UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

[X]      Quarterly  Report  pursuant  to Section  13 or 15(d) of the  Securities
         Exchange Act of 1934

                For the quarterly period ended December 31, 2004

[_]      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)

               800 Bellevue Way NE, Suite 600, Bellevue, WA 98004
     ----------------------------------------------------------------------
                    (Address of principal executive offices)

                                 (253) 284-2935
                               -------------------
                 Issuer's telephone number, including area code

                                       N/A
-------------------------------------------------------------------------------
(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 [ ] No

State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 172,342,344 shares of $0.001 par value
common stock outstanding as of January 5 , 2005.

<PAGE>

PART I - FINANCIAL INFORMATION


     Item 1.    Financial Statements

                Unaudited Consolidated Balance Sheets...................... 1

                Unaudited Consolidated Statements of Operations
                for the Three and Six Months Ended
                December 31, 2004 and December 31, 2003.................... 3

                Unaudited Consolidated Statements of
                Cash Flows for the Six Months Ended
                December 31, 2004 and December 31, 2003. .................. 4

                Unaudited Consolidated Statement of Changes in
                Stockholders' (Deficit) for the year ended June 30, 2004
                and the 6 months ended December 31, 2004................... 5

                Notes to the Unaudited Consolidated
                Financial Statements....................................... 6

    Item 2.     Management's Discussion and Analysis of
                Financial Condition and Results of
                Operations................................................ 22

    Item 3.     Quantitative and Qualitative Disclosures About Market Risk 27

    Item 4.     Controls and Procedures .................................. 28

PART II.        OTHER INFORMATION ........................................ 28

    Item 1.     Legal Proceedings  ....................................... 28

    Item 2.     Changes in Securities  ................................... 28

    Item 3.     Defaults Upon Senior Securities........................... 28

    Item 4.     Submission of Matters to a Vote of Security Holders....... 28

    Item 5.     Other Information  ....................................... 29

    Item 6.     Exhibits   ............................................... 29

Signatures................................................................ 29

Certifications............................................................ 30

<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

                      UNAUDITED CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>

                                                                            December 31,  June 30,
                                                                               2004         2004
                                                                            -----------  ----------

ASSETS
Current
<S>                                                                         <C>          <C>
      Cash and cash equivalents                                             $   37,793   $  107,695
      Accounts Receivable, net of allowance of $179,300 at June
      30, 2004 and $165,537 at December 31, 2004                               694,006      601,287
      Notes receivable                                                          25,000            -
      Prepaid expenses                                                          23,850       29,884
      Inventory                                                                   800
                                                                            ----------   ----------
           Total Current Assets                                                781,449      738,866

Deposits                                                                       121,015       43,722
Property and equipment, net                                                    465,219      499,346
Acquired customer list, net of amortization                                  1,260,461    1,677,600
                                                                            ----------   ----------

     Total Assets                                                            2,628,144    2,959,534
                                                                            ==========   ==========
</TABLE>

The  Accompanying  Notes are an Integral  part of these  Unaudited  Consolidated
Financial Statements

                                       1
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

                      UNAUDITED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                         December 31,       June 30,
                                                                                             2004             2004
                                                                                         ------------    ------------

LIABILITIES AND SHAREHOLDERS' DEFICIT

Current

<S>                                                                                      <C>             <C>
     Accounts payable and accrued liabilities                                            $  4,166,630    $  2,954,559

     Loans payable                                                                          6,132,143       5,887,061

     Stock to be issued for services and sales                                                167,000         167,000

     Deposits and advance billings                                                            246,245         329,253

     Capital lease obligations - current portion                                              104,331         104,331
                                                                                         ------------    ------------

         Total Current Liabilities                                                         10,816,349       9,442,204
                                                                                         ------------    ------------
Long Term Liabilities

      Convertible Debentures                                                                  100,000         200,000
      Capitalized Leases-net of current portion                                                95,305         145,896
                                                                                         ------------    ------------
           Total Liabilities                                                               11,011,654       9,788,100
                                                                                         ------------    ------------

SHAREHOLDERS' DEFICIT

     Share Capital:
     Authorized: 200,000,000 common shares, par value $0.001 per share

           Issued and outstanding:

     172,342,344 common shares outstanding at December 31, 2004 and 113,260,948 common        172,342         113,261
     shares at June 30, 2004

       Additional paid-in capital                                                           9,670,824       8,601,184
      Additional paid-in-capital stock options issued
                                                                                              209,298         209,298

      Less deferred compensation                                                                    0          (9,442)
                                                                                         ------------    ------------
      Deficit                                                                             (18,435,974)    (15,742,867)
                                                                                         ------------    ------------

      Total Shareholders' Deficit                                                          (8,383,510)     (6,828,566)
                                                                                         ------------    ------------


     Total Liabilities and Shareholders' Deficit                                         $  2,628,144    $  2,959,534
                                                                                         ============    ============
</TABLE>


The  Accompanying  Notes are an Integral  part of these  Unaudited  Consolidated
Financial Statements

                                       2
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

                 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>

                                                Three Months Ended             Six Months Ended

                                                    December 31                   December 31
                                                    -----------                   -----------

                                                2004           2003            2004           2003
                                                ----           ----            ----           ----
<S>                                             <C>                   <C>           <C>          <C>
Revenues                                        924,520               -       1,655,562               -

Cost of revenues                                573,385               -       1,151,775               -
                                           ------------    ------------    ------------    ------------

Gross margins                                   351,135               -         503,787               -

Operating expenses
      Selling expenses                           89,680               -         262,074               -
      Amortization of customer list              78,216               -         156,432               -
      Depreciation                               33,064               -          66,128               -
      General and administrative                971,468         994,209       2,309,787       1,210,757
                                           ------------    ------------    ------------    ------------

Total operating expenses                      1,172,428         994,209       2,794,421       1,210,757
                                           ------------    ------------    ------------    ------------

Operating loss                                 (821,293)       (994,209)     (2,290,634)     (1,210,757)
                                           ------------    ------------    ------------    ------------

Other income (expense)
     Interest income
     Interest (expense)                        (325,126)        (21,809)       (402,473)        (31,807)
     Miscellaneous other
                                           ------------    ------------    ------------    ------------

Total other income (expense)                   (326,126)        (21,809)       (402,473)        (31,807)
                                           ------------    ------------    ------------    ------------

Net loss                                     (1,146,419)     (1,016,018)     (2,693,107)     (1,242,564)
                                           ============    ============    ============    ============

Basic loss per share                       $       (.01)   $       (.02)   $       (.02)   $       (.02)

Weighted Average Number of Common Shares
Outstanding
                                            164,607,864      63,188,245     164,607,864      63,188,245

Diluted loss per share                     $       (.01)            N/A    $       (.01)            N/A

Diluted weighted average
  shares outstanding                        209,161,399             N/A     209,161,399             N/A
</TABLE>

The  Accompanying  Notes are an Integral  part of these  Unaudited  Consolidated
Financial Statements

                                       3
<PAGE>
                          ECUITY, INC. AND SUBSIDIARIES

                 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOW

<TABLE>
<CAPTION>

                                                                    Six Months Ended
                                                                       December 31
                                                                   2004           2003
                                                               -----------    -----------

Cash Flows From Operating Activities
<S>                                                            <C>            <C>
     Net loss                                                  $(2,693,107)   $(1,242,564)
Adjustments To Reconcile Net Loss To Net Cash From Operating
  Activities
     Depreciation and amortization                                 222,560          2,368
     Stock issued for other than cash                              433,950        826,358
     Deferred compensation                                           9,444              -
     Changes in assets and liabilities:                                                 -
     Decrease in accounts receivable, net                          167,987              -
     Increase in deposits                                          (77,293)             -
     Increase in inventory                                            (800)             -
     Decrease (increase) in prepaid expenses                         6,034         (3,165)
     (Decrease) increase in payable and accrued liabilities      1,212,071        (56,245)
     Decrease in deposits on advanced billings                     (83,008)             -
                                                               -----------    -----------
      Cash used by operating activities                           (802,162)      (473,248)
                                                               -----------    -----------

Cash Flows From Investing Activities
     Purchase of property and equipment                            (32,000)             -
     Acquisition of Notes Receivable                               (25,000)             -
                                                               -----------    -----------
     Cash from investing activities                                (57,000)             -
                                                               -----------    -----------

Cash Flows From Financing Activities
     Proceeds from loans payable                                   660,548        164,000
     Paydown of loans payable                                     (515,465)
     Share subscriptions receivable                                      -        (14,709)
     Sale of common stock for cash                                 694,768        326,117
     Payments for capitalized leases                               (50,591)             -
                                                               -----------    -----------
      Cash provided (used) by financing activities                 789,260        475,408
                                                               -----------    -----------

Net Increase (Decrease) In Cash                                    (69,902)         2,160
Cash  And Cash Equivalents, Beginning Of Year                      107,695            653
                                                               -----------    -----------
Cash  And Cash Equivalents, End Of Year                        $    37,793    $     2,813
                                                               ===========    ===========

      Interest paid during the periods                         $   157,557
</TABLE>

Supplementary non cash activity:
During  the 6 month  period  ended  December  31,  2004,  the  company  sold its
conferencing division for the carrying amount of $260,707.  Such amount has been
included in the receivables total.

The  Accompanying  Notes  are an  Integral  part of the  Unaudited  Consolidated
Financial Statements

                                       4
<PAGE>

<TABLE>
<CAPTION>
                          ECUITY, INC. AND SUBSIDIARIES
          CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' (DEFICIT)
FOR THE YEAR ENDED JUNE 30, 2004 AND THE SIX MONTH PERIOD ENDED DECEMBER 31, 2004

                                     COMMON STOCK
                             ----------------------------------------
                                                          NUMBER OF                    ADDITIONAL
                                                            SHARE        ADDITIONAL  PAID-IN CAPITAL
                                                         SUBSCRIPTIONS    PAID-IN         STOCK
                                 SHARES        AMOUNT      RECEIVABLE      CAPITAL    OPTIONS ISSUED    DEFICIT        TOTAL
                             ------------- -------------- ----------- --------------- ------------- -------------- --------------
<S>                             <C>        <C>            <C>         <C>             <C>           <C>            <C>
Balance, June 30, 2003          52,050,605 $       52,050 $     (571) $     2,741,023 $           0 $  (4,490,148) $   (1,697,646)

Stock options issued                                                                        209,298                       209,298

Deferred compensation                                                                        (9,442)                       (9,442)

Issue of common stock
 for services                   12,402,006         12,402                   1,417,162                                   1,429,564

Issue of common stock
For options exercised            6,482,319          6,482                     203,965                                     210,447

Sale of common stock             2,264,799          2,265        571          167,404                                     170,240

Sale of common stock
   Credit Line/debentures       10,307,747         10,308                     839,692                                     850,000

Common shares issued
   For acquisitions             29,753,472         29,754                   3,231,938                                   3,261,692

Net loss                                                                                              (11,252,719)    (11,252,719)
                             ------------- -------------- ----------- --------------- ------------- -------------- --------------
Balance, June 30, 2004         113,260,948        113,261                   8,601,184       199,856   (15,742,867)     (6,828,566)

Deferred compensation                                                                         9,442                         9,442

Issue of common stock for
services                        12,972,954         12,973                     420,980                                     433,953

Issue of common stock for
Collateral on loan               3,900,000          3,900                      (3,900)                                          0

Sale of common stock            19,232,420         19,232                     318,768                                     338,000

Shares issue to retire debt     22,976,022         22,976                     333,792                                     356,768

Net Loss for Period                                                                                    (2,693,107)     (2,693,107)
                             ------------- -------------- ----------- --------------- ------------- -------------- --------------
Balance December 31            172,342,344 $      172,342           0       9,670,824       209,298   (18,435,974)     (8,383,510)
                             ============= ============== =========== =============== ============= ============== ==============
</TABLE>

The  Accompanying  Notes are an Integral  part of these  Unaudited  Consolidated
Financial Statements

                                       5
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
                                   (Unaudited)

1.   SIGNIFICANT ACCOUNTING POLICIES

     The consolidated  financial statements of the Company have been prepared in
     accordance  with  generally  accepted  accounting  principles in the United
     States of  America.  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 have, in management's  opinion, been
     properly  prepared within  reasonable  limits of materiality and within the
     framework of the significant accounting policies summarized below.

     Consolidation

     These consolidated financial statements include the accounts of the Company
     and its 100% owned  subsidiaries,  Y3K,  Incorporated  and Ecuity  Advanced
     Communications, Inc.

     Cash and Cash Equivalents

     For purposes of the  statement  of cash flows,  the Company  considers  all
     highly liquid debt instruments purchased with an original maturity of three
     months or less to be cash equivalents.

     Property and Equipment

     The cost of property and equipment is depreciated  using the  straight-line
     method over the  estimated  useful lives of the assets,  which are three to
     five years.  The Company leases  equipment that is capitalized.  All leases
     are accounted for in accordance with Financial  Accounting  Board Statement
     No. 13 - Accounting for Leases. Amortization expense related to capitalized
     leases is included with depreciation expense.

     Software Development Costs

     All software development costs are expensed as incurred.  Capitalization of
     software  development  costs begins upon the establishment of the Company's
     ability to provide a product that is readily  marketable.  Amortization  of
     capitalized  software development costs is provided on a product-by-product
     basis using the straight-line method over each product's estimated economic
     life, which ranges from two to five years.

     Software  development  costs  also  include  capitalized  costs of  design,
     configuration, coding, installation and testing of the Company's website up
     to its initial implementation. The Company did not complete the development
     of the website and the initial implementation costs were expensed in fiscal
     2000.

                                       6
<PAGE>
                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004


1.   SIGNIFICANT ACCOUNTING POLICIES (continued)

     Revenue Recognition

     The Company  recognizes  revenue and the related costs of sales as products
     are  shipped  and title is passed to the  customer.  The  Company  provides
     warranty on product sales for a period of one year.  This includes  updates
     and entitles the user to  replacement  software,  if needed,  at 20% of the
     original  sales  price.  After one year,  customers  can opt for an ongoing
     maintenance  program  entitling them to any product  upgrades at 20% on the
     current purchase price.

     For extended  warranty and continued  product update  services,  revenue is
     recognized over the term of the  maintenance  agreement.  The  subscription
     period can be no less than  quarterly.  Revenue  related to the services is
     deferred and  recognized as the services are  performed in accordance  with
     Statement of Position  97-2 - "Software  Revenue  Recognition"  and related
     interpretations.

     Sales  are  comprised  of gross  revenues  less  provisions  for  estimated
     customer returns and other sales allowances.  For software sales,  customer
     returns are only available within 30 days of the sale and only in the event
     that the software does not perform as described by the Company. Such return
     policy will require the customer to write to the Company with the specifics
     of their claim that the software does not deliver as promised.  The related
     reserves for these provisions are included in "Accounts Receivable, net" in
     the  accompanying  consolidated  statements  of  operations.  For telephony
     services,  billing errors may be corrected for 30 days after the mailing of
     the monthly bill to customers.  Usually such adjustments will be handled by
     phone with adjustment  approved by a customer service  manager.  Provisions
     for estimated  returns and sales  allowances are established by the Company
     concurrently  with the recognition of revenue and are based on a variety of
     factors  including  actual return and sale allowance  history and projected
     economic conditions. The Company has not incurred any significant amount of
     returns  or sales  allowances  in fiscal  years 2000 to 2004.  All  amounts
     billed to  customers  related to  shipping  and  handling  are  included in
     revenue.  All costs associated with shipping and handling are recognized in
     cost of sales.

     The Company  provides  services  for long  distance  and  Internet  access.
     Revenues are recognized when the services are provided.  Amounts prepaid by
     customers  is credited to Deferred  Revenues and  recognized  in the period
     they are earned.

     Effective  October 2000,  the Securities  and Exchange  Commission  ("SEC")
     issued Staff Accounting  Bulletin ("SAB") No. 101 - "Revenue  Recognition",
     which provides guidance on the recognition,  presentation and disclosure of
     revenue in  financial  statements  filed with the SEC. SAB No. 101 outlines
     the basic  criteria  that must be met to  recognize  revenue  and  provides
     guidance  for  disclosure  related to  revenue  recognition  policies.  The
     Company believes our revenue  recognition  practices are in conformity with
     the  guidelines  prescribed  in SAB No.  101.  There  was no  effect on the
     consolidated financial statements related to the adoption of SAB No. 101.

                                       7
<PAGE>

                         .ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004


1.   SIGNIFICANT ACCOUNTING POLICIES (continued) Product Warranty

     The Company records product  warranty costs in the period in which the work
     is performed as a cost of sale.

     Income Taxes

     Income taxes are  accounted  for using an asset and  liability  approach in
     accordance  with  Statement of Financial  Accounting  Standard # 109, which
     requires the  recognition  of deferred tax  liabilities  and assets for the
     expected future consequences of temporary differences between the financial
     statement and tax basis of assets and liabilities at the applicable enacted
     tax rates.  Generally  accepted  accounting  principles require a valuation
     allowance  against deferred tax assets if, based on the weight of available
     evidence,  it is more likely than not that some or all of its  deferred tax
     assets will not be realized.

     Use of Estimates

     Management makes estimates and assumptions that affect the amounts reported
     in the financial  statements and accompanying  notes.  Actual results could
     differ from those estimates.

     Concentration of Credit Risk

     Financial   instruments,   which   potentially   subject   the  Company  to
     concentrations of credit risk, consist of trade accounts  receivables.  The
     Company provides credit in the normal course of business to individuals and
     businesses and generally does not require collateral or other security.

     Management does not anticipate any material adverse effect on the Company's
     financial position as a result of these credit risks.

     Stock Options

     In  accordance  with  Statement of Financial  Accounting  Standards No. 123
     ("SFAS 123"),  the Company has elected to account for stock options  issued
     to employees under Accounting Principles Board Opinion No. 25 ("APB Opinion
     No. 25") and related  interpretations  and accounts  for options  issued to
     non-employees for services under SFAS 123.

     Net Loss Per Share

     Basic loss per share is  calculated  on the basis of the  weighted  average
     number of common shares  outstanding.  Diluted loss per share is calculated
     in the same manner as basic loss per share  amounts,  except for the effect
     of  the  potentially   issuable  shares  resulting  from  the  exercise  of
     outstanding  stock options and warrants.  Fully diluted  earnings per share
     exclude potentially issuable shares that are anti dilutive.

                                       8
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

1.   SIGNIFICANT ACCOUNTING POLICIES (continued)

Business Combinations

The Company has adopted SFAS No. 141 Business  Combinations  that superseded APB
Opinion  No.  16  requiring  the  purchase  method  be  used  for  all  business
combinations  initiated  after  June 30,  2001.  This  statement  requires  that
intangible assets that can be identified and named be recognized as assets apart
from  goodwill if they meet one of two  criteria - the  contractual-legal  right
criterion  or the  separability  criterion.  This  statement  also  requires the
primary reason for the business  combination  and the allocation of the purchase
price paid to the assets acquired and liabilities assumed by major balance sheet
caption.

Intangible Assets

The Company has adopted SFAS No. 142 Goodwill and Other Intangible Assets.  This
Statement  addresses  financial  accounting and reporting for intangible  assets
acquired individually or with a group of other assets (but not those acquired in
a business combination) at acquisition.  This Statement also addresses financial
accounting and reporting for goodwill and other intangible  assets subsequent to
their  acquisition.  Intangible  assets with a definite  life will be  amortized
under this statement while intangible  assets with an indefinite life (goodwill)
will not be amortized.  Evaluation of the carrying cost of all intangible assets
will be performed  at least yearly and the carrying  amount of the asset will be
adjusted to the realizable value.

SFAS No. 150 Accounting for Certain Financial  Instruments with  Characteristics
of  both  Liabilities  and  Equity.   This  statement  requires  that  financial
instruments  issued in the form of shares that is  mandatorily  redeemable  that
embodies  an  unconditional  obligation  requiring  the  issuer  to redeem it by
transferring  its assets at a specified or determinable  date (or dates) or upon
an event that is certain to occur,  to classify  such  instrument as a liability
instead of equity. The Company does not expect that the adoption of SFAS No. 150
will have a material impact on the Company's consolidated financial statements.


2.   Basis of Presentation

     The  unaudited  consolidated  financial  statements as of December 31, 2004
     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 December 31, 2004 and 2003 pursuant to the rules and  regulations of the
     Securities and Exchange Commission.  The consolidated  financial statements
     include the accounts of Ecuity, Inc. and its wholly owned subsidiaries. All
     material intercompany accounts and transactions have been eliminated.

     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 ending June 30, 2004.

                                       9
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004


3.   Acquisition of Assets and Subsidiaries

     Effective  March 22, 2002,  Ecuity,  Inc.  acquired  100% of the issued and
     outstanding shares of Y3K Incorporated by issuing 13,100,000 common shares.
     In  addition,  the former  shareholders  of Y3K  Incorporated  received  an
     additional 4,981,374 common shares in a separate transaction.

     A summary of the transaction is as follows:

     The  outstanding   shares  of  Ecuity,   Inc,   formerly   Zeballos  Mining
     ("Zeballos")   prior  to  the  acquisition  were  27,688,500.   Y3K,  Inc.,
     shareholders  had  common  shares of  12,789,792  and  preferred  shares of
     5,291,582  for a  total  conversion  of  common  shares  from  Zeballos  of
     18,081,374.  In order for Y3K,  Inc.,  shareholders  to receive  18,081,374
     shares  of  Zeballos,  13,100,000  newly  issued  shares  were  issued  and
     4,981,374 shares were received from existing issued and outstanding  shares
     (part of the  27,688,500  common shares issued and  outstanding to Zeballos
     shareholders) of Zeballos common shares.

     The transaction  resulted in the Zeballos  shareholders  holding a total of
     22,707,126, or 56% of the total issued and outstanding shares of 40,788,500
     and Y3k, Inc.,  shareholders  having a total of  18,081,374,  or 44% of the
     total issued and  outstanding  shares  after the close of the  acquisition.
     Even though Ecuity  shareholders  ended up with 44% of the total issued and
     outstanding  shares after the  acquisition  the former  shareholders of Y3K
     Incorporated  did have  control as outlined in items (b),  (c),  and (d) of
     paragraph 17 of SFAS 141.

     -  the existence of a large minority voting interest in the combined entity
     -  control of the board of the combined entity
     -  domination of the senior management of the combined entity

     Accordingly,   the  transaction,   which  is  referred  to  as  a  "reverse
     take-over",  has been treated for accounting  purposes as an acquisition by
     Y3K Incorporated of the net assets and liabilities of Ecuity, Inc.

     Ecuity, Inc. had a net asset deficiency at the acquisition date, therefore,
     the 13,100,000 shares issued on acquisition were issued at fair value of $0
     with  the  net  asset  deficiency  of  $25,743  charged  to  deficit.   Y3K
     Incorporated  is  deemed  to be  the  purchaser  for  accounting  purposes.
     Accordingly,  its net assets are included in the consolidated balance sheet
     at their previously recorded amounts.

     The acquisition is summarized as follows:
     Current Liabilities
         Accounts payable                                $      25,743
                                                         --------------
     Net Asset Deficiency                                $     (25,743)
                                                         ==============

                                       10
<PAGE>


                          ECUITY, INC. AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

1.        Acquisition of Assets and Subsidiaries (continued):

     Fox  Communications,  Corporation - Effective January 2, 2004, Ecuity, Inc.
     through  its  wholly  owned  subsidiary   Ecuity  Advanced   Communications
     (Initially  incorporated  under  the  name  "Ecuity  Holdings,   Inc."),  a
     Washington  corporation  ("EAC"),  purchased a  substantial  portion of the
     assets  ("Assets")  of  Fox  Communications,   Corporation,   a  Washington
     corporation  ("Fox").  The purchase (the  "Transaction") was pursuant to an
     Asset Purchase Agreement ("Purchase Agreement") dated January 14, 2004.

     Fox Communications  Corporation formerly Phonelink, Inc. is in the business
     of providing  business and  residential  long distance  telephone  service,
     conference  calling,  internet dial up, and web hosting  services.  Fox was
     incorporated in the state of Washington on January 5, 1989.

     The  acquisition  was based on cash,  common  shares and a Note  Payable as
     follows:

     $3,775,000  in a note  payable  by Ecuity and  6,722,722  shares of Ecuity,
     Inc.'s  common  stock.  Based on the  closing  bid price for the  Company's
     common  stock on January 14, 2004 of $.17 per share,  the shares  issued to
     Fox in connection  with the asset  purchase have been valued at $1,151,882.
     The total  transaction  has been valued at $4,926,882  of which  $1,781,221
     consisted of net assets acquired.  The Company has paid $300,000 toward the
     note as part of the purchase  price and the balance of  $3,475,000 is to be
     paid pursuant to the terms of a promissory  note ("Note")  issued to Fox by
     Ecuity. The original note called for payments that were in default on their
     initial due date of March 5, 2004.  Subsequently,  the Company negotiated a
     revised note payment schedule, which called for a total payoff on or before
     December 1, 2004 of the $3,475,000  balance plus accrued interest.  EAC was
     able to  negotiate  an  extension  of that  note  under  various  extension
     agreements,  the latest of which  extends the due date of the note to March
     1, 2005. The terms of the asset purchase  agreement  provide that the final
     payment  may be reduced  by an amount  representing  the total of  accounts
     receivable,  less the sum of the  accounts  payable,  accruals and deferred
     income balances.  However,  as a result of a prior note payment  extension,
     this offset to the note balance amount has now been limited to $450,000.

     Payment  of the Note is  secured by all of the Assets and by the issued and
     outstanding  shares of Ecuity, all of which shares are held by the Company.
     In addition,  the Company is a guarantor  of the Note  pursuant to a Parent
     Guaranty  agreement  between the  Company  and Fox.  The Company and Ecuity
     expect to finance the Note payments through  additional equity  investments
     into the  Company  including,  but not  limited  to,  invested  capital  it
     anticipates it will receive under a Standby Equity  Distribution  Agreement
     (formerly  the  Equity  Line of  Credit  Agreement)  with  Cornell  Capital
     Partners, L.P.

     The assets acquired by the Company  include the competitive  local exchange
     carrier  ("CLEC")  consisting of a customer base of 18,000  residential and
     business  customers,  conferencing and ISP operations,  voice over internet
     protocol   services,   fully  functioning   customer  service  and  billing
     capabilities.  Additionally, the Transaction included the recently upgraded
     Network Operation Center ("NOC") that allows for the significant  expansion
     of unified end-to-end communication solutions through the addition of voice
     over IP (VoIP).

                                       11
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

   3.    Acquisition of Assets and Subsidiaries (continued):

    In addition  to the growth of the  unified  products  and  services,  Ecuity
    believes  that the new NOC increases  efficiencies,  reduces costs and has a
    positive  impact on operating  revenue.  The Assets  acquired by the Company
    include:

o    Certain  fixed  assets  and  equipment,  as well  as any  and all  permits,
     licenses,  consents  and  approvals  held by Fox  which are  assignable  to
     Ecuity.  All such  fixed  assets and  equipment,  which Fox had used in its
     operation as a converged internet content provider and producer of affinity
     portals, shall be used in a similar manner by Ecuity.

o    All of Fox's  right,  title and  interest  in and to a number of  websites,
     including  foxinternet.com,  as well as any other  tangible  or  intangible
     assets of Fox used or useful in the joint  operations that existed prior to
     the  Transaction,  but  excluding  certain  assets  listed in the  Purchase
     Agreement.

         As part of the  Transaction,  those Fox employees  that are  associated
    with the operation and management of the business  represented by the Assets
    became  employees of Ecuity.  Additionally  the former President of Fox, Mr.
    Lonnie  Benson,  became a  consultant  to Ecuity  with a  contact  effective
    through January 14, 2005.

    Karunga Technologies, Inc. - At a Board of Directors meeting on February 22,
    2004,  Ecuity,  Inc.,  voted to complete the purchase of the ICS  Technology
    from Karunga Technologies,  Corporation ("Karunga"), a Utah Corporation. The
    technology acquisition was completed effective June 15, 2004.

    The Agreement to purchase all assets and liabilities related specifically to
    the ICS Technology,  its development and deployment,  (hereinafter Purchased
    Technology or ICS),  including all intellectual  property rights  associated
    with ICS was completed  pursuant to a Technology  Asset  Purchase  Agreement
    ("Purchase  Agreement")  dated February 22, 2004,  which was ratified by the
    Board of Directors of Karunga on June 15, 2004. The acquisition was based on
    the issuance of commons  shares,  the  assumption of certain  obligations of
    Karunga, the granting of options and warrants as follows:

    The issuance of 23,030,750  shares of common stock,  the issuance of 750,000
    options to purchase  common shares at prices  ranging from $.10 per share to
    $.25 per share,  the issuance of 433,438  warrants to purchase common shares
    at $.50 on a 1 to 1 basis,  the  assumption of $70,000 in general bills from
    Karunga and the  issuance of a new  convertible  promissory  note to a third
    party in the principal  amount of $492,165,  bearing interest at the initial
    rate of 7% per annum  rising to 14% on any  defaults.  The newly issued note
    replaces  the note  wherein the Company had acted as a guarantor of the note
    issued by Karunga to the third  party in the amount of  $400,000  (which was
    expensed for the year ended June 30,  2003).  In addition,  the  convertible
    note has warrants  attached that provide for the issuance of 333,333  common
    shares at the price of $.20 per share.

    Additionally,  the beneficiary of the new note is contractually  entitled to
    one million  common  shares of the Company's  common  stock,  which has been
    expensed as additional interest, in

                                       12
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

3.       Acquisition of Assets and Subsidiaries (continued):

    consideration  for  extending  the due date of the note as well as providing
    for a payment  schedule  extending  through  December 31, 2004.  The note is
    currently  in  default.  The note has been  negotiated  for the  issuance of
    common  shares;  see  details in the  subsequent  events  footnote.  The one
    million shares for the  additional  interest and extension date have not yet
    been issued and accordingly are classified as a liability until the transfer
    agent actually  issues said shares.  The total  acquisition  transaction was
    valued at $2,280,994.

    An  employment  agreement  was  provided to Shane  Smith,  a key employee of
    Karunga,  who is now acting as the Company's  Chairman of the Board and CEO.
    Mr. Cedric Griss was also retained by the Company on an ongoing basis as the
    key developer of the ongoing  upgrades of ICS without any written  contract.
    Mr.  Smith's  contract  provides for salary,  benefits,  stock options and a
    defined length of employment.

4.   LOANS AND OTHER OBLIGATIONS PAYABLE
<TABLE>
<CAPTION>
                                                                                       December 31
                                                                                          2004
                                                                                   -------------------
<S>                                                                                          <C>
    a) Note due to Fox Communications, Inc.                                        $         3,463,160
    b) Promissory notes to Cornell Capital at 12% per annum                                  1,000,000
    c)   Unsecured loans, payable on demand, with interest ranging from 10%
         to18% per annum                                                                       985,940
    d) Promissory note payable bearing interest at 7% per annum with a default                 466,165
         rate of 14%
    e)   Loan due to bank - defaulted in year 2001 (unsecured)                                 155,666
    f) Contract for advance lock box receipts                                                   61,212
                                                                                   -------------------
          Total Loans Payable                                                      $         6,132,143
                                                                                   ===================
</TABLE>

a)       The  note  that  was  issued  by  Ecuity  Advanced   Communications  is
         guaranteed  by  all  of  its  assets.   Additionally   Ecuity  Advanced
         Communications,  Inc.'s note to Fox is guaranteed  by Ecuity,  Inc. The
         addendums,  which have been agreed to in writing  between the  parties,
         provide for an extension for payment of principal and accrued  interest
         until March 1, 2005.

b)       Cornell Capital Partners issued a note with an initial principal amount
         of $350,000 and also issued a note in the initial  principal  amount of
         $1,000,000.  The  $350,000  note has been paid down by $200,000 and the
         $1,000,000  note has been paid down by $150,000 from the sale of common
         stock  under the terms of the Equity  Line of Credit.  The  Company and
         Cornell have agreed that they may sell shares into the marketplace over
         a period of months at the rate of $50,000 each week until they are paid
         in full. Additionally,  Cornell paid off a note to ADP in the principal
         amount of $133,333 plus

                                       13
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

4. LOANS AND OTHER OBLIGATIONS PAYABLE (continued):

     b)  accrued  interest.  The new note to Cornell was issued in the principal
         amount of  $205,717,  which  included a $4,000 loan fee.  This note has
         also been paid off from the sale of common shares of the Company.

    c)  There are ten private parties comprising the aggregate loan amounts. The
        single  largest party who has a loan, in the amount of $382,500,  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 was a co founder of the  Company and a  consultant.  His
        loans total  $221,940.  The next largest lender is a private  individual
        with a loan in the amount of $110,000.  He is also a  non-related  third
        party. Two loans are from Company  officers in the principal  amounts of
        $22, 000 and $27,500.  The remaining loans are from private  individuals
        in amounts  ranging  from  $5,000 to  $100,000.  These  individuals  (or
        entities) are non-related parties.

    d)  The promissory note payable arises as a result of the Company converting
        a previous guarantee of the indebtedness of an arm's length company with
        whom the Company has entered into an  agreement to develop,  license and
        market software, in exchange for a new note which was executed after the
        Company purchased the Karunga ICS technology.  Note was due December 31,
        2004 and was in default at that time. See subsequent events as this note
        has been renegotiated for conversion to common shares.

    e)  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.  This note was  incurred  by the  Company's
        subsidiary,  y3k, Inc., and there is no liability to the parent company,
        Ecuity, Inc.

    f)  EAC  contracted  with the bank that controls the lock box system for the
        collection on those  accounts that pay by mail.  The agreement  provides
        that  portions of the daily cash  receipts are applied to the loan.  The
        loan interest is estimate at an annual rate of 26%.

Capital Lease Obligation (Judgment)-

    During the year ended June 30, 2001,  the Company's  subsidiary,  Y3k, Inc.,
    defaulted under certain  equipment lease obligations and the leased property
    was  repossessed.  The  lessor  has  obtained  a  judgment  in the amount of
    $121,565 which has been recorded in full in the accounts.

    Convertible Debentures

<TABLE>
<CAPTION>
<S>                                                                         <C>
    Convertible debentures due to Cornell Capital, Inc. bearing interest
        at 5% per annum all due and payable January 7, 2007                  $  100,000
                                                                             ==========
</TABLE>

                                       14
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

  4. LOANS AND OTHER OBLIGATIONS PAYABLE (continued):

        o  Convertible  debentures  were  initially  issued  at a face  value of
    $350,000,  less an initial  discount of 10%,  less  attorney  fees.  Cornell
    Capital  Partners  purchased all of the debentures.  The Company has filed a
    SB-2  registration  statement in order to register  60,000,000 common shares
    that may be  issued  under  the  terms  and  conditions  of the  convertible
    debentures.  Under the terms of the agreement, Cornell Capital Partners sold
    common shares sufficient to reduce the debt by $250,000. The Company has the
    option to pay the debentures plus accrued interest on the due date above, or
    at the  option  of the  holder  of the  convertible  debentures  they may be
    converted  to common stock of the Company at the option price of either 120%
    of the stock  market price at the date of the  execution of the  Convertible
    Note,  or at any time based on 80% of the 5 day price of the stock  prior to
    the conversion date election, at a price whichever is lower.

    Standby Equity Distribution Agreement

    On February 2, 2004 the Company filed a SB-2 registration statement in order
    to register  60,000,000  common shares under the Equity Line of Credit and a
    revised  SB-2  registration  statement  was filed  March 15, 2004 and became
    effective May 12, 2004.

    The  revised  Equity  Line  of  Credit  (now  called  the  "Standby   Equity
    Distribution  Agreement" or "SEDA") provides that we may, at our discretion,
    periodically  issue and sell to Cornell  Capital  Partners  shares of common
    stock for a total purchase price of $20 million.  The amount of each advance
    is subject to a maximum  advance  amount of $280,000,  and we may not submit
    any advance within seven trading days of a prior advance.

    The Company  issued  50,000,000  shares of Common  Stock to Cornell  Capital
    Partners,  LLC in October 2004. These shares were issued in order to provide
    additional  interim  funding as well as reduce the existing  debt to Cornell
    under the terms of the Equity Line of Credit.  Of the 50,000,000 shares that
    were  issued to the  escrow  agent for the  benefit  of  Cornell,  there are
    23,076,082 shares remaining in escrow at December 31, 2004. These shares are
    not included in the issued and outstanding share calculations.

5.  Operating Segments

     Statement of Financial  Accounting  Standards No. 131,  "Disclosures  about
     Segments of an Enterprise and Related  Information"  establishes  standards
     for reporting  information  about operating  segments in interim and annual
     financial  statements,  including  segments  by  product  and  service,  by
     geographic  area,  by  legal  entity  and by type of  customer.  Further  a
     reportable  segment shall be segregated if it represents 10 percent or more
     of combined  revenue.  All sales of the Company are in the United States as
     of the three months ended December 31, 2004 and for all prior periods.  The
     Company currently operates in one segment.

                                       15
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

6.  Income Taxes

     Deferred tax assets and  liabilities are recognized for the expected future
     tax  consequences  of  events  that  have been  reported  in the  Company's
     financial  statements  or tax returns.  At June 30,  2004,  the Company had
     available net operating loss  carryforwards for federal income tax purposes
     of $15,742,867,  which expires  beginning in 2020.  Because of the inherent
     uncertainty of the Company  generating  sufficient  taxable income prior to
     the  expiration of the loss  carryforward,  a valuation  allowance has been
     provided for the entire deferred tax asset.

      Deferred tax assets
           Net operating losses carried forward        $      5,300,000
           Less:  Valuation allowance                        (5,300,000)
                                                       ----------------

                                                       $              -
                                                       ================
     A valuation  allowance reflects the unrecognized U.S. and foreign tax loss
     carryforward.  State taxes in  Washington  State are paid as  Business  and
     Occupancy taxes and are based on gross revenues.

7. 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 year.  At December
    31, 2004 the Company had remaining stock options  (31,733,689)  and warrants
    (10,936,325)  totaling  42,670,014  common  shares that has been  granted to
    various employees, directors, consultants and lenders at prices ranging from
    $.02 to  $.75  per  share.  At  December  31,  2004  there  were a total  of
    19,465,757  options and  10,936,325  warrants  vested for a vested  total of
    30,402,082.

                                       16

<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

8. Capital Assets

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

December 31, 2004

----------------------------------------- -----------------------
Description of Asset                           Value after
                                               Impairment
----------------------------------------- -----------------------
Computers and                                      321,281
Equipment
----------------------------------------- -----------------------
Computer Software                                  60,390
----------------------------------------- -----------------------
Switch Equipment                                  143,220
----------------------------------------- -----------------------
Leasehold Improvements                             25,488
----------------------------------------- -----------------------
Office Equip.                                      15,973
----------------------------------------- -----------------------
                                                  566,352
----------------------------------------- -----------------------
Accumulated Depreciation                         (101,133)
----------------------------------------- -----------------------
Net Book Value                                    465,219
----------------------------------------- -----------------------

Note: The initial  values that were set for the Fixed Assets  purchased from Fox
Communications,  Inc., based on internal valuations of said assets. Further, the
Company was provided a detailed list of assets by Fox Communications for which a
number of items could not be  specifically  identified.  The Company  engaged an
outside  valuation  firm to provide  values  necessary to price the  transferred
assets,  however, there were a substantial amount of "unvalued" items since they
could not assess value.  The Company then  proceeded to identify the assets that
were  physically  on hand after the Fixed  Assets  were  transferred  to the new
operating  facility  as well as those that were  identifiable  at the  Company's
network  operating  center  ("NOC").  The  values  placed  on these  items  were
primarily  those items that were  specifically  identified  with a corresponding
lease obligation.  In addition,  the current items also include assets purchased
subsequent to January 2, 2004.  The  valuations  above are after the  impairment
charge to the  carrying  values at June 30, 2004 and include  post June 30, 2004
acquisitions.

9. 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 Sheets as of December 31, 2004
which have been impacted by the impairment charge at June 30, 2004:

                                       17
<PAGE>
                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

9. Acquired Subscriber Base (continued):

<TABLE>
<CAPTION>
                                                    Reduction for
                                                      sale of                           Net
                               Carrying Value        Conference         Accumulated   Carrying
                              after Impairment        Calling (a)       Amortization    Value
                             ------------------    -----------------  --------------  ---------
<S>                          <C>                            <C>              <C>      <C>
      Acquired Customer
         List for
         Telephony and
         ISPs                $        1,864,000             260,707          342,832  1,260,461
                                                   ----------------
</TABLE>

(a) The Company sold its  conference  calling a portion of which was included in
the initial  carrying  valuation of the Customer  List.  The sale price has been
reflected as a reduction in the carrying  value of the Customer  List and future
amortization will be adjusted to reflect to lower carrying values.

During the year ended June 30, 2004,  the acquired  Customer List decreased as a
result of the costs of the assets purchased from the Fox  Communications,  Inc.,
in excess of what was identified based on an outside  valuation at $1,864,000 as
of the  date  of  purchase.  The  amortization  of the  acquired  customer  list
purchased from Fox is being amortized over its projected useful life of five (5)
years commencing January 2, 2004.

Acquisition-related  amortization in the  Consolidated  Statements of Operations
for the year ended  represents  the  amortization  of definite  life  intangible
assets.  The Company's definite life intangible assets consist of customer lists
and other  assets  that are not  deemed to have  indefinite  lives  acquired  in
conjunction  with the  purchases of  businesses  and  subscribers  of ISPs,  but
exclude any acquired hardware and software.  Generally, definite life intangible
assets are amortized on a  straight-line  basis over five years from the date of
their respective acquisitions.  Since there has been a reduction in the carrying
value of the  Customer  List due to the sale of the  conferencing  feature,  the
amortization  for the remaining  future  periods will be adjusted to reflect the
lower  carrying  value and the  revised  quarterly  amortization  charge will be
$78,216 through June 30, 2009 as follows:

         Year Ending June 30, 2005                             $312,864
         Year Ending June 30, 2006                             $312,864
         Year Ending June 30, 2007                             $312,864
         Year Ending June 30, 2008                             $312,864
         Year Ending June 30, 2009                             $165,437

                                       18

<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004


10.  LEASE COMMITMENTS

    The Company is currently leasing one office space as follows.

    Effective February 1, 2004 the Company obtained new corporate offices at 800
    Bellevue Way, Suite 600,  Bellevue,  WA 90004. These new offices were leased
    (as a sub-lease) to accommodate the space  requirements for Ecuity personnel
    (formerly the personnel associated with Fox Communications, Inc.) as well as
    the new corporate offices of the Company.

    The lease is for 11,046 sq. ft. with an expiration  date of October 31, 2007
    with an  initial  lease rate of $9,205  per month  with  periodic  increases
    through the lease termination date.

    The lease commitments through the lease terms of all leases are as follows:

                           Year 2005                               $  142,566
                           Year 2006                                  160,172
                           Year 2007                                  176,736
                           Year 2008                                   60,752
                                                                   ----------
                                          Total                    $ 540,226
                                                                   ==========

11.  Stock-Based Compensation

    In December 2002, the Financial  Accounting  Standards Board ("FASB") issued
    Statement No. 148, "Accounting for Stock-Based Compensation,  Transition and
    Disclosure" ("FAS 148"). FAS 148 provides  alternative methods of transition
    for a voluntary  change to the recognition of the cost of the options in the
    statement of operations.  FAS 148 also requires that  disclosures of the pro
    forma effect of using the fair value method of  accounting  for  stock-based
    employee compensation be displayed more prominently and in a tabular format.
    Additionally, FAS 148 requires disclosure of the pro forma effect in interim
    financial statements.  The transition and annual disclosure  requirements of
    FAS 148 were  effective for fiscal years ended after  December 15, 2002. The
    interim disclosure requirements of FAS 148 are effective for interim periods
    beginning after December 15, 2002. The adoption of the provisions of FAS 148
    did not have an impact on the Company's consolidated financial statements.

    The Company  follows the provisions of FASB  Statement No. 123,  "Accounting
    for Stock-Based  Compensation"  ("FAS 123"). The provisions of FAS 123 allow
    companies to either  expense the estimated fair value of stock options or to
    continue  to follow  the  intrinsic  value  method  set forth in  Accounting
    Principles Board Opinion No. 25,  "Accounting for Stock Issued to Employees"
    ("APB 25"),  but disclose the pro forma effects on net income (loss) had the
    fair value of the options been  expensed.  Ecuity has elected to continue to
    apply APB 25 in accounting for its stock option incentive plans.

                                       19
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

11.  Stock-Based Compensation (continued):

     In accordance with APB 25 and related interpretations, compensation expense
     for stock options is  recognized in income based on the excess,  if any, of
     the  quoted  market  price of the stock at the  grant  date of the award or
     other  measurement date over the amount an employee must pay to acquire the
     stock.  The  Company's  policy  is to grant  the  exercise  price for stock
     options to  employees  at or in excess of the fair market value of Ecuity's
     common stock at the date of grant,  thereby  resulting in no recognition of
     compensation expense by the Company. For awards that generate  compensation
     expense  as  defined  under APB 25, the  Company  calculates  the amount of
     compensation  expense and recognizes the expense over the vesting period of
     the award.

12.  Concentration of Sales and Purchases

         The  Company's  subsidiary,   Ecuity  Advanced  Communications  has  no
         customers that exceed ten (10%) percent of annual sales, however, there
         is one vendor with  purchases that exceed ten (10%) percent of the cost
         of sales. This vendor and the purchase amount is as follows (rounded to
         000"s):

       QWEST                                                   $199,000

13.  Subsequent Events

     The Company was able to negotiate an  extension on the note  obligation  to
     Fox  Communication,  Corp.,  which has a  remaining  principal  balance  of
     $3,475,000 until March 1, 2005. Management is in the process of negotiating
     an additional extension on this note.

     The Note to a third party in the principal  amount of $466,165 plus accrued
     interest was in default at December 31, 2004.  The Company has negotiated a
     settlement for the entire indebtedness, including principal and all accrued
     interest as well as the 1,000,000  common shares that have not been issued,
     in exchange for the issuance of 20,000,000  shares of the Company's  common
     shares.

14.  Going Concern

     As  reflected  in the  accompanying  financial  statements,  the  Company's
     cumulative  losses,  its  working  capital  deficiency,  and  stockholders'
     deficiency raise substantial doubt about its ability to continue as a going
     concern.  The  ability of the  Company to  continue  as a going  concern is
     dependent on the Company's  ability to raise  additional  capital,  through
     equity or debt  financing,  and implement its business  plan. The financial
     statements  do not include any  adjustments  that might be necessary if the
     Company is unable to continue as a going concern.

                                       20
<PAGE>

                          ECUITY, INC. AND SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
                                DECEMBER 31, 2004

14.  Going Concern (continued):

     Management  believes that sufficient  funding may become  available to meet
     its  business  objectives,  including  anticipated  cash needs for  working
     capital, and is currently evaluating several financing options. In order to
     sustain minimum operations and meet debt service  obligations,  the Company
     needs to raise a minimum of $5,000,000 over the next 12 months.

     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.

                                       21
<PAGE>

Item 2.  Management's Discussion and Analysis

INTEGRATED COMMUNICATIONS - OVERVIEW

Ecuity provides advanced telephone services and products,  both through state of
the  art  Internet  voice  (VoIP)  and  through  traditional  telephone  service
connections  (PSTN).  All of Ecuity's  telephone  services are business  grade -
carrier class products.  Ecuity also delivers additional valuable  communication
products and services  targeted to the small and medium sized  business  market,
maximizing   value  to  the  businesses   served,   creating   strong   customer
relationships  and allowing  Ecuity to maintain  higher  margins  throughout its
product line. These additional advanced  communication  services include secure,
encrypted instant messaging,  secure data transfer,  document and data archiving
and retrieval,  T-1 provisioning,  internet connections,  conference calling and
e-commerce  software to create  solutions that meet the  communication  needs of
today's business world.

As a  facilities-based  carrier,  Ecuity  continues  to  operate  a  traditional
telephone  company  with a 17-year  history,  providing  service to thousands of
customers   in   the   Northwest    through   the   integration   of   web-based
telecommunications  and cutting-edge  software  technology.  Ecuity economically
delivers secure unified communication  solutions that break down distance,  time
and media barriers to allow people to communicate  anywhere,  anytime and across
multiple  mediums.  While Ecuity's  primary market is the small and medium sized
business  customer,  Ecuity also  provides the same high  quality  communication
products and services to residential and retail  distribution  customers through
channel partners.

Prior to calendar year 2004, Ecuity had been an early stage development company.
Calendar  year 2004  ushered in a new era for Ecuity as it began the  transition
from early stage development  company to a mature operating  company.  Our goals
for 2004 were the following:

     o    Purchase an in-place telephone business  infrastructure to effectively
          support the delivery of next generation  telecommunication services to
          the business enterprise market.
     o    Achieve 99.999% reliability through our strategically  deployed hybrid
          switch that  seamlessly  connects  both  Internet  voice and tradition
          telephone voice networks.
     o    Launch our 4 primary VoIP products
     o    Achieve a lead position in next generation wireless phone service
     o    Achieve recognition in the industry as an emerging leader

We achieved all of the above  primary  goals in calendar  year 2004, as describe
below:

Purchase of telephone business infrastructure

         JANUARY 2004 - FOX ASSET ACQUISITION

         Effective  January  14,  2004,  Ecuity  completed  its  acquisition  of
         selected assets of Fox Communications,  Corporation. The local exchange
         carrier assets purchased  include physical hardware assets for state of
         the art VoIP switching,  traditional telephone switching facilities, as
         well as seasoned customer service and billing departments  necessary to
         support  business/carrier  class telephone service. The business assets
         consist  of  a  customer  base  of  18,000   business  and  residential
         customers. Ecuity provides wired and WiFi VoIP services, dial tone, PBX
         and  hosted  PBX,  DSL,  T 1 and  internet  dial up  connectivity,  web
         hosting,  conferencing and traditional  local and long distance calling
         to these customers as well as its expanding base of new customers

                                       22
<PAGE>

         JUNE 2004 - KARUNGA ACQUISITION

         After the Fox asset  acquisition,  Ecuity  completed its acquisition of
         the technology of Karunga Technologies  Corporation,  the developers of
         its secure Instant  Communications System technology.  This allowed the
         Company to own the proprietary technology, derive the benefit of higher
         margins  and  control  of future  development  of the  technology.  ICS
         provides a platform of proprietary technologies developed over the past
         several years to combine encrypted text messaging, secure data and file
         transmission,  data and messaging archiving,  strategic  collaboration,
         and  presence  management,  all on a  managed,  "peer to  peer"  basis.
         Previously  the Company  worked with Karunga under a license  agreement
         and under a joint  development  agreement.  The  acquisition of the ICS
         technology  now allows for the  integration  of all aspects of Ecuity's
         software  applications  and ongoing  development  of technology for the
         sole  benefit of the  Company.  In 2005 the Company  plans to integrate
         these  services  with its wired and WiFi VoIP  voice  services,  and to
         extend the functionality of this proprietary technology.

Achieved 99.999% reliability for our strategic hybrid Switch
------------------------------------------------------------

         In  January  we  reported  that  we  had  achieved  "5  9's"  (99.999%)
         reliability  and had  processed  a Billion  minutes  through our hybrid
         switch that  connects us to both our  Internet  voice  networks and our
         traditional  telephone  copper  wire  switched  networks.  This was the
         highest  priority  for us as it is  the  foundation  of  our  strategic
         positioning  going  forward.  Because  of our proven  reliability,  our
         seamless  connection  to both  the old  telephone  network  and the new
         Internet   based   telephone   network   through   our  hybrid   switch
         configuration,  and our advanced PBX and security features,  we are now
         able to leverage  these  competitive  advantages  into  numerous  joint
         ventures  and  channel  partner  arrangements  to  drive  the  business
         forward.

Launch of VoIP Products
-----------------------

         Commencing the last half of calendar 2004 we successfully  launched our
         four VoIP telephone  products.  By the end of the year we had installed
         over 700 business lines using our VoIP services.

         OCTOBER 2004 - TELSYM/INTEL PARTNERSHIP - WORLD FIRST

         In October,  Ecuity  became the first  carrier to host a  carrier-class
         mobile VoIP solution  providing full featured VoIP call capability over
         wireless  networks such as `WiFi hotspots and wireless office networks.
         Thus  using a laptop  computer  or a hand held  Pocket  PC-PDA,  Ecuity
         customers  can now place and receive phone calls over any private WiFi,
         public  hotspot,  or  broadband  network  using  Macintosh  or  Windows
         computers,  or Pocket PC mobile  devices.  Mobile  VoIP  solutions  are
         increasingly  being  deployed  to satisfy  the  communication  needs of
         today's mobile corporate  professionals  and workers in industries that
         require  high levels of mobility  such as retail and  healthcare.  This
         offering  is  a  joint  partnership  with  TeleSym,  another  Bellevue,
         Washington based  technology firm whose patented  software is optimized
         to deliver voice over wireless  networks.  TeleSym's  financial backers
         include  Intel(R)  and  Seimens.  Ecuity  worked with both  TeleSym and
         Intel(R) in deploying  this world class wireless voice offering and was
         one of the first  communications  carriers to deploy Intel's(R) HMP SIP
         server.  Next generation wireless phones will be optimized for wireless
         VoIP and will  allow  wireless  VoIP  carriers  to  challenge  cellular
         technologies and communications strategies

                                       23
<PAGE>

         DECEMBER 2004 - OTTAWA WIRELESS PARTNERSHIP - FIRST CITYWIDE WIFI

         In December Ecuity teamed with Azulstar Networks,  a division of Ottawa
         Wireless, a world leader in citywide WiFi network deployments, to offer
         wireless  Voice over  Internet  phone  services.  Under the  agreement,
         Ecuity  will be the  exclusive  provider of private  label  mobile VoIP
         services to Azulstar's wireless broadband customers,  both business and
         residential.  Initial  markets will include Rio Rancho,  New Mexico and
         Grand Haven,  Michigan.  Azulstar expects to launch the Rio Rancho WiFi
         based VoIP services at the beginning of 2005 and will include  multiple
         package offerings of Ecuity's services. Grand Haven customers, who have
         been  enjoying  the  citywide  WiFi  network  since fall 2003,  will be
         offered  Ecuity's VoIP services later in the year. Often referred to as
         the Silicon  Mesa,  forward-thinking  Rio Rancho,  NM is home to 64,000
         residents and a large number of small, medium and large sized high tech
         companies.  This will be the nation's  largest and most advanced  city-
         wide WiFi network and the  combination  of Azulstar's  innovative  WiFi
         technology  and Ecuity's  leading VoIP  services will make Rio Rancho a
         model for citywide WiFi communications networks.

Achieved recognition in the industry as a leader- The 2004 Pulver 100 award
---------------------------------------------------------------------------

         Because of Ecuity's  increasing success in delivering cutting edge VoIP
         services  to  customers  nationwide  and  around  the  world,  Ecuity's
         privately held subsidiary,  Ecuity Advanced  Communications being named
         to the 2004 "Pulver 100"- which is the VoIP industry's premiere listing
         of companies that represent the future of the communications industry.

Our plan of  operations  for the next twelve months is to complete the following
objectives within the time period specified, subject to our obtaining additional
financing for the continued development of the Company's business:

     o    Leverage  the  strategic  advantages  we  have  achieved  through  our
          platform and emerging industry  recognition to aggressively market our
          products
     o    Transition debt incurred in achieving early stage development goals to
          long-term debt and equity.
     o    Conclude  negotiations with top flight industry  recognized leaders to
          complete upper management positions
     o    Commence aggressive  acquisition strategy for small regional telephone
          companies  like  the  one  we  purchased  and   transitioned  to  next
          generation telco.
     o    Entering into the VoIP  conference  calling to replace the traditional
          landline  services that did not fit into our platform of utilizing our
          VoIP technology,

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  within  the  next  six  months,  we  anticipate  we will not be able to
continue  with our present  operating  structure.  Management  believes that the
sources  of  potential  funds  needed to  maintain  current  operations  will be
available  to us  during  the  year  however,  if  this  amount  of  funding  is
unavailable to cover our debt obligations and ongoing deficit spending,  we will
not be able to continue operations.

                                       24
<PAGE>

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.

LIQUIDITY AND CAPITAL RESOURCES

The working capital deficit increased to $10,034,900 at December 31, 2004 from a
deficit  of  $8,703,339  as of June  30,  2004,  primarily  as a  result  of the
following:  a decrease in cash of $69,902,  an increase in accounts  payable and
accrued  liabilities  of  $1,212,071,  and an  increase  in short  term  debt of
$245,082.

The Company had a  consolidated  operating  net loss of  $2,693,108  for the six
months ended December 31, 2004 compared to a net loss of $1,242,564 for the same
period last year.  The  substantial  increase  between  the 6 month  periods are
primarily a result of the  operating  loss for Ecuity  Advanced  Communications,
Inc.,  which was $1,316,132 this year and there was no operating  comparison for
last year as the  acquisition of the Fox assets was not effective  until January
2004.  All other items are primarily of equal costs such as consulting  fees for
this reporting  period,  which were $889,047 as compared to $884,485 for the six
month period last year.

Revenues  from  the Fox  asset  purchase  are  recognized  in our  wholly  owned
subsidiary, Ecuity Advanced Communications,  Inc. Ecuity's business is primarily
related to long distance  services,  Internet  server  provider  (ISP),  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  long distance  services are billed in arrears based on
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 of the Company's  sales  revenues  from billed  services flow through
accounts receivable.

The  Company  has an  Equity  Line  of  Credit,  that at our  discretion  we may
periodically issue and sell to Cornell Capital Partners L.P.  ("Cornell") shares
of common stock for a total purchase  price of up to $20 million.  The amount of
each advance is subject to a maximum advance amount of $280,000,  and we may not
submit any advance within seven trading days of a prior advance.

Since our stock  price has been at a very low  trading  level  over the past few
months, it has taken a substantial  amount of stock issuances to Cornell just to
keep  nominal  amounts of funding to the  Company.  Cornell and the Company have
agreed on an orderly pay down of existing  debt at the rate of $50,000 per month
utilizing the remaining shares that are being held in the trust escrow. Existing
debt obligations to Cornell at December 31, 2004 total $1,000,000.

                                       25
<PAGE>

We anticipate that a minimum of $4,500,000 will be required to sustain  existing
operations  for the  next 12  months  from the  balance  sheet  date to  sustain
Corporate operations which are segregated from its EAC subsidiary operations and
satisfy the note obligation to Fox  Communications,  accounts  payable and other
existing debt obligations including subsidiary liabilities.  Currently,  revenue
in EAC is insufficient  to provide for all operating  costs  including  payroll,
rent,  selling  expenses and costs of sales.  The Company  took  measures in the
prior  quarter  that have  helped  reduce  the  negative  cash  flow.  Excluding
interest,  the  3-month  loss  for the  period  ended  September  30,  2004  was
$1,469,341  vs. the net loss for the 3-month  period ended  December 31, 2004 of
$821,293.  A savings of nearly $648,000 for the 3-month period has been obtained
due to the cost cutting  measures  such as the  lowering  the  payroll,  outside
consulting and network costs. The remaining  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
about a $50,000 per month shortfall for cash to pay salaries and  administrative
expenses.

Our plan of  operations  for the next twelve months is to complete the following
objectives  within the time  period  specified,  some  items are  subject to our
obtaining  additional  financing  for  the  continued  development  of  Ecuity's
business:

     o    We plan to undertake an  advertising,  marketing,  and sales  campaign
          upon raising  adequate  funding.  We  anticipate  that the  aggressive
          marketing  campaign we plan on undertaking  will involve  advertising,
          marketing,  and a sales campaign to market the bundled services of our
          subsidiary  (EAC)  from  the  assets  purchased  from  Fox and the ICS
          technology  purchased  from Karunga  Technologies,  Corp.  The monthly
          minimum out of pocket we anticipate  to market these bundled  services
          is $100,000  until such time as increased  revenues are  sufficient to
          offset the  additional  costs  associated  with the marketing of these
          products.  Further, a cash reserve will be necessary to show strategic
          partners that we have the staying  power  necessary to support them in
          the short and long term.

     o    Set  up  our  relationship  with  channel  partners  to  allow  faster
          implementation  of our market  penetration as well as a greater market
          reach for our products.

     o    We plan to purchase  and lease  additional  office  equipment  for our
          business at an approximate cost of $50,000.

     o    In the event that we are able to obtain funds from equity or long term
          financing,  this will allow us to operate  without the continued short
          term funding that has only provided short term solutions.

Completion of our plan of operation is subject to obtaining adequate  financing.
However, we cannot assure investors that adequate financing will be obtained. In
the absence of our projected revenues, we may be unable to proceed with our plan
of operation.  Without  significant  revenues or substantial funding in the near
term,  and  unless  there  is  an  extension  on  its  note  obligation  to  Fox
Communications and should Fox use its remedy to foreclose on all the assets that
were subject to the original purchase, all telephony revenues will terminate. If
the Company is  successful  in its endeavor to market its VoIP and ICS services,
it will have to start with the set up of a new CLEC and NOC which  will  require
substantial capital outlay.

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.
In the event we are not  successful  in reaching  our initial  revenue  targets,
additional  funds may be required  and we would then not be able to proceed with
our business plan for the development and marketing of the our core products and
services.  Should  this occur,  we would  likely seek  additional  financing  to
support the continued operation of our business.

                                       26
<PAGE>


Results of Operations

During the year ended June 30, 2002, we completed our  acquisition  of Y3K, Inc.
Since these transactions  resulted in the former shareholders of Y3K Inc. owning
the  majority  of the  issued  shares of  Ecuity,  Inc.  (formally  "Y3K  Secure
Enterprise Software, Inc.", the transaction,  which is referred to as a "reverse
take-over",  has been treated for  accounting  purposes as an acquisition by Y3K
Incorporated  of the net  assets and  liabilities  of  Ecuity,  Inc.  Under this
purchase  method of  accounting,  the results of operations of Ecuity,  Inc. are
included in the consolidated financial statements.

During the year ended June 30, 2004 the Company completed the acquisition of the
assets of Fox  Communications,  Inc., through its wholly owned subsidiary Ecuity
Advanced Communications,  Inc. (initially formed as "Ecuity Holdings, Inc.") and
the acquisition of the ICS technology from Karunga Technologies, Inc.

The financial  statements  presented herein compares the statement of operations
for the six month  periods  ended  December  31, 2004 and  December 31, 2003 the
balance  sheets at  December  31,  2004 and our year end of June 30,  2004.  Our
financial  statements are prepared on a consolidated  basis and all intercompany
transactions  have been  eliminated.  In the six month period ended December 31,
2004,  we incurred a net loss of  $2,693,107 as compared to a loss of $1,242,564
for the same period last year.

The  substantial  increase  between the 6 month periods are  primarily  from the
operating loss of Ecuity  Advanced  Communications,  Inc.,  which was $1,316,132
this year and there was no operating comparison for last year as the acquisition
of the Fox assets was not effective until January 2004.

Since  incorporation,  we have funded our operations  through  private loans and
equity  financings.  As at December 31, 2004,  our total assets were recorded at
$2,628,144 consisting of cash $37,793,  accounts receivable,  net $694,006 which
includes  $264,116  balance  owing  for the sale of the  conferencing  services,
prepaids  $23,850,  capital assets $566,352  deposits $121,015 and the purchased
subscriber  list of Fox in the  amount of  $1,260,461  (net of  amortization  of
$342,832  and a  reduction  from  the  sale  of  the  conferencing  services  of
$264,616).  Our total liabilities totaled  $11,011,654,  consisting primarily of
$4,166,630  in accounts  payable and accrued  liabilities,  deposits on advanced
billings  of  $246,245,  loans  payable  to the  seller  of the  Fox  assets  of
$3,475,000,  convertible  debentures of $100,000,  two notes to Cornell totaling
$1,000,000 a defaulted  bank loan payable of  $155,666,  $121,564 for  defaulted
leased equipment and equipment lease obligations of $199,636.

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.

                                       27
<PAGE>

Item 4.     Controls and Procedures
-------     -----------------------

Within 90 days prior to the date of this quarterly report on Form 10-QSB for the
quarter ended  December 31, 2004, the Company  carried out an evaluation,  under
the  supervision  and  with  the  participation  of  the  Company's  management,
including the Company's  President,  its principal  executive officers and Chief
Financial  Officer,  of the  effectiveness  of the design and  operation  of the
Company's  disclosure  controls  and  procedures  pursuant to Rule 13a-14 of the
Securities  Exchange Act of 1934.  Based upon that  evaluation,  these principal
executive officers and principal  financial officer concluded that the Company's
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  relating  to  the  Company,  including  its  consolidated
subsidiaries,  required to be included in the  Company's  periodic  SEC filings.
There have been no significant  changes in internal controls or in other factors
that could significantly  affect internal controls subsequent to the date of our
most recent evaluation.

PART II- OTHER INFORMATION

Item 1. Legal Proceedings

Ecuity, Inc.'s wholly owned subsidiary, Y3K, Inc., is the defendant in a lawsuit
filed in Pierce County,  Washington,  Superior  Court,  currently  pending.  The
plaintiff is the former  landlord of Y3K, Inc. and is asserting  claims  against
Y3K, Inc.  related to its alleged breach of two lease  agreements that Y3K, Inc.
entered  into with its  former  landlord  in 1999 and 2000.  The  Plaintiff  was
successful in obtaining a judgment  against its  subsidiary  in the  approximate
amount of $557,000 including an estimated, yet undetermined,  award for attorney
fees and costs of $25,000.

The Company is not a party to any other pending legal proceeding.  Management is
not aware of any threatened litigation, claims or assessments.

Item 2. Changes in Securities

During the quarter, the Company issued additional common shares as follows:

         During the quarter ended  December 31, 2004,  715,000  shares of common
         stock were issued for loan fees and  services  amounting  to $21,450 at
         prices ranging from $0.02 to $0.03 per share.

         7,232,420  common  shares were issued to Cornell  Capital  Partners for
         proceeds of $208,000 under the Equity Line of Credit.

         Jeffrey Galpern was issued  5,000,000 common shares as collateral for a
         loan that was  returned  to the  Company in  December  2004.  Mr.  Jeff
         Haberman,  a  co-founder  and  consultant  to the  Company  was  issued
         3,900,000 common shares as collateral for a loan he made to the Company
         in the principal amount of $51,184.

         There were an additional 22,976,022 common shares issued from the trust
         account set up to provide to Cornell  Capital  Partners under the terms
         of the Equity  Line of Credit to reduce  debt  obligations  of $356,768
         owned to Cornell.

Item 3. Defaults Upon Senior Securities - None.

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


                                       28
<PAGE>

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 2002

99.2     Certification  Pursuant  to the 18  U.S.C.  Section  1350,  as  Adopted
         Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.3     Certification  Pursuant  to the 18  U.S.C.  Section  1350,  as  Adopted
         Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.4     Certification by King Cole

99.5     Certification by Leon Caldwell

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.

                                             /s/ KING COLE
                                             ---------------------
Date:  February 19, 2005                     King Cole, President


                                       29