**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 **Washington,
        DC 20549**
 
 **FORM
        10-QSB**
 
 xQuarterly
        Report
        pursuant to Section 13 or 15(d) of the Securities Exchange Act of
        1934
 
 For
        the
        quarterly period ended **September
        30, 2006**
 
 o   
        Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
        of
        1934
 
 For
        the
        transition
        period    to
  Commission
        File Number 0-26709
 
 **ECUITY,
        INC.**
 (Exact
        name of small Business Issuer as specified in its charter)
  Nevada
              
              98-0201259(State
                  or other jurisdiction
                  of
              
              (IRS
                  Employer Identification
                  No.)incorporation
                  or
                  organization)
  2001
                  Sixth Avenue, Suite 3302, Seattle,
                  WA 98121(Address
                  of principal executive offices)
  (425)
                    562-2900Issuer's
                    telephone number, including area
                    code
 Former
                        address: na(Former
                        name, former address and former fiscal
                        year, if changed since last report)
 Check
              whether the issuer (1) 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 issuer was required to file such reports),
              and
              (2) has been subject to such filing requirements for the past 90 days
x Yes
 o
              No
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common stock,
        as
        of the latest practicable date: 280,730,042 shares of $0.001 par value common
        stock outstanding as of November 10, 2006.
 
  
  **PART
        I - FINANCIAL INFORMATION**
  Item
                  1.
              Consolidated
                  Financial Statements:Consolidated
                  Balance Sheetas
                  of September 30, 2006 (unaudited)
              
              1Consolidated
                  Statements of Operations for the 3-month periods ended September
                  30, 2006
                  and 2005 (unaudited)
              
              3Consolidated
                  Statements of Cash Flows for the 3-month periods ended September
                  30, 2006
                  and 2005 (unaudited).
              
              4Consolidated
                  Statements of Changes in Shareholders’ Deficit for the year ended June 30,
                  2006 and the 3-month period ended September 30,  2006
                  (unaudited)
              
              5Notes
                  to Consolidated Financial Statements (unaudited)
              
              6Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              
              12Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              
              17Item
                  4.
              Controls
                  and Procedures
              
              17**PART
                  II.**
              **OTHER
                  INFORMATION******
              
              18Item
                  1.
              Legal
                  Proceedings
              
              18Item
                  2.
              Changes
                  in Securities
              
              18Item
                  3.
              Defaults
                  Upon Senior Securities
              
              18Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              
              18Item
                  5.
              Other
                  Information
              
              18Item
                  6.
              Exhibits
              
              18Signatures
              
              
              19Certifications
 
  
 
 **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **September
        30, 2006**
 **(unaudited)**
 
 September
                  30, 2006ASSETSCurrent
                  Assets:Cash
                  and cash equivalents
              
              $
              7,933Accounts
                  Receivable, net of allowance of $ 72,062 at September 30, 2006
              
              
              159,277Prepaid
                  expenses
              
              
              21,476Inventory
              
              
              21,675Total
                  Current Assets
              
              
              210,361Deposits
              
              
              97,483Property
                  and equipment, net
              
              
              286,017Acquired
                  customer list, net of amortization
              
              
              712,949Total
                  Assets
              
              $
              1,306,810
  
 The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
  1
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET (continued)**
 **September
        30, 2006**
 **(unaudited)**
 
 September
                  30, 2006**LIABILITIES
                  AND SHAREHOLDERS’ DEFICIT**Current
                  Liabilities:Bank
                  overdraft
              
              $
              15,713Accounts
                  payable and accrued liabilities
              
              
              4,491,823Debt
                  and capital lease obligations - current portion
              
              
              208,354Derivative
                  instruments liabilities
              
              
              4,580,122Loans
                  payable
              
              
              2,823,890Deposits
                  and advance billings
              
              
              96,784Total
                  Current Liabilities
              
              
              12,216,686Long-Term
                  Liabilities:Long-term
                  debt
              
              
              1,802,046Other
                  non-current liabilities
              
              
              282,840Total
                  Liabilities
              
              
              14,301,572SHAREHOLDERS’
                  DEFICITShare
                  Capital:Authorized:
                  400,000,000 common shares, par value $0.001 per shareIssued and outstanding:280,730,042 common shares outstanding at September 30,
                  2006
              
              
              280,730Additional
                  paid-in-capital
              
              
              12,929,417Additional
                  paid-in-capital stock options issued
              
              
              211,378Accumulated
                  Deficit
              
              
              (26,416,287
              )Total
                  Shareholders’ Deficit
              
              
              (12,994,762
              )Total
                  Liabilities and Shareholders’ Deficit
              
              $
              1,306,810
 
  The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
  2
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the 3-month periods ended September 30, 2006 and 2005**
 **(unaudited)**
  Three
                  Months EndedSeptember
                  302006
              
              2005Revenues
              
              $
              492,228
              
              
              669,306Cost
                  of Revenues
              
              
              267,468
              
              
              398,234Gross
                  Margin
              
              
              224,760
              
              
              271,072Operating
                  Expenses:Selling
                  Expenses
              
              
              59,942
              
              
              104,116General
                  and Administrative Expenses
              
              
              424,095
              
              
              653,285Depreciation
                  and amortization
              
              
              33,715
              
              
              32,564Amortization
                  of Customer List
              
              
              78,216
              
              
              78,216Total
                  Operating Expenses
              
              
              595,968
              
              
              868,181Operating
                  loss
              
              
              (371,208
              )
              
              (597,109
              )Other
                  income (expense):Gain
                  on extinguishment of debt
              
              
              0
              
              
              48,291Other
                  miscellaneous income (expense)
              
              
              750
              
              
              20,575Gain
                  (loss) on change in fair value of derivative instruments
              
              
              908,276
              
              
              0Interest
                  expense
              
              
              (586,938
              )
              
              (208,446
              )Total
                  other income (expense)
              
              
              322,088
              
              
              (139,580
              )Net
                  Loss
              
              $
              (49,120
              )
              
              (736,689
              )Basic
                  (loss) per share(a)
              
              $
              (0.0002
              )
              $
              (0.003
              )Weighted
                  Average Number of Common Shares Outstanding
              
              
              280,511,700
              
              
              269,242,358
  
 **(a)**
            The
                calculation for fully diluted loss per share is not made, as the
                result
                would be anti-dilutive. 
 The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
  3
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **For
        the 3-month periods ended September 30, 2006 and 2005**
 **(unaudited)**
  Three
                    Months EndedSeptember
                    302006
                
                2005Cash
                    Flows from Operating Activities:Net
                    loss
                
                $
                (49,120
                )
                
                (736,689
                )Adjustments
                    To Reconcile Net Loss To Net Cash From Operating
                    Activities:Decrease
                  in allowance for
                  doubtful accounts
                
                
                (9,938
                )
                
                0Depreciation
                    and amortization
                
                
                111,931
                
                
                110,780Stock
                    issued for services
                
                
                0
                
                
                56,599Stock
                    cancelled for non-performance of services
                
                
                0
                
                
                (34,812
                )Gain
                    on change in fair value of derivative instruments
                    liabilities
                
                
                (766,469
                )
                
                0Interest
                    from accretion of convertible notes and debentures
                
                
                276,038
                
                
                0Changes
                    in current assets and liabilities:Decrease
                    in accounts receivable, net
                
                
                22,949
                
                
                (12,834
                )(Increase)
                    Decrease in prepaid expenses
                
                
                10,978
                
                
                (53,043
                )Increase
                    in bank overdraft
                
                
                14,290
                
                
                0Increase
                    in accounts payable and accrued liabilities
                
                
                80,652
                
                
                79,781Decrease
                    in deposits on advance billings
                
                
                (12,660
                )
                
                (51,023
                )(321,349
                )
                
                (641,241
                )Cash
                    Flows from Investing Activities:Purchase
                    of property and equipment
                
                
                (470
                )
                
                (12,234
                )Decrease
                    in long-term deposits
                
                
                (1,388
                )
                
                0(1,858
                )
                
                (12,234
                )Cash
                    Flows from Financing Activities:Proceeds
                    from loans and capital leases
                
                
                266,534
                
                
                650,000Repayments
                    of loans and capital leases
                
                
                (36,653
                )
                
                (50,633
                )Increase
                    in non-current interest payable
                
                
                81,076
                
                
                0Repurchases
                    of common stock
                
                
                0
                
                
                (30,000
                )310,957
                
                
                569,367Net
                    Increase (Decrease) In Cash and Cash Equivalents
                
                
                (12,250
                )
                
                (84,108
                )Cash
                    and Cash Equivalents, Beginning of Period
                
                
                20,183
                
                
                116,528Cash
                    and Cash Equivalents, End of Period
                
                $
                7,933
                
                
                32,420Interest
                    paid during the periods
                
                $
                0
                
                
                39,559
 
 The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements .
  4
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT**
 **For
        the year ended June 30, 2006 and the 3 months ended September 30, 2006
        (unaudited)**
 
 
 NUMBER
                OF
                SHARES
              
              AMOUNT
              
              ADDITIONAL
                PAID-IN-
                CAPITAL
              
              PAID-IN
                  CAPITAL
                STOCK
                OPTIONS
                  ISSUED
              
              DEFICIT
              
              TOTALBalance,
                  June 30, 2005
              
              
              267,720,210
              
              $
              267,720
              
              
              12,887,083
              
              
              211,378
              
              
              (20,718,711
              )
              
              (7,352,530
              )Shares
                  issued for debt reduction
              
              
              13,095,909
              
              
              13,096
              
              
              65,156
              
              
              
              
              
              
              
              
              78,252Shares
                  cancelled for non-performance
                  of services
              
              
              (381,266
              )
              
              (381
              )
              
              (3,432
              )
              
              
              
              
              
              
              
              (3,813
              )Shares
                  re-purchased for cash
              
              
              (1,250,000
              )
              
              (1,250
              )
              
              (48,750
              )
              
              
              
              
              
              
              
              (50,000
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,648,456
              )
              
              (5,648,456
              )Balance,
                  June 30, 2006
              
              
              279,184,853
              
              
              279,185
              
              
              12,900,057
              
              
              211,378
              
              
              (26,367,167
              )
              
              (12,976,547
              )Shares
                  issued for debtconversion
              
              
              1,545,189
              
              
              1,545
              
              
              29,360
              
              
              
              
              
              
              
              
              30,905Net
                  loss (3 months)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (49,120
              )
              
              (49,120
              )Balance,
                  September 30, 2006
              
              
              280,730,042
              
              $
              280,730
              
              
              12,929,417
              
              
              211,378
              
              
              (26,416,287
              )
              
              (12,994,762
              )
 
  The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
 
 5




**ECUITY,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2006**


**(Unaudited)**





**1.    
      Summary of Significant Accounting Policies**





The
      unaudited consolidated financial statements as of September 30, 2006 and for
      the
      3-month periods ended September 30, 2006 and 2005 included herein have been
      prepared by Ecuity, Inc. (“Ecuity”, or “Company”) and include all normal and
      recurring adjustments which are, in the opinion of management, necessary for
      a
      fair presentation of the financial position at September 30, 2006 pursuant
      to
      the rules and regulations of the Securities and Exchange Commission. Because
      a
      precise determination of many assets and liabilities is dependent upon future
      events, the preparation of consolidated financial statements for a period
      necessarily involves the use of estimates which have been made using careful
      judgment. The consolidated financial statements include the accounts of Ecuity,
      Inc. and its wholly-owned subsidiaries. All material intercompany accounts
      and
      transactions have been eliminated. Some items in the September 30, 2005
      financial statements have been reclassified to conform to the presentation
      in
      the September 30, 2006 financial statements.





Prior
      to
      July 1, 2006, the Company applied APB Opinion No. 25, “Accounting for Stock
      Issued to Employees,” and related interpretations in accounting for its stock
      option plan. Accordingly, no compensation cost had been recognized for its
      fixed
      stock option plan.




Effective
      July 1, 2006, the Company adopted Statement of Financial Accounting Standard
      (SFAS) No. 123 (Revised 2004), “Share-Based Payment” (SFAS No. 123R) using the
      modified version of prospective application, under which compensation cost
      is
      recognized on or after the required effective date for the portion of
      outstanding awards for which the requisite service has not yet been rendered,
      based on the grant-date fair value of those awards calculated under Statement
      123. The Company has elected not to restate periods presented prior to the
      effective date. See Note 7 for further discussion of the impact of the adoption
      of SFAS No. 123R on the consolidated balance sheet, the consolidated results
      of
      operations, earnings per share and consolidated statement of cash
      flows.





This
      Quarterly Report on Form 10-QSB is qualified in its entirety by the information
      included in the Company's Annual Report to the SEC on Form 10-KSB for the period
      ended June 30, 2006.





6







**2.** **Loans
          and Other Contractual Obligations Payable**




September
                  30, 2006a)
                  Loan due to bank - defaulted in year 2001 (unsecured)
              
              $
              155,666b)
                  Unsecured loans, payable on demand, with interest at 12% to 18%
                  per annum
                  - non related parties
              
              
              783,042b)
                  Related parties - with interest ranging from 4% to 18%
              
              
              457,423e)
                  Related party - convertible demand notes to Digitaria
              
              
              1,427,759c)
                  Contract for advance credit card receipts
              
              
              0Total
                  current loans payable
              
              $
              2,823,890e,
                  f) Derivative instruments liabilities
              
              $
              4,580,122d)
                  Short-term portion of note payable to Fox Communications
              
              $
              200,000Currentportion of capital
                  lease obligation
              
              
              8,354Debt
                  and capital
                  lease obligations - currentportion
              
              $
              208,354d)
                  Long-term portion of note due to Fox Communications
              
              $
              1,250,000f)
                  Convertible debentures to Cornell Capital
              
              
              552,046Total
                  long-term debt
              
              $
              1,802,046Other
                  non-current liabilities
              
              $
              282,840








a)
                This
                    note was originally due to a bank based on a line of credit.
                    The line was
                    not paid off on the due date and the loan was subsequently transferred
                    to
                    a collection agency. There has been no contact from that agency
                    over the
                    past year.





b)
            There
                are eight private parties, plus officers and Directors, comprising
                the
                aggregate loan amounts. The single largest party who has a loan,
                in the
                amount of $352,500, is one of the Company’s original investors and a large
                shareholder. He is non-related third party who is also an accredited
                investor. The next largest lender is founder/Director Jeff Haberman,
                with
                four loans totaling $282,996, two of which, amounting to $112,240,
                are
                convertible to shares of common stock at a conversion price of $.016
                per
                share. Officers/Directors Shane Smith and King Cole have advanced
                funds in
                the aggregate amount of $174,427, of which $133,560 is convertible
                to
                shares of common stock at conversion prices ranging from $.0128 to
                $.04
                per share. Seven other non-related parties, including three ex-officers
                of
                the Company, have made loans totaling $430,542. A non-related party
                with a
                $100,000 loan has an option to convert the loan to common shares
                at a
                conversion price of $.012 per share. An ex-officer with a $27,500
                loan has
                an option to convert the loan to common shares at a conversion price
                of
                $.025 per share.





c)
            EAC
                contracted with a finance company for an advance secured by certain
                credit
                card receivables. The agreement provides that specified daily credit
                card
                receipts are applied to reduce the loan. The loan interest is at
                an annual
                rate of 29%. The loan was paid in full in the current quarter.





7








d)
            The
                note was issued by Ecuity Advanced Communications and is guaranteed
                by all
                of its assets excluding the assets of the Network Operations Center.
                Additionally, Ecuity Advanced Communications, Inc.'s note to Fox
                is
                guaranteed by Ecuity, Inc. As part of the renegotiations with Fox,
                $1,250,000 of the note obligation was extended to the year 2007 with
                Fox
                holding liens against all of the assets excluding the assets of the
                Network Operations Center.  (See footnote #9
                Contingencies)





e)
            Digitaria
                Communication Networks, LLC (“Digitaria”) is
                entitled, at its option, to convert, and sell all or any part of
                the
                principal amount of the various demand notes issued during the year,
                plus
                accrued interest thereon, into shares of the Company’s common stock at the
                price per share equal to either (a) the closing share price on the
                day the
                Note was entered into or (b) the closing share price on the day that
                notice of exercise of Option to Convert is given to the Company.
                The
                convertible notes accrue interest at 10% per annum.




Convertible
      Notes aggregating $266,534 were issued to Digitaria during the current quarter,
      The computed fair values at issuance of the options to convert (“Derivative
      Instruments Liability”), aggregating $141,678 during the quarter ended September
      30, 2006, has been recorded as a short-term liability in the Consolidated
      Balance Sheet at September 30, 2006, with the remainder of $124,856 ascribed
      to
      the carrying value of the Convertible Demand Notes. Since the notes are callable
      on demand, the difference between the carrying amounts and the face amounts
      of
      the Convertible Demand Notes, amounting to $141,678, was immediately recorded
      as
      an adjustment to the carrying amount in the Consolidated Balance Sheet and
      recorded as interest expense in the Consolidated Statement of Operations.





At
      the
      end of each reporting period, the recorded values of the options are adjusted
      to
      current fair value at that date (“marked-to-market”). The computed fair values
      at September 30, 2006 of the options to convert, amounting to $784,837, resulted
      in a loss on change in fair value of derivative instruments of $284,300 during
      the quarter.





At
      September 30, 2006, the conversion of all outstanding principal and accrued
      interest owed to Digitaria at that date would result in the issuance of
      486,595,713 shares of common stock, which would result in a change in control
      of
      the Company.




f)
            On
                March 30, 2006,the
                Companyentered into a Securities Purchase Agreement (the “SPA”) with Cornell
                Capital Partners, LP (“Cornell”), pursuant to which the Company issued to
                Cornell secured convertible debentures, convertible into shares of
                the
                Company’s common stock, par value $0.001, (a) in the principal amount of
                $2,921,192,issued
                to consolidate the outstanding amounts of principal on prior fundings,
                amounting to $2,605,578, plus accrued and unpaid interest to date
                of
                $315,614, and (b) in the principal amount of $172,500, issued to
                provide
                new funding to the Company (the “Convertible Debentures”). The Convertible
                Debentures are secured by substantially all of the Company’s assets, have
                maturity dates of December 31, 2008, and accrue interest at 6% per
                annum.
                On March 30, 2006, the Company also entered into an Investor Registration
                Rights Agreement (the “IRRA”)
                with Cornell, whereby the Company was obligated, within one hundred
                twenty
                days of March 30, 2006, to file an SB-2 registration statement on
                behalf
                of Cornell in an amount of three times the number of shares required
                to
                convert the Convertible Debentures into shares of the Company’s common
                stock. The Company will need to obtain shareholder approval to increase
                its authorized shares in order to successfully complete the issuance
                of
                the required SB-2 registration. The Company was unable to meet the
                specified timelines in respect to this agreement and therefore is
                in
                default. The Company is working with Cornell to cure the default.







8




Cornell
      is entitled, at its option, to convert, and sell all or any part of the
      principal amount of the debentures, plus accrued interest thereon, into shares
      of the Company’s common stock at the price per share equal to the lesser of (a)
      $0.00713 (the “Fixed Conversion Price”) or (b) eighty percent (80%) of the
      lowest Closing Bid Price of the Common Stock during the 30 trading days
      immediately preceding the Conversion Date as quoted by Bloomberg,
      LP.





On
      July
      13, 2006, Cornell Capital Partners executed a Conversion Notice in the amount
      of
      One Thousand Five Hundred Thirty-six dollars and Fifteen cents ($1,536.15),
      representing a conversion under the terms of the Convertible Debenture dated
      March 30, 2006. This resulted in the sum of One Million Five Hundred Forty-five
      Thousand One Hundred Eighty-nine (1,545,189) restricted common stock shares
      being issued in certificate form in the name of Cornell Capital Partners, LP.





The
      computed fair value at issuance of the options to convert (“Derivative
      Instruments Liability”), amounting to $3,866,757, was initially recorded as a
      liability in the Consolidated Balance Sheet at March 31, 2006. The excess of
      the
      fair value over the face amount of the Convertible Debentures, amounting to
      $773,065, was recorded as Interest Expense in the Consolidated Statement of
      Operations. At the end of each reporting period, the recorded value of the
      options are adjusted to current fair value at that date (“marked-to-market”).
      The computed fair value at September 30, 2006 of the remaining outstanding
      options to convert, amounting to $3,795,283, resulted in a gain on change in
      fair value of derivative instruments of $1,081,677 during the quarter.





A
      monthly
      accretive charge to Interest Expense, amounting to $276,038 for the 3-months
      ended September 30, 2006, is being recorded over the outstanding term of the
      Convertible Debentures to recognize the face value of the debentures over their
      outstanding term. At September 30, 2006, the outstanding balance of Convertible
      Debentures, amounting to $552,046, represents the total accretion through that
      date, less the portion related to the $56,192 of debentures converted on April
      26, 2006 and $1,536.15 of debentures converted on July 13, 2006.




The
      Company may redeem a portion or all outstanding principal amounts plus accrued
      interest due and outstanding under the Convertible Debentures prior to their
      maturity dates. The redemption price is equal to 120% of the principal amount
      of
      the Convertible Debentures being redeemed.




At
      September 30, 2006, the conversion of all outstanding principal and accrued
      interest owed to Cornell at that date would result in the issuance of
      1,265,110,000 shares of common stock, which would result in a change in control
      of the Company.





In
      addition to the table above:





The
      Company signed an employment contract with Mr. Andrew Buffmire to be the
      Company’s CEO on May 20, 2005. The contract stipulated the starting annual wage
      to be $180,000. Subsequently an Amendment was signed on July 24, 2005 that
      reduced Mr. Buffmire’s annual **** salary
      to
      $144,000 until the Company reaches positive cash flow from operations, at which
      time the salary would revert back. Mr. Buffmire resigned as CEO effective
      November 30, 2005. As the Company was able to only partially pay Mr. Buffmire
      his full or reduced salary, he is owed $27,500 in accrued salary as of September
      30, 2006.





The
      Amendment also stated that if the Company is unable to fully pay his salary
      at
      this new level within 30 days of the due date of that salary, Mr. Buffmire
      shall, in lieu of any such shortfall, receive fifty percent (50%) of such
      shortfall in the form of shares of stock in the Company at a value equal to
      the
      closing price of the Company’s common stock on the date of the execution of the
      Amendment. Mr. Buffmire will also be issued warrants equal to the number of
      shares issued at the same closing price.
      As
      of September 30, 2006, Mr. Buffmire is owed 1,526,781 shares and an equal number
      of warrants. The issuance of these shares and warrants is contingent upon the
      shareholder’s approval of the increase in the Company’s authorized shares.





9








**3.   
       Earnings Per Share** ****





Statement
      of Financial Accounting Standards No. 128, "Earnings per Share" requires the
      presentation of basic earnings per share and diluted earnings per share. Basic
      and diluted earnings per share computations presented by the Company conform
      to
      the standard and are based on the weighted average number of shares of Common
      Stock outstanding during the periods presented.





**4.    
      Capital Assets**





The
      following table sets forth the capital assets of the Company and its
      wholly-owned subsidiaries.





**September
      30, 2006**





Description
                of Asset
            
            Value
                after
              ImpairmentComputers
                andEquipment
            
            $
            320,546Computer
                Software
            
            
            81,921Switch
                Equipment
            
            
            158,981Leasehold
                Improvements
            
            
            25,488Office
                Equipment
            
            
            31,894618,830Accumulated
                Depreciationand
                Amortization
            
            
            (332,813
            )Net
                Book Value
            
            $
            286,017





**5.   
      Acquired Subscriber Base**




The
      following table presents the components of the Company’s acquired definite life
      intangible assets and goodwill and other indefinite life intangible assets
      included in the accompanying Consolidated Balance Sheet as of September 30,
      2006:








**Carrying**
              **Value
                after**
              **Impairment**
            
            **Reduction
                for**
              **sale
                of**
              **Conference**
              **Calling**
            
            **Accumulated**
              **Amortization**
            
            **Net**
              **Carrying**
              **Value**Acquired
                Customer List for Telephony and ISPs
            
            $
            1,864,000
            
            
            260,707
            
            
            890,344
            
            
            712,949








10




**6.    
      Income Taxes**




At
      September 30, 2006, the Company had net operating loss carryforwards for Federal
      tax purposes of approximately $26,416,000. These carryforwards begin to expire
      in 2020. A valuation allowance has been established to reflect the uncertainty
      of generating future taxable income necessary to utilize available tax loss
      carryforwards. ****




**7.    
      Shareholders’ Equity**




Adoption
      of SFAS No. 123R





As
      described in Note 1, effective July 1, 2006, the Company adopted SFAS No. 123R,
      requiring the recording of compensation expense based on an estimate of the
      fair
      value of options awarded under its fixed stock option plan. The Company elected
      to utilize the modified prospective method of transitioning to SFAS No.
      123R.





For
      the
      three months ended September 30, 2006, no options were granted by the Company
      so
      there is no required disclosure for options issued under 123R. In addition,
      the
      stock compensation expense related to issued options at the effective date
      that
      vested during the quarter is immaterial, and therefore no stock compensation
      expense has been recorded in the Consolidated Statement of Operations for the
      three months ended September 30, 2006.





**8.   
      Going Concern**





Our
      consolidated financial statements have been prepared assuming we will continue
      as a going concern. Since inception we have experienced recurring losses from
      operations, which losses have caused an accumulated deficit of $26,416,287
      as of
      September 30, 2006. In addition, for the year ended June 30, 2006 and
      three-month period ended September 30, 2006, we incurred a net loss of
      $4,975,844 and $49,120, respectively. We have a working capital deficit of
      $12,006,325 as of September 30, 2006. These factors, among others, raise
      substantial doubt about our ability to continue as a going concern. Our
      financial statements do not include any adjustment that might result from the
      outcome of this uncertainty. While assurances cannot be given that adequate
      financing can be obtained to meet our capital needs the Company continues to
      explore all possibilities such as mergers, acquisitions, and protection or
      liquidation under the applicable bankruptcy laws and to pursue alternative
      sources to meet its current and future capital requirements while continuing
      to
      expand its business to provide for additional cash flow from operations.




In
      addition to the foregoing the Company has operated with extremely limited
      operating cash. Cash on hand as of September 30, 2006 was $7,933 and is
      currently approximately $10,000. This continued and current limited operating
      cash position underscores the substantial doubt about the Company’s ability to
      continue as a going concern and its likely reorganization or liquidation.




There
        can
        be no assurance, however, that the Company will be able to obtain sufficient
        funds to continue the development of and the sale of its products. The Company
        estimates that it will need additional working capital within two months
        of the
        quarter end or it may be forced to cease operations.
 
 **9.
        Contingencies**
 In
        July 2006, the Company reached agreement with
        Fox Communication, subject to shareholder approval required to create a new
        class of preferred shares and increase the authorized shares of the Company,
        to
        restructure its indebtedness with Fox. The agreement provides for the Company
        to
        create a new class of preferred stock and issue preferred shares with rights
        and
        preferences that include the right to convert its preferred shares into shares
        of common stock in an amount not less than $2.3 million, with registration
        rights similar to those granted to Cornell Capital Partners, which will require
        the Company to file an SB-2 Registration Statement. Fox will be entitled,
        at its
        option, to convert all or any part of the preferred shares into shares of
        the
        Company's common stock at the price per share equal to the lesser of(a)
        $0.00713(the "Fixed Conversion Price") or (b) eighty percent(80%) of the
        then
        lowest closing bid price of the Common Stock as quoted by Bloomberg, LP (the
        "Market Conversion Price"). Under the agreement, Fox will reduce its note
        recievable from the Company to $500,000, pursuant to a new 6% note payable
        to be
        issued by the Company, 23,750,000 shares of common stock currently owned
        by Fox,
        and release its lien on the Company's accounts recievable. At this time the
        Company has not obtained shareholder approval for either the increased
        authorization of shares or creation of preferred shares.









11





**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**





**Overview**




ECUITY
      is
      a facilities-based telecommunication carrier serving primarily the small and
      medium sized business and home office markets and selected residential markets.
      The ECUITY service offerings are comprised of telecommunications and high-speed
      data services using both Voice over Internet Protocol (“VoIP”) delivery and
      traditional, legacy telephone switched networks. The ECUITY legacy service
      business includes 800 service, 1 Plus (long distance) services, Internet Dial-Up
      Services, Web-Hosting and Digital Subscriber Line (DSL) broadband Internet
      services. With respect to its VoIP service offering ECUITY currently provides
      VoIP telephone services and high-speed data services to businesses and
      residences over high-speed fiber optic networks and other selected high-speed
      broadband networks. Ecuity’s voice and data services focus on quality of service
      (“QOS”) and easy to use advanced calling features.





The
      Company has implemented its VoIP service and has been able to provide VoIP
      services to several hundred end-users over various broadband pathways, including
      wireline broadband, broadband over wireless (WiFi) and Fiber-to-the-Premises
      (FTTP).  VoIP service offerings from the Company include business-related
      offerings such as hosted PBX replacement solutions for small business (IP-PBX),
      hosted IP trunking solutions (IP-Centrix), Remote Office and Mobile Worker
      solutions, with single or multi-line residential offerings for home offices
      and
      basic residential services.  The Company has been able to establish
      distribution relationships for the delivery of VoIP services through a variety
      of partnerships, including wholesale and retail channel relationships with
      Internet Service Providers (ISP) and telecommunications services resellers,
      a
      voice over WiFi provider with city-wide high speed broadband deployments, and
      a
      community-wide VoIP over FTTP service to a large residential development in
      a
      suburb of Seattle, Washington.





The
      ECUITY service offerings are increasingly comprised of its Voice over Internet
      Protocol (“VoIP”) service offering and high-speed broadband Internet
      services.  Ecuity’s traditional Web-hosting, DSL and dial up Internet
      services continue to be a source of revenue to Ecuity with adequate margin
      to
      justify the delivery of such services. The ECUITY legacy service business
      includes 800 service, 1 Plus (long distance) services, Internet Dial-Up
      Services, Web-Hosting and Digital Subscriber Line (DSL) broadband internet
      services. Ecuity can currently deliver telecommunications services over
      virtually any broadband platform and over the PSTN as well as over almost any
      device.




We
      produce revenues by selling our VoIP and traditional telephone services,
      high-speed data services and related to our business and residential customers,
      which include our newer VoIP customers and the customer base that was purchased
      as part of the Fox Communication assets in January of 2004. Our primary
      marketing and sales efforts are directed towards gaining new VoIP
      voice-communications telephone customers. We primarily sell our services
      through: (1) direct sales to small business and residential customers; (2)
      retail sales through channel partner agreements; and (3) wholesale sales through
      strategic partner agreements.





We
      have
      concentrated most of our early sales efforts with respect to VoIP services
      in
      four market segments: 1) direct and channel sales to small and medium sized
      businesses, 2) residential communities that have installed community-wide high
      speed data connections such as fiber optic cable to each home or office; 3)
      business and residential in communities that have installed WiFi mesh wireless
      service; 4) commercial office buildings or apartment complexes where the
      building owner contracts to provide telephone services to its tenants. We also
      look for large-scale opportunities where a potential partner can provide a
      large-scale services contract.





12




**Plan
      of Operations**





The
      Company continues to work diligently on the January 2006, management adopted
      turn around plan with end results of 1) dramatically cutting the negative burn
      rate, 2) getting to cash flow break even as quickly as possible, and 3) focusing
      on those core areas of our business that provide higher margins and growth.





Since
      the
      adoption of the turn around plan, the Company has achieved the
      following:





1.
      As of
      September 30, 2006 it has raised $1,447,759 in operating loans from Digitaria
      Communication Networks, LLC, with whom it has an agreement to be the exclusive
      provider of VoIP telephone services and high speed broadband data services
      for
      Digitaria’s fiber to the premises business to master planned communities and
      apartment and condominium properties. This money has been used to initiate
      substantial cost cutting measures and to negotiate further restructuring of
      Ecuity’s financial obligations. The money was raised through convertible demand
      promissory notes.





2.
      It has
      achieved a Thirty-six (36%) reduction in the recurring operating expenses from
      the same quarter in the prior year.





3.
      Restructured the balance sheet and overall financial structure of the Company
      in
      cooperation with its largest creditors.




Ecuity’s
      current financial situation remains with overhead higher than our revenues
      can
      support, accordingly we continue to look for cost reductions and network
      efficiencies.





Based
      on
      our analysis, our legacy business is becoming less profitable and volumes are
      on
      a steady decline. Focusing on VOIP provides us with our best opportunity for
      growth. We have also initiated routing some legacy business over new carriers,
      which has allowed us to effect recurring reductions in our network costs and
      thus increase our profit margin in this legacy business.





We
      are
      focusing our efforts on expanding our Voice over IP subscriber base through
      our
      existing channel partners and service providers. We have already invested a
      great deal of time, money and other resources into these current relationships. We
      will
      not however pursue any new channel partners, which will require extended
      marketing efforts at this time. Instead our sales efforts have shifted to a
      direct model selling to the small and medium business market. Our belief is
      that
      through this plan we can shorten the sales cycle and therefore time to cash
      collections.





With
      a
      solid funding plan to get us through our cash shortfall, we can continue to
      grow
      the business and get to the point where we are self sustaining. Digitaria
      Communication Networks, LLC has provided $266,534 operating cash to the Company
      in the quarter, in return for convertible demand notes. Funds collected to
      date
      have been used to bring critical vendors current and to fund the operational
      shortfall. Additional funds will be used to increase sales and marketing efforts
      to capture market share, for maintenance, upgrades and improvements on our
      Network Operating Center (“NOC”), for the addition of technical support and
      customer service staff, and to continue to fund monthly shortfall until
      operating profitability is reached.





Ecuity
      and Digitaria have agreed that Ecuity will provide VoIP and other
      telecommunications services under an exclusive services agreement to provide
      services to Fiber-to-the Premise (FTTP) communities that may be developed by
      or
      through Digitaria. It is the understanding of the Company that the principals
      of
      Digitaria include a number of individuals and entities experienced in real
      estate and land development.





Currently,
      revenue in EAC is insufficient to provide for all operating costs, including
      payroll, rent, selling expenses and costs of sales. Net operating losses for
      the
      3-month period indicate that EAC requires an amount in excess of $100,000 per
      month as additional funds to support the continued retirement of past due vendor
      debt and to cover the negative monthly operating costs. This shortfall has
      partially been offset by advances from Ecuity, Inc, (the Corporate holding
      company) along with the increase in liabilities associated with EAC. Ecuity,
      Inc. has no direct income, therefore unless subsidiary revenues are available
      to
      use by Corporate, there is approximately a $20,000 per month shortfall for
      cash
      to pay corporate administrative expenses.





13





Completion
      of our plan of operation is subject to obtaining adequate financing. This
      includes the debt service requirements for corporate obligations as well as
      the
      debt obligation of EAC to Fox Communications as a result of the assets
      purchased. We cannot assure investors that adequate financing will be obtained.
      In the absence of increased revenues, we may be unable to proceed with our
      plan
      of operation. Without significant revenues and cash inflows from debt or equity
      funding, we anticipate we will not be able to continue with our present
      operating structure **.**





In
      July
      2006, the Company reached agreement with Fox Communication, subject to
      shareholder approval required to create a new class of preferred shares and
      increase the authorized shares of the Company, to restructure its indebtedness
      with Fox. The agreement provides for the Company to create a new class of
      preferred stock and issue preferred shares with rights and preferences that
      include the right to convert its preferred shares into shares of common stock
      in
      an amount not less than $2.3 million, with registration rights similar to those
      granted to Cornell Capital Partners, which will require the Company to file
      an
      SB-2 Registration Statement. Fox will be entitled, at its option, to convert
      all
      or any part of the preferred shares into shares of the Company’s common stock at
      the price per share equal to the lesser of (a) $0.00713 (the “Fixed Conversion
      Price”) or (b) eighty percent (80%) of the then lowest closing bid price of the
      Common Stock as quoted by Bloomberg, LP (the “Market Conversion Price”). Under
      the agreement, Fox will reduce its note receivable from the Company to $500,000,
      pursuant to a new 6% note payable to be issued by the Company, with all
      principal and interest due and payable on December 31, 2008, convey to the
      Company, 23,750,000 shares of common stock currently owned by Fox, and release
      its lien on the Company’s accounts receivable. The Company was unable to meet
      the specified timelines in this agreement for the increase in authorized shares
      and the creation of the new class of preferred shares. However the Company
      is
      working with Fox to rectify this as quickly as possible.




The
      Company continues to operate at a recurring monthly loss. Digitaria
      Communication Networks, LLC, has been providing the necessary funding to allow
      the Company to continue its operations on a month-to-month basis.




The
      foregoing represents our best estimate of our cash needs based on current
      planning and business conditions. The exact allocation, purposes and timing
      of
      any monies raised in subsequent private financings may vary significantly
      depending upon the exact amount of funds raised and status of our business
      plan.





**Results
      of Operations**





The
      unaudited financial statements presented herein include the Consolidated
      Statements of Operations for the 3-month
      periods ended September 30, 2006 and 2005, and the Consolidated Balance Sheet
      at
      September 30, 2006. Our financial statements are prepared on a consolidated
      basis and all intercompany transactions have been eliminated.





In
      the
      3-month period ended September 30, 2006, we incurred an operating loss of
      $371,208 and a net loss of $49,120 compared to an operating loss of $597,109
      and
      a net loss of $736,689 for the same period in 2005. The Company’s revenue from
      long distance and Internet service decreased to $359,924 in the current 3-month
      period compared to $549,029 in the same period in 2005 due to the loss of
      customers and related revenue, as well as legacy Internet dial-up customers
      moving to cable and DSL service providers. The lower revenues were offset by
      lower costs paid to carriers, resulting in an increase in gross profit
      percentage to 45.66% in the current 3-month period compared to 40.50% for the
      same period in 2005. The
      decreased operating loss in the 3-months ended September 30, 2006 compared
      to
      the operating loss in the 3-months ended September 30, 2005 resulted primarily
      from reduced operating expenditures for salaries, rent, and advertising in
      the
      current year. In addition, no expense for issued stock for services was incurred
      in 2006 compared to $56,599 for the same 3-month period in 2005. Total interest
      expense was $586,938 for the 3-months ended September 30, 2006 compared to
      $208,446 for the three months ended September 30, 2005, primarily due to
      $141,678 of additional interest charges related to the derivative instruments
      liabilities on the Digitaria demand notes and $276,038 of interest expense
      from
      accretion of the Cornell debentures. The Company recognized a net gain of
      $908,276 in the 3-month period ended September 30, 2006, related to the change
      in the fair value of the Digitaria and Cornell derivative instruments.





14





Since
      incorporation, we have funded our operations through private loans and equity
      financings. At September 30, 2006, our total assets were $1,306,810, consisting
      of cash of $7,933, accounts receivable, net of $159,277, other current assets
      of
      $43,151, property and equipment of $286,017, non-current deposits of $97,483
      and
      the purchased subscriber list of Fox Communications in the amount of $712,949
      (net of amortization of $890,344 and a reduction from the sale of the
      conferencing services of $260,707). Total liabilities amounted to $14,301,572,
      consisting primarily of a bank overdraft of $15,713, accounts payable and
      accrued liabilities of $4,491,823, deposits on advanced billings of $96,784,
      loans and notes payable and capital lease obligations of $4,834,290, liabilities
      for derivative instruments of $4,580,122, and a defaulted bank loan payable
      of
      $155,666. Total liabilities of $890,884, including the defaulted bank loan
      payable of $155,666, are liabilities of the Company’s inactive subsidiary, Y3K,
      Inc.





**LIQUIDITY
      AND CAPITAL RESOURCES**





The
      working capital deficit decreased to $12,006,325 at September 30, 2006 from
      a
      deficit of $12,455,168 as of June 30, 2006, primarily as a result of the
      $766,469 gain on the change in fair value of the derivative instruments
      liabilities. In the 3-month period, cash decreased by $12,250, net accounts
      receivable decreased by $22,949, accounts payable increased by $80,652, and
      deposits on advance billings to customers decreased by $12,660.





In
      the
      3-month period ended September 30, 2006, we incurred an operating loss of
      $371,208 and a net loss of $49,120 compared to an operating loss of $597,109
      and
      a net loss of $736,689 for the same period in 2005. The Company’s revenue from
      long distance and Internet service decreased to $359,924 in the current 3-month
      period compared to $549,029 in the same period in 2005 due to the loss of
      customers and related revenue, as well as legacy Internet dial-up customers
      moving to cable and DSL service providers. The lower revenues were offset by
      lower costs paid to carriers, resulting in an increase in gross profit
      percentage to 45.66% in the current 3-month period compared to 40.50% for the
      same period in 2005. The
      decreased operating loss in the 3-months ended September 30, 2006 compared
      to
      the operating loss in the 3-months ended September 30, 2005 resulted primarily
      from reduced operating expenditures for salaries, rent, and advertising in
      the
      current year. In addition, no expense for issued stock for services was incurred
      in 2006 compared to $56,599 for the same 3-month period in 2005. Total interest
      expense was $586,938 for the three months ended September 30, 2006 compared
      to
      $208,446 for the three months ended September 30, 2005, primarily due to
      $141,678 of additional interest charges related to the derivative instruments
      liabilities on the Digitaria demand notes and $276,038 of interest expense
      from
      accretion of the Cornell debentures. The Company recognized a net gain of
      $908,276 in the 3-month period ended September 30, 2006, related to the change
      in the fair value of the Digitaria and Cornell derivative instruments.





Revenues
      from the Fox asset purchase are recognized by our wholly-owned subsidiary,
      Ecuity Advanced Communications, Inc. (“EAC”). EAC’s business is primarily
      related to VoIP telephone voice and data services as well as traditional
“legacy” long distance, dial tone, dial up and broadband Internet data services,
      and web hosting. The ISP hosting line is sold on a monthly, quarterly and annual
      subscription basis with fees for services billed to the customer and paid in
      advance. This cash is received and recorded to deferred income on the balance
      sheet to be applied as the monthly sales revenues are earned and recognized
      on a
      pro-rata basis. As the cash is received, it is used to pay current operating
      expenses. The Company’s VoIP and long distance services are billed in arrears
      based on monthly subscriber income and actual usage based on agreed upon service
      plans. Appropriate Federal, state and other fees are added to the service
      minutes and are billed to the customer using an automated billing
      system.





All
      of
      the Company's sales revenues from billed services flow through accounts
      receivable.





15





**Critical
      Accounting Estimates**




Management
      believes that the nature of the Company’s business is such that there are few,
      if any, complex measurement issues or challenges in accounting for
      operations.




While
      judgments and estimates are a necessary component of any system of accounting,
      the Company’s use of estimates is limited primarily to the following areas that
      in the aggregate are not a major component of the Company’s statement of
      earnings:




•  accounts
      receivable valuation,


•  the
      useful lives of long-term assets,


•  the
      accrual of costs related to services the Company provides,




Management
      believes that the methods utilized in all of these areas are non-aggressive
      in
      approach and consistent in application.  Management believes that there are
      limited, if any, alternative accounting principles or methods which could be
      applied to the Company’s transactions.  While the use of estimates means
      that actual future results may be different from those contemplated by the
      estimates, the Company believes that alternative principles and methods used
      for
      making such estimates would not produce materially different results than those
      reported.




As
      described in Note 1 in the condensed consolidated financial statements in this
      quarterly report, effective July 1, 2006, the Company adopted SFAS No. 123R.
      This accounting standard requires the recognition of compensation expense based
      on an estimate of the fair value of options granted to employees and directors
      under the Company’s stock option plan. This expense is recorded ratably over the
      option vesting periods. The Company elected to utilize the modified prospective
      method of adoption, under which compensation cost is recognized on or after
      the
      required effective date for the portion of outstanding awards for which the
      requisite service has not yet been rendered, based on the grant-date fair value
      of those awards calculated under Statement 123.




Determining
      the appropriate option pricing model to use to estimate stock compensation
      expense requires judgment. Any option pricing model requires assumptions that
      are subjective and these assumptions also require judgment. Examples include
      assumptions about long-term stock price volatility, employee exercise patterns,
      pre-vesting option forfeitures, post-vesting option terminations, and the future
      interest rates and dividend yields.




After
      a
      review of alternative methods to calculate stock compensation expense, and
      considering the guidance outlined in Securities and Exchange Commission Staff
      Accounting Bulletin No. 107 (SAB No. 107), the Company has decided to use the
      Black-Scholes for estimating the fair value of stock options granted subsequent
      to the adoption of SFAS No. 123R.




For
      the
      three months ended September 30, 2006, no options were granted by the Company
      so
      there is no required disclosure for options issued under 123R.




The
      Company’s expected volatility assumptions are based on the historical volatility
      of the Company’s stock. The expected life assumption is primarily based on
      historical employee exercise patterns and employee post-vesting termination
      behavior. The risk-free interest rate for the expected term of the option is
      based on the corresponding yield curve in effect at the time of grant for U.S.
      Treasury bonds having the same term as the life of the option,  i.e. a five
      year bond rate is used for valuing an option with a five year life. The expected
      dividend yield is based on the Company’s historical experience. The forfeiture
      rate used to calculate compensation expense is primarily based on historical
      pre-vesting employee forfeiture patterns.




16





The
      use
      of different assumptions would result in different amounts of stock compensation
      expense. Keeping all other variables constant, the indicated change in each
      of
      the assumptions below increases or decreases the fair value of an option (and
      the resulting stock compensation expense), as follows:




Assumption
            
            Change
                in Assumption
            
            Impact
                on Fair Value of OptionExpected
                volatility
            
            Higher
            
            HigherExpected
                life of option
            
            Higher
            
            HigherRisk-free
                interest rate
            
            Higher
            
            HigherExpected
                dividend yield
            
            Higher
            
            Lower




The
      fair
      value of an option is more significantly impacted by changes in the expected
      volatility and expected life assumptions. The pre-vesting forfeitures assumption
      is ultimately adjusted to the actual forfeiture rate. Therefore, changes in
      the
      forfeitures assumption would not impact the total amount of expense ultimately
      recognized over the vesting period. Different forfeitures assumptions would
      only
      impact the timing of expense recognition over the vesting period. Estimated
      forfeitures will be reassessed in subsequent periods and may change based on
      new
      facts and circumstances.





**Item
      3** **.** **Quantitative
      and Qualitative Disclosures About Market Risk** ****





At
      the
      present time the Company does not have any investments in securities and
      therefore there would not be cause for any material impact on the financial
      statements in the event of a drastic change in interest rates or other factors
      that could influence the stability of investment securities.





**Item
      4.** **** **Controls
      and Procedures**





**(a)
      Evaluation of Disclosure Controls and Procedures:**


As
      of the
      end of the period covered by this Report, the Company carried out an evaluation,
      under the supervision and with the participation of the Company’s Principal
      Executive Officer and Principal Accounting Officer, of the effectiveness of
      the
      design and operation of the Company’s disclosure controls and procedures. The
      Company’s disclosure controls and procedures are designed to produce a
      reasonable level of assurance of achieving the Company’s disclosure control
      objectives. The Company’s Principal Executive Officer and Principal Accounting
      Officer have concluded the Company’s disclosure controls and procedures were, in
      fact, adequate and effective to ensure that material information relating to
      the
      Company that is required to be disclosed by the Company in reports that it
      files
      or submits under the Securities Exchange Act of 1934, as amended, is recorded,
      processed, summarized and reported within the time periods specified in the
      rules of the SEC and accumulated and communicated to the Company’s management,
      including its Principal Executive Officer and Principal Accounting Officer,
      to
      allow timely decisions regarding required disclosure.





**(b)
      Changes in Internal Controls Over Financial Reporting:**





In
      connection with the evaluation of the Company’s internal controls during the
      Company’s last fiscal quarter, the Company’s Principal Executive Officer and
      Principal Accounting Officer have determined that there are no changes to the
      Company’s internal controls over financial reporting that have materially
      affected, or reasonably likely to materially effect, the Company’s internal
      controls over financial reporting.





17





**PART
      II- OTHER INFORMATION**





**Item
      1. Legal Proceedings:** ****





**Balboa
      Capital Corporation vs. Ecuity, Inc. and Ecuity Advanced
      Communications**





Ecuity
      was in negotiations with Balboa on a lease that was in the name of Fox
      Communications, which broke off and did not yield resolution. On October 26,
      2006 a complaint for action on judgment was filed with the Superior Court of
      the
      State of California County of Orange, central justice center. The complaint
      is
      for the breach of the terms of the Lease Agreement. The claim is for $55,073
      consisting of $46,543 for the lease default and $8,530 in interest. The
      likelihood of loss in this case is probable in the full amount of the complaint.
      The Company has accrued the full amount of the complaint.





Other
      than the above, there has been no change in legal proceedings since the filing
      of the 10KSB for the fiscal year ended June 30, 2006.





**Item
      2. Changes in Securities:**





During
      the 3-month period, a 1,545,189 net issuance of shares of common stock were
      issued (and canceled) as follows:




Person/Class
            
            #
                of Shares Issued
            
            Consideration
                (Value of Service)
            
            Date
                of Transaction
            Description
                of Services RenderedCornell
                Capital
            
            1,545,189
            
            30,905
            
            July
                13, 2006
            Conversion
                of debenture





**Item
      3. Defaults Upon Senior Securities - None.**





**Item
      4. Submission of Matters to a Vote of Security Holders - None.**





**Item
      5. Other Information - None.**





**Item
      6. Exhibits**




**Index
      to Exhibits:**




99.1
            Certification
                Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906
                of the Sarbanes-Oxley Act of 200299.2
            Certification
                Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to Section
                906
                of the Sarbanes-Oxley Act of 200299.3
            Certification
                by M. Shane Smith99.4
            Certification
                by King Wm. S. Cole




18





SIGNATURES





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




ECUITY,
                INC.Date:
              November 20, 2006
            
            /s/ M.
SHANE
              SMITHM.
              Shane Smith, CEO and Chairman of the Board  19