##### Table of Contents



United States
Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the Quarterly Period Ended June 30, 2008
 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: 0-29129
 Innuity, Inc.
  Utah
    
    87-0370820(State or other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification No.)
 8644 154 th Avenue NE
  þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company
þ(Do not check if a smaller reporting company)
 o þ
  Class
    
    Outstanding at August 8, 2008Common stock$.00025 par value
    
    26,693,392




---



##### 



Innuity, Inc.
  PagePART I FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsCondensed Consolidated Balance Sheets as of June 30, 2008 and
December 31, 2007 (Unaudited)
    
    
    2Condensed Consolidated Statements of Operations for the three
months ands six months ended June 30, 2008 and 2007 (Unaudited)
    
    
    3Condensed Consolidated Statements of Cash Flows for the six
months ended June 30, 2008 and 2007 (Unaudited)
    
    
    4Notes to Condensed Consolidated Financial Statements (Unaudited)
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    15Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    19Item 4T.
    
    Controls and Procedures
    
    
    19PART II OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    19Item 1A.
    
    Risk Factors
    
    
    19Item 2.
    
    Unregistered Sale of Equity Securities and Use of Proceeds
    
    
    32Item 6.
    
    Exhibits
    
    
    33SIGNATURES
    
    
    34EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




---



##### Table of Contents



INNUITY, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
 June 30,
    
    December 31,2008
    
    2007ASSETSCurrent AssetsCash and cash equivalents
    
    $
    574,304
    
    
    $
    200,877Restricted cash
    
    
    375,000
    
    
    
    Settlement deposits
    
    
    239,282
    
    
    
    361,675Settlement receivable, net of allowance for doubtful accounts of
$19,494 and $18,615, respectively
    
    
    141,864
    
    
    
    156,817Trade accounts receivable, net of allowance for doubtful accounts of
$30,448 and $50,883, respectively
    
    
    190,615
    
    
    
    322,131Current assets relating to discontinued operations
    
    
    
    
    
    
    1,252,763Other current assets
    
    
    322,978
    
    
    
    132,634Total Current Assets
    
    
    1,844,043
    
    
    
    2,426,897Property and equipment, net
    
    
    683,493
    
    
    
    578,864Intangible assets, net
    
    
    204,193
    
    
    
    412,915Long-term assets relating to discontinued operations
    
    
    
    
    
    
    2,195,993Total Assets
    
    $
    2,731,729
    
    
    $
    5,614,669LIABILITIES AND STOCKHOLDERS DEFICITCurrent LiabilitiesCurrent liabilities relating to discontinued operations
    
    $
    1,108,962
    
    
    $
    4,624,111Trade accounts payable
    
    
    985,898
    
    
    
    1,449,062Accrued salaries and wages
    
    
    155,177
    
    
    
    413,737Merchant settlement payable
    
    
    349,774
    
    
    
    389,993Accrued liabilities
    
    
    524,348
    
    
    
    854,785Deferred revenues
    
    
    187,128
    
    
    
    183,093Current portion of obligations from terminated employment contracts
    
    
    60,493
    
    
    
    Related party notes payable, current portion, net of discount of $0 and
$73,754, respectively
    
    
    
    
    
    
    684,703Long-term debt, current portion, net of discount of $0 and $99,633,
respectively
    
    
    162,195
    
    
    
    1,103,847Capital lease obligations, current portion
    
    
    287,064
    
    
    
    195,662Total Current Liabilities
    
    
    3,821,039
    
    
    
    9,898,993Long-Term LiabilitiesLong-term obligation from terminated employment contracts, net of
discount and current portion
    
    
    334,511
    
    
    
    Long-term debt, net of current portion
    
    
    33,254
    
    
    
    82,821Capital lease obligations, net of current portion
    
    
    241,700
    
    
    
    165,074Total Long-Term Liabilities
    
    
    609,465
    
    
    
    247,895Total Liabilities
    
    
    4,430,504
    
    
    
    10,146,888Commitments and ContingenciesStockholders DeficitCommon stock; 200,000,000 shares authorized; par value $0.00025 per
share;
26,658,392 shares and 23,595,228 shares issued and outstanding,
respectively
    
    
    6,665
    
    
    
    5,899Additional paid-in capital
    
    
    35,775,817
    
    
    
    34,905,591Accumulated deficit
    
    
    (37,481,257
    )
    
    
    (39,443,709
    )Total Stockholders Deficit
    
    
    (1,698,775
    )
    
    
    (4,532,219
    )Total Liabilities and Stockholders Deficit
    
    $
    2,731,729
    
    
    $
    5,614,669
 See accompanying notes to condensed consolidated financial statements.
 2




---



##### Table of Contents



INNUITY, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
 For the Three and Six Months Ended June 30,
 Three Months Ended June 30,
    
    Six Months Ended June 30,2008
    
    2007
    
    2008
    
    2007RevenuesMerchant Services
    
    $
    628,209
    
    
    $
    627,316
    
    
    $
    1,319,622
    
    
    
    1,289,808Promotion Services
    
    
    477,548
    
    
    
    558,292
    
    
    
    989,176
    
    
    
    1,179,237Total revenues
    
    
    1,105,757
    
    
    
    1,185,608
    
    
    
    2,308,798
    
    
    
    2,469,045Operating expensesCost of services
    
    
    463,952
    
    
    
    459,982
    
    
    
    857,485
    
    
    
    912,623General and administrative
    
    
    967,056
    
    
    
    763,383
    
    
    
    1,654,772
    
    
    
    1,715,256Selling and marketing
    
    
    611,054
    
    
    
    522,129
    
    
    
    1,094,408
    
    
    
    1,124,297Research and development
    
    
    391,468
    
    
    
    347,646
    
    
    
    729,616
    
    
    
    806,063Amortization expense
    
    
    97,400
    
    
    
    115,603
    
    
    
    208,723
    
    
    
    226,926Loss from operations
    
    
    (1,425,173
    )
    
    
    (1,023,135
    )
    
    
    (2,236,206
    )
    
    
    (2,316,120
    )Other expenseGain from settlement of debt
    
    
    139,329
    
    
    
    577,434
    
    
    
    139,329
    
    
    
    577,434Other income
    
    
    14,676
    
    
    
    
    
    
    
    14,676
    
    
    
    Interest expense, net
    
    
    (156,522
    )
    
    
    (227,299
    )
    
    
    (373,757
    )
    
    
    (322,853
    )Total other income (expense)
    
    
    (2,517
    )
    
    
    350,135
    
    
    
    (219,752
    )
    
    
    254,581Loss before income taxes
    
    
    (1,427,690
    )
    
    
    (673,000
    )
    
    
    (2,455,958
    )
    
    
    (2,061,539
    )Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss from continuing operations
    
    
    (1,427,690
    )
    
    
    (673,000
    )
    
    
    (2,455,958
    )
    
    
    (2,061,539
    )Income (loss) from discontinued operations
    
    
    (389,453
    )
    
    
    156,347
    
    
    
    (533,032
    )
    
    
    (9,819
    )Gain on disposal
    
    
    4,951,442
    
    
    
    
    
    
    
    4,951,442
    
    
    
    Net gain (loss) from discontinued operations
    
    
    4,561,989
    
    
    
    156,347
    
    
    
    4,418,410
    
    
    
    (9,819
    )Net income (loss)
    
    $
    3,134,299
    
    
    $
    (516,653
    )
    
    $
    1,962,452
    
    
    $
    (2,071,358
    )Basic and Diluted Loss from Continuing Operations
Per Common Share
    
    $
    (0.06
    )
    
    $
    (0.03
    )
    
    $
    (0.10
    )
    
    $
    (0.10
    )Basic Income (Loss) from Discontinued Operations
Per Common Share
    
    $
    0.18
    
    
    $
    0.01
    
    
    $
    0.18
    
    
    $
    (0.00
    )Diluted Income (Loss) from Discontinued Operations
Per Common Share
    
    $
    0.17
    
    
    $
    0.01
    
    
    $
    0.17
    
    
    $
    (0.00
    )Basic Income (Loss) Per Common Share
    
    $
    0.12
    
    
    $
    (0.02
    )
    
    $
    0.08
    
    
    $
    (0.10
    )Diluted Income (Loss) Per Common Share
    
    $
    0.12
    
    
    $
    (0.02
    )
    
    $
    0.08
    
    
    $
    (0.10
    )Basic Weighted-Average
Common Shares Outstanding
    
    
    25,816,423
    
    
    
    21,904,776
    
    
    
    24,927,941
    
    
    
    21,675,482Diluted Weighted-Average
Common Shares Outstanding
    
    
    26,540,043
    
    
    
    21,904,776
    
    
    
    26,096,288
    
    
    
    21,675,482
 See accompanying notes to condensed consolidated financial statements.
 3




---



##### Table of Contents



INNUITY, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 For the Six Months Ended June 30,
    
    2008
    
    2007Cash flows from operating activitiesNet income (loss)
    
    $
    1,962,452
    
    
    $
    (2,071,358
    )Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:Depreciation and amortization
    
    
    581,260
    
    
    
    702,515Accretion of debt discount
    
    
    225,215
    
    
    
    173,095Non-cash share based compensation
    
    
    856,607
    
    
    
    467,528Common stock issued for services
    
    
    
    
    
    
    198,202Bad debt provision
    
    
    44,891
    
    
    
    113,623Gain from retirement of debt
    
    
    (139,329
    )
    
    
    (577,434
    )Gain from disposal of discontinued operations
    
    
    (4,951,442
    )
    
    
    Changes in assets and liabilities, net of acquisitions:Settlement deposits
    
    
    122,393
    
    
    
    200,461Trade accounts receivable
    
    
    (165,605
    )
    
    
    175,305Settlement receivable
    
    
    14,953
    
    
    
    (16,595
    )Inventories
    
    
    52,795
    
    
    
    137,817Other current assets
    
    
    (288,372
    )
    
    
    4,932Trade accounts payable
    
    
    (937,339
    )
    
    
    154,781Merchant settlement payable
    
    
    (40,219
    )
    
    
    (48,764
    )Accrued salaries and wages
    
    
    (480,698
    )
    
    
    (146,559
    )Deferred revenues
    
    
    293,088
    
    
    
    496,843Accrued liabilities
    
    
    (239,305
    )
    
    
    (77,124
    )Total adjustments
    
    
    (5,051,107
    )
    
    
    1,958,626Net cash used in operating activities
    
    
    (3,088,655
    )
    
    
    (112,732
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (3,951
    )
    
    
    (20,096
    )Proceeds from sale of in-store business line, net of expenses and restricted cash
    
    
    5,492,302
    
    
    
    Net cash provided by (used in) investing activities
    
    
    5,488,351
    
    
    
    (20,096
    )Cash flows from financing activitiesProceeds from issuance of long-term debt
    
    
    
    
    
    
    1,825,000Proceeds from exercise of warrants
    
    
    14,385
    
    
    
    Payments under obligations from terminated employement contracts
    
    
    (25,000
    )
    
    
    Payments on related party notes payable
    
    
    (758,507
    )
    
    
    (136,780
    )Payments on long-term debt
    
    
    (1,128,353
    )
    
    
    (669,659
    )Payments on capital lease obligations
    
    
    (128,794
    )
    
    
    (70,022
    )Payments on line of credit
    
    
    
    
    
    
    (699,365
    )Net cash provided by (used in) financing activities
    
    
    (2,026,269
    )
    
    
    249,174Net increase in cash and cash equivalents
    
    
    373,427
    
    
    
    116,346Cash and cash equivalents at beginning of period
    
    
    200,877
    
    
    
    307,483Cash and cash equivalents at end of period
    
    $
    574,304
    
    
    $
    423,829
 See accompanying notes to condensed consolidated financial statements.
 4




---



##### Table of Contents



INNUITY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Continued)
 For the Six Months Ended June 30,
    
    2008
    
    
    2007Supplemental disclosure of cash flow informationCash paid during the period for interest
    
    $
    213,717
    
    
    $
    14,989Noncash investing and financing activitiesDiscount on notes payable
    
    
    
    
    
    
    303,115Debt converted to common stock
    
    
    
    
    
    
    280,405Accrued interest converted to common stock
    
    
    
    
    
    
    75,760Acquisition of property and equipment under terms of capital lease agreements
    
    
    296,822
    
    
    
    Conversion of accounts payable to common stock
    
    
    
    
    
    
    40,618Sale of In-Store business line:Assets sold:Accounts receivable
    
    $
    867,235Inventory
    
    
    497,901Other current assets
    
    
    185,090Property and equipment
    
    
    116,746Intangible assets
    
    
    69,632Goodwill
    
    
    1,833,2203,569,824Liabilities assumed by buyer:Deferred revenue
    
    
    (2,891,196
    )Accrued liabilities
    
    
    (90,004
    )Assets sold net of liabilities
    
    
    588,624Sale price
    
    
    7,000,000Accrued purchase price adjustment
    
    
    78,491Accrued obligation from terminated employement contracts
    
    
    (405,727
    )Transaction expenses
    
    
    (1,132,698
    )Gain from disposal
    
    $
    4,951,442
 See accompanying notes to condensed consolidated financial statements.
 5




---



##### Table of Contents



INNUITY, INC.
AND SUBSIDIARIES
 
 Notes to Condensed Consolidated Financial Statements
June 30, 2008
(Unaudited)
 1.
    
    BASIS OF PRESENTATION
         6




---



##### Table of Contents



2.
    
    SHARE BASED PAYMENTS
      Three Months Ended
    
    Six Months Ended2008
    
    2007
    
    2008
    
    2007Dividend yield
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %
    
    
    0.0
    %Expected Volatility
    
    
    160
    %
    
    
    
    
    
    
    161
    %
    
    
    197
    %Risk-free interest
rate
    
    
    3.2
    %
    
    
    
    
    
    
    3.1
    %
    
    
    4.6
    %Expected term
(years)
    
    
    5.86
    
    
    
    
    
    
    
    5.86
    
    
    
    5.86
   7




---



##### Table of Contents



WeightedWeighted
    
    
    AverageShares
    
    
    Average
    
    
    Remaining
    
    
    Aggregateunder
    
    
    Exercise
    
    
    Contract
    
    
    IntrinsicOption
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at December 31,
2007
    
    
    3,618,511
    
    
    $
    0.64Granted
    
    
    12,500
    
    
    $
    0.24Forfeited or expired
    
    
    (332,817
    )
    
    $
    0.78Outstanding at June 30, 2008
    
    
    3,298,194
    
    
    $
    0.62
    
    
    7.99 Years
    
    $
    10,466Exercisable at June 30, 2008
    
    
    2,331,745
    
    
    $
    0.63
    
    
    7.66 Years
    
    $
    10,466
      2008
    
    
    2007Cost of services
    
    $
    6,432
    
    
    $
    941General and administrative expense
    
    
    177,491
    
    
    
    64,375Sales and marketing expense
    
    
    92,619
    
    
    
    84,360Research and development expense
    
    
    6,654
    
    
    
    6,074Total share-based payment expense from
continuing operations
    
    
    283,196
    
    
    
    155,750Discontinued operations
    
    
    274,694
    
    
    
    65,767Total share-based payment expense
    
    $
    557,890
    
    
    $
    221,517
  8




---



##### Table of Contents



2008
    
    
    2007Cost of services
    
    $
    8,664
    
    
    $
    3,429General and administrative expense
    
    
    271,679
    
    
    
    143,704Sales and marketing expense
    
    
    150,247
    
    
    
    184,083Research and development expense
    
    
    13,537
    
    
    
    13,738Total share-based payment expense from
continuing operations
    
    
    444,127
    
    
    
    344,954Discontinued operations
    
    
    412,480
    
    
    
    122,574Total share-based payment expense
    
    $
    856,607
    
    
    $
    467,528
 3.
    
    LONG-TERM DEBT AND CREDIT LINE
   June 30,
    
    December 31,2008
    
    2007Note payable to an unrelated party, interest at 15%, net of
discount
of $99,633 at December 31, 2007, paid in full May 2008
    
    $
    
    
    
    $
    975,367Note payable to an unrelated party, interest imputed at 2.49%,
matures October 2008, monthly payments of $8,357
    
    
    195,449
    
    
    
    211,301Total debt
    
    $
    195,449
    
    
    $
    1,186,668Less current maturities
    
    
    (162,195
    )
    
    
    (1,103,847
    )Long-term debt
    
    $
    33,254
    
    
    $
    82,821
  June 30,
    
    December 31,2008
    
    2007Notes payable to a shareholder, interest at 12%, paid in full May
2008
    
    $
    
    
    
    $
    200,000Note payable to former owner of Jadeon, interest at 5%, net of
discount
of $10,587 at December 31, 2007, paid in full May 2008
    
    
    
    
    
    
    202,870Convertible note payable to related parties, interest at 15%, net of
discount of $63,167 at December 31, 2007, paid in full June 2008
    
    
    
    
    
    
    281,833Total related party notes payable
    
    
    
    
    
    $
    684,703Less current maturities
    
    
    
    
    
    
    (684,703
    )Long-term related party notes payable
    
    $
    
    
    
    $
    
 9




---



##### Table of Contents



4.
    
    DISCONTINUED OPERATIONS
  June 30,
    
    
    December 31,2008
    
    
    2007Trade accounts receivable, net of allowance for doubtful
accounts of $54,871as of December 31, 2007
    
    $
    
    
    
    $
    615,005Inventories, net of allowance for obsolete inventory of
$209,962 as of December 31, 2007
    
    
    
    
    
    
    550,696Other current assets
    
    
    
    
    
    
    87,062Total current assets related to discontinued operations
    
    $
    
    
    
    $
    1,252,763Property and equipment, net
    
    $
    
    
    
    $
    107,455Intangible assets, net
    
    
    
    
    
    
    255,318Goodwill
    
    
    
    
    
    
    1,833,220Total long-term assets related to discontinued operations
    
    $
    
    
    
    $
    2,195,993Trade accounts payable
    
    $
    1,039,145
    
    
    $
    1,591,812Accrued salaries and wages
    
    
    31,925
    
    
    
    254,063Accrued liabilities
    
    
    37,892
    
    
    
    176,093Deferred revenues
    
    
    
    
    
    
    2,602,143Total current liabilities related to discontinued operations
    
    $
    1,108,962
    
    
    $
    4,624,111
  10




---



##### Table of Contents



Commissions
    
    $
    560,000Amounts paid under employee settelment agreements
    
    
    450,000Legal and professional services
    
    
    96,515Travel and other
    
    
    26,183$
    1,132,698
  5.
    
    LONG TERM OBLIGATIONS FROM TERMINATED EMPLOYEMENT CONTRACTS
  Total amount due net of discount of $540,923, under obligations
from terminated employment contracts
    
    $
    395,004Less current portion
    
    
    60,493Long Term obligations from terminated employment contracts.
    
    $
    334,511
 11




---



##### Table of Contents



6.
    
    COMMON STOCK
      7.
    
    INCOME (LOSS) PER SHARE
 Earnings Per Share
 8.
    
    SEGMENT INFORMATION
  Promotion
 Commerce
 12




---



##### Table of Contents



For the Three Months Ended June 30, 2008Promotion
    
    Commerce
    
    TotalRevenue from external customers
    
    $
    477,548
    
    
    $
    628,209
    
    
    $
    1,105,757Depreciation and amortization
    
    
    111,485
    
    
    
    63,713
    
    
    
    175,198Interest expense
    
    
    23,760
    
    
    
    
    
    
    
    23,760Segment loss
    
    
    (263,878
    )
    
    
    (323,401
    )
    
    
    (587,279
    )Segment assets
    
    
    756,844
    
    
    
    803,127
    
    
    
    1,559,971For The Three Months Ended June 30, 2007Promotion
    
    Commerce
    
    TotalRevenue from external customers
    
    $
    558,292
    
    
    $
    627,316
    
    
    $
    1,185,608Depreciation and amortization
    
    
    124,442
    
    
    
    65,515
    
    
    
    189,957Interest expense
    
    
    1,253
    
    
    
    
    
    
    
    1,253Segment income (loss)
    
    
    427,646
    
    
    
    (79,090
    )
    
    
    348,556Segment assets
    
    
    874,855
    
    
    
    1,083,458
    
    
    
    1,958,313The following presents certain segment information as of and for the six months ended June 30, 2008
and 2007:For the Six Months Ended June 30, 2008Promotion
    
    Commerce
    
    TotalRevenue from external customers
    
    $
    989,176
    
    
    $
    1,319,622
    
    
    $
    2,308,798Depreciation and amortization
    
    
    238,017
    
    
    
    127,556
    
    
    
    365,573Interest expense
    
    
    38,813
    
    
    
    
    
    
    
    38,813Segment loss
    
    
    (506,165
    )
    
    
    (404,662
    )
    
    
    (910,827
    )Segment assets
    
    
    756,844
    
    
    
    803,127
    
    
    
    1,559,971
 13




---



##### Table of Contents



For The Six Months Ended June 30, 2007Promotion
    
    Commerce
    
    TotalRevenue from external customers
    
    $
    1,179,237
    
    
    $
    1,289,808
    
    
    $
    2,469,045Depreciation and amortization
    
    
    249,383
    
    
    
    130,897
    
    
    
    380,280Interest expense
    
    
    2,946
    
    
    
    
    
    
    
    2,946Segment income (loss)
    
    
    83,871
    
    
    
    (232,286
    )
    
    
    (148,415
    )Segment assets
    
    
    874,855
    
    
    
    1,083,458
    
    
    
    1,958,313
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007Total Segment income (loss)
    
    $
    (587,279
    )
    
    $
    348,556
    
    
    $
    (910,827
    )
    
    $
    (148,415
    )Unallocated items:Share-based payments from continuing operations
    
    
    (283,196
    )
    
    
    (155,750
    )
    
    
    (444,127
    )
    
    
    (344,954
    )Interest expense
    
    
    (132,762
    )
    
    
    (226,046
    )
    
    
    (334,944
    )
    
    
    (325,799
    )Professional services
    
    
    (120,150
    )
    
    
    (244,788
    )
    
    
    (181,642
    )
    
    
    (448,016
    )Executive and other
    
    
    (304,303
    )
    
    
    (394,972
    )
    
    
    (584,418
    )
    
    
    (794,355
    )Loss from continuing operations
    
    $
    (1,427,690
    )
    
    $
    (673,000
    )
    
    $
    (2,455,958
    )
    
    $
    (2,061,539
    )
  Total segment assets
    
    $
    1,559,971Cash and cash equivalents
    
    
    574,304Restricted cash
    
    
    375,000Other assets not allocated to segments
    
    
    222,454Total assets
    
    $
    2,731,729
  9.
    
    SUBSEQUENT EVENTS
  14




---



##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 The statements contained in this quarterly report on Form 10-Q that are not purely historical
are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All
forward-looking statements involve various risks and uncertainties. Forward-looking statements
contained in this report include statements regarding our plans to develop and deliver products and
services, market opportunities and acceptance, expectations, goals, revenues, financial
performance, strategies, mission and intentions for the future. Such forward-looking statements
are included under Managements Discussion and Analysis of Financial Condition and Results of
Operations and encompass our beliefs, expectations, hopes or intentions regarding future events.
Words such as expects, intends, believes, anticipates, should, and likely also identify
forward-looking statements. All forward-looking statements included in this report are made as of
the date hereof, based on information available to us as of such date, and we assume no obligation
- and specifically disclaim any obligation  to update any forward-looking statement. It is
important to note that such statements may not prove to be accurate and that our actual results and
future events will vary, and may vary materially, from those anticipated in such statements. Among
the factors that could cause actual results to differ materially from our expectations are those
described in this section of this quarterly report entitled Managements Discussion and Analysis
of Financial Condition and Results of Operations, and those identified in Item 1A of Part II
entitled Risk Factors. All subsequent written and oral forward-looking statements attributable
to Innuity or persons acting on our behalf are expressly qualified in their entirety by this
section and other factors included elsewhere in this report. Unless otherwise indicated we,
us, our,, Innuity and the Company refer to Innuity, Inc., a Utah corporation, and its
subsidiaries.
 The following managements discussion and analysis of financial condition and results of
operation should be read in conjunction with our audited financial statements and accompanying
notes to those financial statements that appear in our annual report on Form 10-K for the year
ended December 31, 2007.
 Overview
    Recent Developments
   15




---



##### Table of Contents



Critical Accounting Policies
 Managements Discussion and Analysis of Financial Condition and Results of Operations
 Operations Review
  Analysis of Condensed Consolidated Statements of Operations
 Three Months Ending June 30,
    
    
    Six Months Ending June 30,%
    
    
    
    
    
    
    
    
    
    
    %2008
    
    
    2007
    
    
    Change
    
    
    2008
    
    
    2007
    
    
    ChangeRevenuesMerchant Services
    
    $
    628,209
    
    
    $
    627,316
    
    
    
    0
    %
    
    $
    1,319,622
    
    
    $
    1,289,808
    
    
    
    2
    %Promotion Services
    
    
    477,548
    
    
    
    558,292
    
    
    
    -14
    %
    
    
    989,176
    
    
    
    1,179,237
    
    
    
    -16
    %Total revenues
    
    
    1,105,757
    
    
    
    1,185,608
    
    
    
    -7
    %
    
    
    2,308,798
    
    
    
    2,469,045
    
    
    
    -6
    %Operating expensesCost of services
    
    
    463,952
    
    
    
    459,982
    
    
    
    1
    %
    
    
    857,485
    
    
    
    912,623
    
    
    
    -6
    %General and administrative
    
    
    967,056
    
    
    
    763,383
    
    
    
    27
    %
    
    
    1,654,772
    
    
    
    1,715,256
    
    
    
    -4
    %Selling and marketing
    
    
    611,054
    
    
    
    522,129
    
    
    
    17
    %
    
    
    1,094,408
    
    
    
    1,124,297
    
    
    
    -3
    %Research and development
    
    
    391,468
    
    
    
    347,646
    
    
    
    13
    %
    
    
    729,616
    
    
    
    806,063
    
    
    
    -9
    %Amortization expense
    
    
    97,400
    
    
    
    115,603
    
    
    
    -16
    %
    
    
    208,723
    
    
    
    226,926
    
    
    
    -8
    %Loss from operations
    
    
    (1,425,173
    )
    
    
    (1,023,135
    )
    
    
    39
    %
    
    
    (2,236,206
    )
    
    
    (2,316,120
    )
    
    
    -3
    %Other income (expense)Gain from settlement of debt
    
    
    139,329
    
    
    
    577,434
    
    
    
    *
    
    
    
    139,329
    
    
    
    577,434
    
    
    
    *Other income
    
    
    14,676
    
    
    
    
    
    
    
    *
    
    
    
    14,676
    
    
    
    
    
    
    
    *Interest expense
    
    
    (156,522
    )
    
    
    (227,299
    )
    
    
    -31
    %
    
    
    (373,757
    )
    
    
    (322,853
    )
    
    
    16
    %Total other income (expense)
    
    
    (2,517
    )
    
    
    350,135
    
    
    
    -101
    %
    
    
    (219,752
    )
    
    
    254,581
    
    
    
    -186
    %Net loss from continuing
operations
    
    $
    (1,427,690
    )
    
    $
    (673,000
    )
    
    
    112
    %
    
    $
    (2,455,958
    )
    
    $
    (2,061,539
    )
    
    
    19
    %
 
 *
    
    Calculation not meaningful  16




---



##### Table of Contents



Revenues
   Expenses
 Cost of services
  General and administrative.
  Selling and marketing.
  17




---



##### Table of Contents



Research and development.
  Gain on settlement of debt.
  Interest.
 Liquidity and Capital Resources
     18




---



##### Table of Contents



Off-Balance Sheet Arrangements
  
   
   
  
   
   19




---



##### Table of Contents



We have incurred losses since our inception, and we may not achieve or maintain profitability.
  If we fail to obtain additional funding to support our operations and capital expenditures, we
may be required to reduce the scope of our business.
  The loss of key customers could negatively affect our revenues and profitability.
  We face intense and growing competition from larger, more established companies, as well as
new entrants into our market, and we may not be able to compete effectively, which could reduce
demand for our services.
   20




---



##### Table of Contents



Our future revenues may be uncertain because of reliance on third parties for marketing and
distribution.
  Our business will be harmed if we are unable to develop or offer additional Internet
technology applications and solutions in a timely and cost-effective manner.
  Expansion in the sales of our Internet technology applications and solutions will depend on
the continued acceptance of the Internet as a communications and commerce platform for small
businesses.
   21




---



##### Table of Contents



We may find that it is difficult to identify, or license or acquire additional Internet
technology solutions on favorable terms, or to integrate future technology or business
acquisitions, which could limit our growth, disrupt our business and adversely affect our operating
results.
   If we are unable to expand or appropriately enhance or modify our Internet technology
solutions offerings quickly and efficiently, our business and operating results will be adversely
affected.
  
    
    identify and anticipate emerging technological and market trends affecting the
small business segment in which we do business;
 22




---



##### Table of Contents




    
    enhance our current services offerings so as to increase their functionality,
features and cost-effectiveness;
    
    develop, license or acquire new applications or services that meet emerging
customer needs;
    
    modify our services offerings in response to changing business practices and
technical requirements of our customers, as well as new regulatory requirements;
    
    integrate our current and future services offerings with third-party systems
and services; and
    
    create and maintain interfaces to changing customer and third party systems and
services.
  If we are unable to maintain our existing private label distribution arrangements or if we are
unable to enter into additional private label distribution arrangements, our future revenues could
be significantly reduced and our expenses would increase.
   If we are unable to sell additional services to our existing customers, or if our renewal
rates decline for any reason, our revenues may decrease and our business will be harmed.
  23




---



##### Table of Contents



Our systems and our third-party providers systems may fail due to factors beyond our control,
which could interrupt our service, causing us to lose business and increase our costs.
  
    
    loss of revenues;
    
    loss of customers;
    
    loss of customers credit card data;
    
    harm to our business or reputation;
    
    exposure to fraud losses or other liabilities;
    
    negative publicity;
    
    additional operating and development costs; and/or
    
    diversion of technical and other resources.
 Changes to credit card association rules or practices could adversely impact our business.
  Our reliance on suppliers and vendors could adversely affect our ability to provide our
services and products to our small business customers on a timely and cost-efficient basis, which
could reduce our revenues.
  We have faced, and may in the future face, significant chargeback liability if our small
business customers refuse or cannot reimburse chargebacks resolved in favor of their customers, and
we may also face potential liability for merchant or customer fraud; we may not accurately forecast
or protect ourselves against these liabilities.
  24




---



##### Table of Contents



On occasion, we experience increases in interchange costs; if we cannot pass these increases
along to our small business customers, our profit margins will be reduced.
  Our ability to effectively improve a websites positioning in search rankings depends on our
ability to determine search engine algorithms; a significant change in the way these algorithms
function could negatively affect our business.
  
    
    search engines stop providing critical data used by our internally developed
tools;
    
    search engine algorithms arbitrarily prevent new sites from obtaining rankings;
 25




---



##### Table of Contents




    
    search engine algorithms weigh new factors that are more difficult for us to
influence;
    
    search engines implementation of new algorithms; or
    
    search engines switch to an entirely fee-based system, eliminating natural
rankings as currently used.
 Margins on pay-per-click advertising may become too low to be profitable.
  Hackers or black-hat search engine optimization companies may negatively impact the publics
perception of the search engine optimization industry, which could impair our ability to maintain
our current customers and attract new customers.
  If we fail to manage our growth, our business could suffer.
  The loss of any members of our senior management could harm our current and future operations
and prospects.
 ,
 26




---



##### Table of Contents



We face significant competition for a limited supply of qualified software engineers,
consultants and sales and marketing personnel.
  We may be unable to protect our intellectual property adequately or cost-effectively, which
may cause us to lose market share or force us to reduce our prices.
  Our Internet technology applications and solutions involve the storage and transmission of our
small business customers proprietary information, as well as the personal information of their
customers. Our business could be harmed if there is a breach of privacy.
   27




---



##### Table of Contents



Our technical systems are vulnerable to interruption and damage that may be costly and
time-consuming for us to resolve and may harm our business and reputation, and we could be subject
to liability as a result of service interruptions by cyber-terrorists or fraudulent or illegal use
of our services.
    We rely heavily on the reliability, security, and performance of our internally developed
systems and operations, and any difficulties in maintaining these systems may result in service
interruptions, decreased customer service, or increased expenditures.
   28




---



##### Table of Contents



Our business may be harmed by errors in our software.
  
    
    we may suffer a loss of revenues if, due to software errors, we are temporarily
unable to provide Internet technology applications and solutions to our customers;
    
    we may not be paid for the applications and services provided to a customer
that contain or result in errors, or we may be liable for losses or damages sustained
by a customer or its subscribers as a result of such errors;
    
    we may incur additional expenses to correct errors in our software, or to fund
product development projects that we may undertake to minimize the occurrence of such
errors in the future;
    
    we may damage our relationships with customers or suffer a loss of reputation
within our industry;
    
    we may become subject to litigation or regulatory scrutiny; and
    
    our customers may terminate or fail to renew their agreements with us or reduce
the services they purchase from us.
 If economic or other factors negatively affect the small business sector, our customers may
become unwilling or unable to purchase our Internet technology applications and solutions and
related products, which could cause our revenues to decline and impair our ability to operate
profitably.
  If we are unable to respond to the rapid technological changes that are characteristic of our
industry, our Internet technology applications and solutions may not be competitive.
  29




---



##### Table of Contents



We and our small business customers must comply with complex and changing laws and
regulations.
  Government regulation of the Internet may adversely affect our business and operating results.
  
    
    the Digital Millennium Copyright Act and its related safe harbors, are intended
to reduce the liability of online service providers for listing or linking to
third-party websites that include materials that infringe copyrights or other rights of
others;
    
    the Childrens Online Protection Act and the Childrens Online Privacy
Protection Act are intended to restrict the distribution of certain materials deemed
harmful to children, and impose additional restrictions on the ability of online
services to collect user information from minors;
    
    the Protection of Children from Sexual Predators Act of 1998 requires online
service providers to report evidence of violations of federal child pornography laws
under certain circumstances; and
    
    the CAN-SPAM Act of 2003 and certain state laws are intended to regulate
interstate commerce by imposing limitations and penalties on the transmission of
unsolicited commercial electronic mail via the Internet.
   30




---



##### Table of Contents



We may be subject to lawsuits for information displayed on our small business customers
websites, which may affect our business.
  State and local governments may in the future be permitted to levy additional taxes on
Internet access and electronic commerce transactions, which could result in a decrease in the
attractiveness of the Internet to our customers and potential customers, and could reduce demand
for our Internet technology applications and solutions.
  Shares of our common stock may continue to be subject to price volatility and illiquidity
because our shares may continue to be thinly traded and may never become eligible for trading on
Nasdaq or a national securities exchange.
  31




---



##### Table of Contents



Our stock price may be volatile, and you may lose some or all of your investment.
  
    
    variations in our operating results;
    
    announcements of technological innovations, new services or service
enhancements, or significant agreements, by us or by our competitors;
    
    recruitment or departure of key personnel;
    
    changes in estimates of our operating results, or changes in recommendations by
any securities analysts that may follow us;
    
    sales of our common stock, particularly sales by officers, directors and
significant shareholders; or
    
    conditions in our industry, the industries of our customers and the economy as
a whole.
 Our stock may be subject to regulation as a penny stock, which could severely limit the
liquidity of your securities.
  
    32




---



##### Table of Contents



Exhibit
    
    
    
    FiledNo.
    
    Description
    
    Herewith
    
    Form
    
    Exhibit No.
    
    Filing Date10.1
    
    Asset purchase
agreement with
Radiant Systems,
Inc. for the sale
of substantially
all 
of the assets
of Innuity, Inc.s
wholly owned
subsidiary Jadeon,
Inc. dated May 2,

2008.
    
    
    
    8-K
    
    

    10.1

    
    05/07/200831.1
    
    Certification of
Chief Executive
Officer pursuant to
Section 302 of the
Sarbanes-Oxley 
Act
of 2002
    
    X31.2
    
    Certification of
Chief Financial
Officer pursuant to
Section 302 of the
Sarbanes-Oxley 
Act
of 2002
    
    X32.1
    
    Certification of
Chief Executive
Officer pursuant to
Section 906 of the
Sarbanes-Oxley 
Act
of 2002
    
    X32.2
    
    Certification of
Chief Financial
Officer pursuant to
Section 906 of the
Sarbanes-Oxley 
Act
of 2002
    
    X
 33




---



##### Table of Contents



INNUITY, INC.
(Registrant)By:
    /s/ JOHN R. WALLJohn R. WallChief Executive Officer, Treasurer and Secretary
(Principal executive officer)By:
    /s/ LINDEN N BARNEYLinden N BarneyChief Financial Officer
(Principal financial and accounting officer)  34