,733 at December 31, 2011. The reason for the decrease in cash at the end of the first quarter of 2012 as compared to December 31, 2011 is primarily due to increased expenses and decreased revenue.

As of March 31, 2012, the Company has current assets of $411,414, non-current assets of $41,887, and current liabilities of $20,830,683, and as of December 31, 2011, current assets of $670,748, non-current assets of $43,037 and current liabilities of $20,532,397. The reason for the decrease in current assets at the end of the first quarter of 2012 as compared to December 31, 2011 is primarily due to the decrease in the Company’s cash position.

Net cash used in operating activities amounted to $529,397 for the three month period ended March 31, 2012, as compared to net cash used in operating activities of $449,758 for the three month period ended March 31, 2011. The decrease in 2012 as compared to 2011 resulted from larger reductions in accrued expenses and deferred revenue in 2012 as compared to 2011.

Table of Contents

Net cash provided by financing activities amounted to $175,150 and $91,743 for the three month periods ended March 31, 2012 and 2011, respectively. The increase in 2012 as compared to 2011 resulted from proceeds from the issuance and sale of stock during the period.

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, 2011. 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.

Table of Contents

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, 2012, the disclosure controls 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, 2011, we had identified the following material weaknesses which still exist as of March 31, 2012 and through the date of this report:

1. As of December 31, 2011 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, 2011 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, 2012, 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.

Table of Contents

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 1A. Risk Factors

Purchasing shares of common stock in Imaging3 entails substantial risk. You should be able to bear a complete loss of your investment. You should carefully consider the following factors, among others.

Forward-Looking Statements

The following cautionary statements are made pursuant to the Private Securities Litigation Reform Act of 1995 in order for I3 to avail itself of the “safe harbor” provisions of that Act. The discussions and information in the Company’s public reports with the Securities and Exchange Commission (collectively, the “Reports”), including the documents incorporated by reference may contain both historical and forward-looking statements. To the extent that the Reports contain forward-looking statements regarding the financial condition, operating results, I3’s business prospects or any other aspect of I3’s business, please be advised that I3’s actual financial condition, operating results and business performance may differ materially from that projected or estimated by management in forward-looking statements. I3 has attempted to identify, in context, certain of the factors that management currently believes may cause actual future experience and results to differ from I3’s current expectations. The differences may be caused by a variety of factors, including but not limited to adverse economic conditions, decrease in demand for medical imaging and other equipment, intense competition, including entry of new competitors, increased or adverse federal, state and local government regulation, failure by I3 to obtain the approval of the Federal Food and Drug Administration (“FDA”) for its proprietary 3D medical imaging device currently in the prototype phase and subject to patent applications filed and pending, inadequate capital, unexpected costs, lower revenues and net income than forecast, failure to complete the development of I3’s proprietary products currently under development, technological obscelence of I3’s products, failure to commercialize or sell any new or existing products developed by I3, price increases for supplies, inability to raise prices, failure to obtain customers, the risk of litigation and administrative proceedings involving I3 and its employees, higher than anticipated labor costs, the possible fluctuation and volatility of operating results and financial condition, failure to make planned business acquisitions, failure of new businesses, if acquired, to be economically successful, decline in I3’s stock price, additional dilution of the existing shareholders’ ownership of I3, adverse publicity and news coverage, inability to carry out marketing and sales plans, loss of key executives, changes in interest rates, inflationary factors, and other specific risks that may be alluded to in Reports filed by I3.

We have incurred substantial operating deficits since inception and may continue to incur losses in the future . To date, our revenue from component and equipment sales has not been adequate to cover research and development costs for proprietary products under development, marketing costs, operating and overhead costs, and substantial costs incurred in ongoing litigation. Revenue from our old business model of selling nonproprietary medical equipment and components has declined in recent fiscal quarters, and no sales of I3’s proprietary 3D medical imaging product currently under development have yet been made, since it is still in the prototype phase. We do not have sufficient cash flow from our current operations to enable us to maintain or grow our business. We must raise additional capital in the future to continue to operate our businesses. Failure to secure adequate capital will hinder ’our growth and may jeopardize I3 as a going concern.

Table of Contents

If we do not generate significant additional revenue we will continue to receive a going concern qualification in our audit . The financial statements of I3 have been prepared on a going concern basis of accounting, which contemplates continuity of operations, realization of assets and liabilities and commitments in the normal course of business. The financial statements do not reflect any adjustments that might result if we are unable to continue as a going concern. I3 does not generate significant revenue, and has negative cash flows from operations, which raise substantial doubt about the I3’s ability to continue as a going concern. The ability of I3 to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, an additional cash infusion. I3 is actively seeking new investors.

We have not completed the development of our proprietary 3D medical imaging technology . Research and development projects are inherently speculative and subject to cost overruns. We cannot assure that we will be able to complete the development of our real time 3D diagnostic medical imaging technology, that it will be approved by the FDA for sale and use, or that, once developed, our diagnostic medical imaging devices can be sold profitably. We may not develop any new products or services for sale from our research and development efforts.

If we are required by the Food and Drug Administration to conduct clinical trials for our 3D medical imaging technology and device, the additional cost and time incurred before we receive approval from the Food and Drug Administration for the commercial sale and use of our device could be substantial and adversely affect our business, financial condition and operating results . On October 28, 2010, we received a letter from the Food and Drug Administration responding to our 501(k) application for clearance of our 3D medical imaging technology and device. In our application to the Food and Drug Administration we stated that our medical device is substantially equivalent to devices marketed in interstate commerce prior to May 28, 1976 and therefore should be approved for commercial sale and use as a Class II device, without the necessity for clinical trials. The Food and Drug Administration responded by rejecting our position that our medical device is substantially equivalent to such prior devices, citing several deficiencies in our submission. We plan to refile our application to the Food and Drug Administration in the near future to again seek Class II approval, in which we will endeavor to address the deficiencies. We have engaged special outside professional counsel to assist us with the preparation and submission of our next filing with the Food and Drug Administration. While we disagree with the Food and Drug Administration’s position and we plan to refile our application with additional information supporting our application for clearance, we cannot assure that such approval will be obtained or that we may not ultimately be required to file our application under Class III where clinical trials would be required, significantly delaying or preventing our device from being approved for commercial sale and use.

Our business may be adversely affected by competition . The diagnostic medical imaging industry is characterized by intense competition. I3 is subject to competition from other firms, many of which have greater financial resources, more recognition, more management experience, and longer operating histories than I3. We cannot assure that we will be able to compete successfully or profitably in the diagnostic medical imaging business.

We may not achieve the revenue predicted by us in our business model . We plan to implement a business model that calls for us to sell medical diagnostic imaging devices, based on our proprietary technology. I3 will incur substantial operating losses until such time as it is able to generate revenues from the sale of these products. We cannot assure that businesses and customers will adopt our products and technology in the volume that we project, or that businesses and prospective customers will agree to pay the prices that we proposes to charge. In the event I3’s customers resist paying prices at the rate I3 proposes, I3’s financial conditions and results of operations will be materially and adversely affected.

Table of Contents

If products utilizing our medical diagnostic imaging technology are determined to be unsafe, our business will be adversely affected . As medical diagnostic imaging has become an ever-more important and prominent part of everyday life, dramatic growth in the use of medical diagnostic imaging devices has given rise to occasional questions about safety. In the event that our products are deemed unsafe, we could face substantial liability and our financial conditions and results of operations will be materially and adversely affected.

Our failure to achieve brand recognition could have an adverse affect on our business . We believe that establishing and maintaining brand recognition for our medical diagnostic imaging technology will be a critical aspect of our efforts to attract and expand our customer base. Promotion and enhancement of the Imaging3 brand will depend largely on our success in providing high quality products and services. In order to attract and retain customers and to promote the Imaging3 brand in response to competitive pressures, we may find it necessary to increase substantially our financial commitment to creating and maintaining the Imaging3 brand. We cannot assure that we will obtain brand recognition for Imaging3. Our failure to provide high quality products and services or to obtain and maintain brand recognition could have a material adverse effect on our business, results of operations, and financial condition.

We must adapt quickly to changes in technology . Medical diagnostic imaging is a rapidly evolving technology. I3 must keep abreast of this technological evolution. To do so, we must continually improve the performance, features and reliability of our medical imaging equipment and related products. If we fail to maintain a competitive level of technological expertise, then we will not be able to compete in our market. I3 must be able to respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis. I3 can offer no assurance that it will be able to successfully use new technologies effectively or adapt I3’s products in a timely manner to a competitive standard. If I3 is unable to adapt in a timely manner to changing technology, market conditions or customer requirements, then I3 may not be able to successfully compete in its market.

We may not be able to repay our indebtedness . I3 has substantial indebtedness to related parties and to unaffiliated third parties, as disclosed in more detail in its reports, financial statements and notes to financial statements filed with the Securities and Exchange Commission. The indebtedness includes outstanding indebtedness owed by us to our Chief Executive Officer, payable on demand. We cannot assure that we will be able to repay all or any of our indebtedness, or that the indebtedness does not and will not continue to have a material adverse impact on our financial condition, operating results and business performance, including but not limited to our ability to continue as a going concern.

We have risks related to third party loans incurred by one of our executive officers . Our chief executive officer pledged approximately 34,838,131 shares of his I3 common stock as collateral for different third party loans incurred by him. The lenders perfected their security interest in the shares by taking possession of stock certificates representing the shares. As a result, in the event our chief executive officer defaults on any of these loans, or the lenders otherwise exert control over the disposition of the collateral, a lender could immediately sell all of the shares securing the lender’s loan into the market without any further action on our part which could cause our stock price to decline. Mr. Janes has disclaimed the beneficial ownership of all pledged shares.

There is no assurance that we will achieve profitability . We cannot assure that I3 will be able operate profitability in the future. Profitability, if any, will depend in part upon I3’s ability to successfully develop, obtain FDA approval, and market its proprietary medical diagnostic imaging technology, and other products and services. We may not be able to successfully transition from our current stage of business to a stabilized operation having sufficient revenues to cover expenses. While attempting to make this transition, we will be subject to all the risks inherent in a small business, including the needs to adequately service and expand our customer base and to maintain and enhance our current services. I3’s future profitability will be affected by all the risk factors described herein.

Table of Contents

We are exposed to various possible claims relating to our business and our insurance may not fully protect us. We cannot assure that we will not incur uninsured liabilities and losses as a result of the conduct of our business. I3 generally does not maintain theft or casualty insurance and has modest liability and property insurance coverage, along with workmen’s compensation and related insurance. However, should uninsured losses occur, I3’s shareholders could lose their invested capital.

We may face additional litigation in the future . I3 has had a substantial amount of litigation. The adverse resolution of such litigation to I3 could impair our ability to continue in business if judgment holders were to seek to liquidate our business through levy and execution. We have incurred and may continue to incur substantial legal fees and costs in connection with past and possibly future litigation. If we fail in our payment schedule, or fail in our defense to future pending actions, or become subject to a levy and execution on our assets and business, we could be forced to liquidate or to file for bankruptcy and be unable to continue in our business. Investors who purchase shares of I3 common stock will be subject to the risk of total loss if the risks described herein are realized, because there may be insufficient assets with which to pay our debts, which would leave shareholders with no recovery.

We have only one independent director . Currently, the only members of the Board of Directors are Dean Janes, Raul Carrega and Xavier Aguilera. Mr. Carrega is the only director who would be considered an “independent director,” as defined under FINRA listing standards and the Nasdaq Marketplace Rules. Therefore, all decisions of the Board of Directors will be made by persons who are not considered independent directors.

The loss of the services of any or our management or key executives could adversely affect our business . Our success is substantially dependent on the performance of our executive officers and key employees. The loss of an officer or director of I3 would have a material adverse impact on I3. I3 will generally be dependent upon its executive officers, Dean Janes and Xavier Aguilera, for the direction, management and daily supervision of I3’s operations.

The relationship of our management team to us could create conflicts of interest . The relationship of management to us creates conflicts of interest. We lease our executive offices from our Chief Executive Officer pursuant to a lease that was not determined at arms length. Management’s compensation from I3 has not been determined pursuant to arm’s-length negotiation. Management believes that it will have the resources necessary to fulfill its management obligations to all entities for which it is responsible.

Our ability to protect our intellectual property is uncertain . I3 has applied to the U.S. Patent and Trademark Office to register “Imaging3” as a service mark and as a trademark. There are no assurances that these applications will be approved and the registrations granted or that any other person will not challenge the registration or attempt to infringe upon I3’s marks. If I3 is unable to protect its rights to its trademarks or if such marks infringe on the rights of others, I3’s business would be materially adversely affected.

We may not be able to withstand fluctuations in our industry because our business is not diverse . Because of the limited financial resources that we have, it is unlikely that we will be able to diversify our operations. Our probable inability to diversify our activities into more than one area will subject us to economic fluctuations within a particular business or industry and therefore increase the risks associated with our operations.

Table of Contents

Our medical diagnostic imaging devices are subject to government regulation . Under the Medical Device Amendments of 1976 to the Federal Food, Drug and Cosmetic Act, all medical devices are classified by the Food and Drug Administration (“FDA”) into one of three classes. A Class I device is subject only to certain controls, such as labeling requirements and manufacturing practices; a Class II device must comply with certain performance standards established by the FDA; and a Class III device must obtain pre-market approval from the FDA prior to commercial marketing. I3 must receive Class II approval to market its real time 3D medical diagnostic imaging devices. We cannot be certain when, if ever, we will receive this approval. In the absence of FDA approval, we will not be able to market or sell our proprietary diagnostic medical imaging device, resulting in a material adverse impact to ’our potential operating results and financial condition. Other laws and regulations may be adopted in the future that address the manufacture, sale and use of medical diagnostic imaging devices that could adversely affect our business.

Our business is generally subject to government regulation . We are subject to regulations applicable to businesses generally. The adoption of any additional laws or regulations may decrease the growth of our business, decrease the demand for services and increase our cost of doing business. Changes in tax laws also could have a significant adverse effect on our operating results and financial condition.

Our stock price may continue to be volatile and could continue to decline . Our stock price has been volatile. The stock market in general has been extremely vulnerable and management cannot promise that the price of our common stock on the OTC Bulletin Board will not decline. We may register more shares of our stock in the future, potentially increasing the supply of free trading shares and possibly exerting downward pressure on our stock price.

We recently settled a lawsuit on terms that will cause the substantial dilution of our outstanding common stock, and we may in the future be subject to other litigation . On November 29, 2011, we were served with a Motion to Compel Arbitration by Cranshire Capital, LLC (the “Plaintiff” or “Cranshire”), one of two Warrant holders with whom we completed a private placement for the sale of common stock and warrants for $1,000,000 in October 2010. The Plaintiff alleged that it and Freestone Advantage Partners, L.P. are the holders of Series A Warrants, Series B Warrants and Series C Warrants (collectively, the “Warrants”) and that our entry into a transaction in October 2011 had the effect of triggering the anti-dilution provision in the Warrants. They alleged that the effect of the application of the anti-dilution provisions was to substantially lower the exercise price of the Warrants and increase the number of them. We believe that we had meritorious defenses to the Plaintiff’s claims. Nevertheless, the parties have agreed to settle the claims. Accordingly, on or about March 28, 2012, we entered into a Claims Exchange Agreement (the “Cranshire Agreement”) with Cranshire and a Settlement Agreement (the “Freestone Agreement”) with Freestone Advantage Partners, L.P. (“Freestone”), the other holder of Warrants, in order to settle the disputes between us and Cranshire and us and Freestone. Pursuant to the Cranshire Agreement, we and Cranshire have agreed that as a result of the issuance of securities by us pursuant to the transaction in October 2011, Cranshire is entitled to (i) an exercise price under each of Cranshire’s Warrants of $0.0119 per share, and (ii) the following as a result thereof: (a) 103,466,396.17 shares of our common stock issuable upon exercise of Cranshire’s Series A Warrant, (b) 22,868,151.26 shares of our common stock issuable upon exercise of Cranshire’s Series B Warrant and (c) 103,466,396.17 shares of common stock issuable upon exercise of Cranshire’s Series C Warrant. Cranshire also agreed that its Series B Warrant will terminate and be cancelled simultaneously with the occurrence of the closing under the Cranshire Agreement, and we will have no further obligation to deliver any shares of our common stock under Cranshire’s Series B Warrant. Pursuant to the Freestone Agreement, we and Freestone have agreed that as a result of the issuance of securities by the Company pursuant to the transaction in October 2011, Freestone is entitled to (i) an exercise price under each of Freestone’s Warrants of $0.0119 per share, and (ii) the following as a result thereof: (a) 1,575,645.38 shares of our common stock issuable upon exercise of Freestone’s Series A Warrant, (b) 1,260,516.30 shares of our common stock issuable upon exercise of Freestone’s Series B Warrant, and (c) 1,575,645.38 shares of common stock issuable upon exercise of Freestone’s Series C Warrant. Freestone also agreed that its Series B Warrant will terminate and be cancelled simultaneously with the occurrence of the closing under the Cranshire Agreement, and we will have no further obligation to deliver any shares of our common stock under Freestone’s Series B Warrant. Since March 28, 2012, the date of the settlement agreements, Cranshire and Freestone have exercised a total of 28,677,221 Series A Warrants, 8,403,362 of which were exercised on a cash basis for an aggregate exercise price of $100,000 and the issuance of 8,403,362 shares of our common stock, and 20,273,859 of which were exercised on a cashless basis, resulting in the issuance of a total of 12,271,178 shares of our common stock. Our shareholders could incur additional dilution in their ownership of us as a result of the full ratchet anti-dilution provisions of other outstanding convertible securities that may be triggered by the adjustments made in the settlement. Additionally, we cannot assure that future litigation in which we may become involved will not have a material adverse effect on our financial condition, operating results, business performance and business reputation. Investors who purchase shares of our common stock will be subject to the risk of total loss if the risks described herein are realized, because there may be insufficient assets with which to pay our debts, leaving shareholders with no recovery.

Table of Contents

Shareholders will experience dilution in their ownership of us. Our board of directors has the authority to cause the Company to issue additional securities and convertible securities at such prices and on such terms as it determines in its discretion without the consent of the stockholders, including without limitation common stock, preferred stock, warrants and convertible notes. The Company has issued securities to professional investment firms, including a group of lenders represented by Gemini Strategies, LLC, that have full ratchet anti-dilution provisions and other adjustments for certain potentially dilutive transactions. These provisions may be triggered, causing adjustments resulting in lower exercise prices and more securities outstanding, thereby causing existing shareholders to experience more dilution than originally anticipated when those securities were first issued by the Company. Consequently, our shareholders are subject to the risk that their ownership in the Company will be substantially diluted in the future.

We have issued Series A Preferred Stock having additional voting rights to our chief executive officer. The Company has issued 3,000 shares of Series A Preferred Stock to Dean Janes, our chief executive officer. Each share of Series A Preferred Stock has a par value of $0.001 and the equivalent of 350,000 votes. The Series A Preferred Stock is not convertible into the Company’s common stock. The holder of the Series A Preferred Stock is entitled to dividends only to the extent of the number of shares of Series A Preferred Stock held by him (i.e. 3,000) in proportion to the total number of outstanding shares of preferred and common stock. The liquidation preference of each share of the Series A Preferred Stock is $0.001, its par value. Consequently, by virtue of his ownership of the Series A Preferred Stock, Mr. Janes will have a majority of the outstanding voting stock of the Company and will generally be able to control the actions by the shareholders, subject to the cumulative voting rights of all shareholders.

Our common stock is currently a “penny stock,” which may make it more difficult for our investors to sell their shares. Our common stock is currently and may continue in the future to be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules generally apply to companies whose common stock is not listed on The NASDAQ Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stocks to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Since our securities are subject to the penny stock rules, investors may find it more difficult to dispose of our securities.

We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock. We do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition, and other business and economic factors affecting us at such time as our board of directors may consider relevant. Our current intention is to apply net earnings, if any, in the foreseeable future to increasing our capital base and marketing. Prospective investors seeking or needing dividend income or liquidity should therefore not purchase the Shares. If we do not pay dividends, our common stock may be less valuable because a return on investment will only occur if our stock price appreciates.

Table of Contents

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline. If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three month period ended March 31, 2012, the Company issued 10,403,362 of common stock for $200,000 dollars.

During the three month period ended March 31, 2012, the Company issued 500,000 of common stock for $37,500 dollars for services rendered.

On or about March 28, 2012, the Company issued 8,403,362 shares of its common stock pursuant to the cash exercise of 8,403,362 Series A Warrants, for which the Company received $100,000 of capital.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

Item 6. Exhibits

(a) Exhibits

EXHIBIT NO.	DESCRIPTION
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification
32.2	Section 906 Certification
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

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.

	IMAGING3, INC.

Dated: May 18, 2012	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 18, 2012

Dean Janes, Chief Executive Officer

and Chairman (Principal Executive Officer)

By: /s/Xavier Aguilera

Dated: May 18, 2012

Xavier Aguilera, Chief Financial Officer,

Secretary, and Executive Vice President

(Principal Financial/Accounting Officer)

TABLE OF CONTENTS

Part I. Financial Information Item 1. Financial Statements (unaudited)Item 2. Management S Discussion and Analysis Of Financial Condition and Results Of Operations Item 4T. Controls and Procedures Part II. Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 2. Unregistered Sales Of Equity Securities and Use Of Proceeds Item 3. Defaults Upon Senior Securities Item 4. Mine Safety Disclosures Item 5. Other Information Item 6. Exhibits

Exhibits

31.1 Section 302 Certification of Chief Executive Officer 31.2 Section 302 Certification of Chief Financial Officer 32.1 Section 906 Certification 32.2 Section 906 Certification

GPFT 10-Q Quarter ended March 31, 2012

Exhibits