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 **September
        30, 2005**
 
 o Transition
        Report
        pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
 
 For
        the
        transition period  to
 
 Commission
        File Number 0-26709
 
 **ECUITY,
        INC.**
 (Exact
        name of small Business Issuer as specified in its charter)
 
 
 Nevada
              
              98-0201259(State
                  or other jurisdiction of
                incorporation
                  or organization)
              
              (IRS
                  Employer Identification No.)
  800
        Bellevue Way NE, Suite 600, Bellevue, WA 98004
 (Address
        of principal executive offices)
 
 (425)
        562-2900
 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 o
        No
 
 State
        the
        number of shares outstanding of each of the issuer's classes of common stock,
        as
        of the latest practicable date: 271,663,944 shares of $0.001 par value common
        stock outstanding as of November 7, 2005.
  
  **PART
                  I - FINANCIAL INFORMATION**Item
                  1.
              Consolidated
                  Financial Statements:Consolidated
                  Balance Sheet
                as
                  of September 30, 2005 (unaudited)
              1Consolidated
                  Statements of Operations
                for
                  the 3-month periods ended September 30, 2005 and September 30,
                  2004
                  (unaudited)
              3Consolidated
                  Statements of Cash Flows
                for
                  the 3-month periods ended September 30, 2005 and September 30,
                  2004
                  (unaudited)
              4Consolidated
                  Statements of Changes in Shareholders’ Deficit
                for
                  the year ended June 30, 2005 and the 3 months ended September 30,
                  2005
                  (unaudited)
              5Notes
                  to the Consolidated Financial Statements (unaudited)
              6Item
                  2.
              Management's
                  Discussion and Analysis of Financial Condition and Results ofOperations
              9Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              11Item
                  4.
              Controls
                  and Procedures
              11**PART
                  II.**
              **OTHER
                  INFORMATION**
              11Item
                  1.
              Legal
                  Proceedings
              11Item
                  2.
              Changes
                  in Securities
              12Item
                  3.
              Defaults
                  Upon Senior Securities
              12Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              12Item
                  5.
              Other
                  Information
              12Item
                  6.
              Exhibits
              25Signatures
              12Certifications
              13
  
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET**
 **September
        30, 2005**
 **(unaudited)**
  September
                    30,
                  2005ASSETSCurrent
                    Assets:Cash
                    and cash equivalents
                
                $
                32,420Accounts
                    Receivable, net of allowance of $ 50,087 at September 30, 2005
                
                
                437,735Prepaid
                    expenses
                
                
                74,570Inventory
                
                
                800Total
                    Current Assets
                
                
                545,525Deposits
                
                
                96,128Property
                    and equipment, net
                
                
                413,362Acquired
                    customer list, net of amortization
                
                
                1,025,813Total
                    Assets
                
                $
                2,080,828
 
 
  The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
  1
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEET (continued)**
 **September
        30, 2005**
 **(unaudited)**
 
 September
                    30, 2005**LIABILITIES
                    AND SHAREHOLDERS’ DEFICIT**Current
                    Liabilities:Loans
                    payable
                
                $
                3,127,778Loans
                    payable - related parties
                
                
                520,571Current
                    portion of Capital Lease and Long-term Debt
                
                
                158,238Bank
                    overdraft
                
                
                50,594Accounts
                    payable and accrued liabilities
                
                
                4,228,990Deposits
                    and advance billings
                
                
                183,537Total
                    Current Liabilities
                
                
                8,269,708Long-Term
                    Liabilities:Note
                    Payable
                
                
                1,450,000Capital
                    Lease and Long-term Debt, net of current portion
                
                
                458,552Total
                    Liabilities
                
                
                10,178,260SHAREHOLDERS’
                    DEFICITShare
                    Capital:Authorized:
                    200,000,000 common shares, par value $0.001 per shareIssued
                    and outstanding:271,913,944
                    common shares outstanding at September 30, 2005
                
                
                271,914Additional
                    paid-in capital
                
                
                12,874,676Additional
                    paid-in-capital stock options issued
                
                
                211,378Deficit
                
                
                (21,455,400
                )Total
                    Shareholders’ Deficit
                
                
                (8,097,432
                )Total
                    Liabilities and Shareholders’ Deficit
                
                $
                2,080,828
 
 
 The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
 2
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **For
        the 3-month periods ended September 30, 2005 and 2004**
 **(unaudited)**
  Three
                    Months EndedSeptember
                    302005
                
                2004Revenues
                
                $
                669,306
                
                
                731,042Cost
                    of revenues
                
                
                398,234
                
                
                578,390Gross
                    margin
                
                
                271,072
                
                
                152,652Operating
                    expensesSelling
                    expenses
                
                
                104,116
                
                
                251,558Amortization
                    of Customer List
                
                
                78,216
                
                
                78,216Depreciation
                    and amortization
                
                
                32,564
                
                
                33,064General
                    and administrative expenses
                
                
                653,285
                
                
                1,259,155Total
                    operating expenses
                
                
                868,181
                
                
                1,621,993Operating
                    loss
                
                
                (597,109
                )
                
                (1,469,341
                )Other
                    income (expense):Gain
                    on extinguishment of debt
                
                
                48,291
                
                
                0Other
                    miscellaneous income
                
                
                20,575
                
                
                0Interest
                    expense
                
                
                (208,446
                )
                
                (77,348
                )Total
                    other income (expense)
                
                
                (139,580
                )
                
                (77,348
                )Net
                    loss
                
                $
                (736,689
                )
                
                (1,546,689
                )Basic
                    (loss) per share
                
                $
                (0.003
                )
                $
                (0.01
                )Weighted
                    Average Number of Common Shares Outstanding
                
                
                269,242,358
                
                
                126,338,848Diluted
                    (loss) per share (a)
                
                
                n/a
                
                
                n/aDiluted
                    weighted averageshares
                    outstanding
                
                
                n/a
                
                
                n/a
 (a) The
        calculation for fully diluted loss share is not made, as the result would
        be
        anti-dilutive.
 
 The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
  3
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **For
        the 3-month periods ended September 30, 2005 and 2004**
 **(unaudited)**
 Three
                      Months EndedSeptember
                      302005
                  
                  
                  2004Cash
                      Flows From Operating ActivitiesNet
                      loss
                  
                  $
                  (736,689
                  )
                  $
                  (1,546,689
                  )Adjustments
                      To Reconcile Net Loss To Net Cash From Operating
                      ActivitiesDepreciation
                      and amortization
                  
                  
                  110,780
                  
                  
                  111,280Stock
                      issued for other than cash
                  
                  
                  56,599
                  
                  
                  412,500Gain
                      on non-cash extinguishment of debt
                  
                  
                  (34,812
                  )
                  
                  0Deferred
                      compensation
                  
                  
                  0
                  
                  
                  4,721Changes
                      in assets and liabilities:(Increase)
                      decrease in accounts receivable, net
                  
                  
                  (12,834
                  )
                  
                  286,621Increase
                      in deposits
                  
                  
                  0
                  
                  
                  (75,936
                  )Increase
                      in inventory
                  
                  
                  0
                  
                  
                  (800
                  )Decrease
                      (increase) in prepaid expenses
                  
                  
                  (53,043
                  )
                  
                  7,997Increase
                      in payable and accrued liabilities
                  
                  
                  79,781
                  
                  
                  336,192Decrease
                      in deposits on advanced billings
                  
                  
                  (51,023
                  )
                  
                  (55,432
                  )Cash
                      used by operating activities
                  
                  
                  (641,241
                  )
                  
                  (519,546
                  )Cash
                      Flows from Investing ActivitiesPurchase
                      of property and equipment
                  
                  
                  (12,234
                  )
                  
                  (31,530
                  )Acquisition
                      of Notes Receivable
                  
                  
                  0
                  
                  
                  (25,000
                  )Cash
                      from investing activities
                  
                  
                  (12,234
                  )
                  
                  (56,530
                  )Cash
                      Flows from Financing ActivitiesProceeds
                      from loans and Capital Leases
                  
                  
                  650,000
                  
                  
                  510,134Payments
                      on loans payable
                  
                  
                  (34,979
                  )
                  
                  (133,333
                  )Sale
                      of common stock for cash
                  
                  
                  0
                  
                  
                  130,000Repurchase
                      of common stock for cash
                  
                  
                  (30,000
                  )
                  
                  0Payments
                      for Capital Leases
                  
                  
                  (15,654
                  )
                  
                  (27,851
                  )Cash
                      provided (used) by financing activities
                  
                  
                  569,367
                  
                  
                  478,950Net
                      Increase (Decrease) In Cash
                  
                  
                  (84,108
                  )
                  
                  (97,126
                  )Cash
                      And Cash Equivalents, Beginning Of Year
                  
                  
                  116,528
                  
                  
                  107,695Cash
                      And Cash Equivalents, End Of Year
                  
                  $
                  32,420
                  
                  $
                  10,569Interest
                      paid during the periods
                  
                  $
                  39,559
                  
                  $
                  19,802
 
 Supplementary
        non cash activity:
 During
        the quarter ended September 30, 2004, the Company sold its conferencing division
        for the carrying amount of $260,707. Such amount was included in Accounts
        Receivable at September 30, 2004.
 
 The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
  4
   **ECUITY,
        INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT**
 **For
        the year ended June 30, 2005 and the 3 months ended September 30, 2005
        (unaudited)**
  ADDITIONAL
                    
                    
                    PAID-IN-CAPITALPAID-IN-
                    
                    
                    STOCKSHARES
                    
                    
                    AMOUNT
                    
                    
                    CAPITAL
                    
                    
                    OPTIONS
                        ISSUED
                    
                    
                    DEFICIT
                    
                    
                    TOTALBalance,
                        June 30, 2004
                    
                    
                    113,260,948
                    
                    $
                    113,261
                    
                    
                    8,601,184
                    
                    
                    199,856
                    
                    
                    (15,742,867
                    )
                    
                    (6,828,566
                    )Shares
                        for debt extension
                    
                    
                    1,000,000
                    
                    
                    1,000
                    
                    
                    169,000
                    
                    
                    
                    
                    
                    
                    
                    
                    170,000Sale
                        of common stock (cash)
                    
                    
                    33,530,414
                    
                    
                    33,530
                    
                    
                    554,470
                    
                    
                    
                    
                    
                    
                    
                    
                    588,000Sale
                        of common stock
                      Credit
                        Line/debentures
                    
                    
                    85,080,894
                    
                    
                    85,081
                    
                    
                    2,406,851
                    
                    
                    
                    
                    
                    
                    
                    
                    2,491,932Vested
                        options
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    9,442
                    
                    
                    
                    
                    
                    9,442Stock
                        options issued
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    2,080
                    
                    
                    
                    
                    
                    2,080Shares
                        issued for services
                    
                    
                    30,947,954
                    
                    
                    30,948
                    
                    
                    1,159,478
                    
                    
                    
                    
                    
                    
                    
                    
                    1,190,426Shares
                        issued for Collateral
                    
                    
                    3,900,000
                    
                    
                    3,900
                    
                    
                    (3,900
                    )
                    
                    
                    
                    
                    
                    
                    
                    -Net
                        loss
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (4,975,844
                    )
                    
                    (4,975,844
                    )Balance,
                        June 30, 2005
                    
                    
                    267,720,210
                    
                    
                    267,720
                    
                    
                    12,887,083
                    
                    
                    211,378
                    
                    
                    (20,718,711
                    )
                    
                    (7,352,530
                    )Shares
                        issued for loan fees
                    
                    
                    5,000,000
                    
                    
                    5,000
                    
                    
                    45,000
                    
                    
                    
                    
                    
                    
                    
                    
                    50,000Shares
                        cancelled for services
                    
                    
                    (381,266
                    )
                    
                    (381
                    )
                    
                    (34,431
                    )
                    
                    
                    
                    
                    
                    
                    
                    (34,812
                    )Debt
                        converted to stock
                    
                    
                    325,000
                    
                    
                    325
                    
                    
                    6,274
                    
                    
                    
                    
                    
                    
                    
                    
                    6,599Shares
                        repurchased
                    
                    
                    (750,000
                    )
                    
                    (750
                    )
                    
                    (29,250
                    )
                    
                    
                    
                    
                    
                    
                    
                    (30,000
                    )Net
                        loss (3 months)
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    (736,689
                    )
                    
                    (736,689
                    )Balance,
                        September 30, 2005
                    
                    
                    271,913,944
                    
                    $
                    271,914
                    
                    
                    12,874,676
                    
                    
                    211,378
                    
                    
                    (21,455,400
                    )
                    
                    (8,097,432
                    )
 
 
 
 The
        Accompanying Notes are an integral part of the unaudited Consolidated Financial
        Statements.
  5
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **September
        30, 2005**
 **(Unaudited)**
 
 **1.**
              **Basis
                  of Presentation**
 
 The
        unaudited consolidated financial statements as of September 30, 2005 and
        for the
        3-month periods ended September 30, 2005 and 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 September 30, 2005 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. Some items in the September 30, 2004 financial statements
        have been reclassified to conform to the presentation in the September 30,
        2005
        financial statements.
 
 This
        Quarterly Report on Form 10-QSB is qualified in its entirety by the information
        included in the Company's Annual Report to the SEC on Form 10-KSB for the
        period
        ended June 30, 2005.
 
 **2.**
              **LOANS
                  AND OTHER CONTRACTUAL OBLIGATIONS
                  PAYABLE**
  September
                    30,
                  2005Loan
                    due to bank - defaulted in year 2001 (unsecured)
                
                $
                155,666Unsecured
                    loans, payable on demand, with interest at 12% to 18% per annum
                    - non
                    related parties
                
                
                927,975Related
                    Parties - with interest ranging from 4% to 18%
                
                
                520,571Promissory
                    notes to Cornell Capital at 12% per annum
                
                
                1,950,000Contract
                    for advance against lock box receipts
                
                
                94,137Total
                    Current Loans Payable
                
                $
                3,648,349
 
 Currentportion of secured debt to Cornell Capital
              
              $
              138,983Current
                  portion of capital lease obligation
              
              
              19,255Total
                  current portion of Capital Lease and Long-term Debt
              
              $
              158,238Long
                term portion of
                note due to Fox Communications
              
              $
              1,450,000Long
                  term portion of secured debt to Cornell Capital
              
              
              450,923Long
                  term portion of capital lease obligation
              
              
              7,629
 
 In
        Addition to the table above:
 
 The
        Company signed an employment contract with Mr. Andrew Buffmire to be the
        Company’s CEO on May 20, 2005. The contract stipulated the starting annual wage
        to be $180,000. Subsequently an Amendment was signed on July 24, 2005 that
        reduced Mr. Buffmire’s annual ****
  6
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 **SEPTEMBER
        30, 2005**
 
 
 salary
        to
        $144,000 until the Company reaches positive cash flow from operations, at
        which
        time the salary would revert back. As the Company was able to only partially
        pay
        Mr. Buffmire his full or reduced salary, he is owed $26,250 in accrued salary
        as
        of September 30, 2005. As of November 15, 2005, the accrued salary totals
        $44,250.
 
 The
        Amendment also stated that if the Company is unable to fully pay his salary
        at
        this new level within 30 days of the due date of that salary, Mr. Buffmire
        shall, in lieu of any such shortfall, receive fifty percent (50%) of such
        shortfall in the form of shares of stock in the Company at a value equal
        to the
        closing price of the Company’s common stock on the date of the execution of the
        Amendment. Mr. Buffmire will also be issued warrants equal to the number
        of
        shares issued at the same closing price. As of September 30, 2005, Mr. Buffmire
        is owed 585,936 shares and an equal number of warrants. Subsequently an
        additional 187,500 of shares and an equal number of warrants have come due.
        The
        issuance of these shares and warrants is contingent upon the shareholder’s
        approval of the increase in the Company’s authorized shares.
 
 
 **3.**
              **Earnings Per Share******
 
 Statement
        of Financial Accounting Standards No. 128, "Earnings per Share" requires
        the
        presentation of basic earnings per share and diluted earnings per share.
        Basic
        and diluted earnings per share computations presented by the Company conform
        to
        the standard and are based on the weighted average number of shares of Common
        Stock outstanding during the periods presented.
 
 **4.   
        Capital Assets**
 
 The
        following table sets forth the capital assets of the Company and its
        wholly-owned subsidiaries.
 
 **September
        30, 2005**
 
 Description
                  of Asset
              
              Value
                  after
                ImpairmentComputers
                  andEquipment
              
              $
              323,440Computer
                  Software
              
              
              80,516Switch
                  Equipment
              
              
              152,698Leasehold
                  Improvements
              
              
              25,488Office
                  Equipment
              
              
              31,094613,236Accumulated
                  Depreciation and Amortization
              
              
              (199,874
              )Net
                  Book Value
              
              $
              413,362
  7
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 **SEPTEMBER
        30, 2005**
 
 **5.    
        Acquired Subscriber Base**
  The
        following table presents the components of the Company’s acquired definite life
        intangible assets and goodwill and other indefinite life intangible assets
        included in the accompanying Consolidated Balance Sheet as of September 30,
        2005:
  **Carrying
                      Value after Impairment**
                  
                  
                  **Reduction
                      for sale of Conference Calling**
                  
                  
                  **Accumulated**
                    **Amortization**
                  
                  
                  **Net**
                    **Carrying**
                    **Value**Acquired
                      Customer List for Telephony and ISPs
                  
                  $
                  1,864,000
                  
                  
                  260,707
                  
                  
                  577,480
                  
                  
                  1,025,813
  **6.**
              **Subsequent
                  Events**
  On
        November 4, 2005, the Board of Directors adopted a resolution by unanimous
        consent to create an Office of the President, which is comprised of individuals
        appointed by the Board, and chaired by the CEO of the company to act as a
        senior
        management committee. The members of this office shall be collectively
        responsible for the key executive management decisions related to new
        initiatives, which shall be decided by a simple majority of the members.
        The
        initial members of the Office of the President shall be Andrew Buffmire,
        CEO,
        King Wm. S. Cole, Jeffrey Haberman, Shane Smith, and John Peterson. This
        office
        was created to provide a mechanism for sharing possible management liability
        risk and financial exposure given the current financial status of the
        Company.
  **7.** **Going
        Concern**
 
 Since
        inception, the Company has suffered recurring losses and net cash outflows
        from
        operations. The Company expects to continue to incur substantial losses to
        complete the development of its business. Since its inception, the Company
        has
        funded operations through common stock issuances and related party loans
        in
        order to meet its strategic objectives. Management is pursuing sufficient
        funding to meet its business objectives, including anticipated cash needs
        for
        working capital, and is currently evaluating several financing options. In
        order
        to sustain operations and meet debt service obligations, the Company needs
        to
        raise a minimum of $2,500,000 over the next 12 months or renegotiate the
        terms
        of its current debt obligations, which may result in a lesser amount being
        required. While it was expected that the Company would be able to raise these
        funds through its Equity Line of Credit Agreement with Cornell Capital Partners,
        LLC under which it may obtain up to $20,000,000 in equity financing, the
        Company’s current stock price may effectively preclude this alternative,
        requiring the need to raise funds through additional debt instruments or
        pursuant to a merger, restructuring or other strategic change in
        corporate
  8
  **ECUITY,
        INC. AND SUBSIDIARIES**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**
 **SEPTEMBER
        30, 2005**
 
 structure.
        Additionally, without a substantial amount of financing within the next three
        (3) months, the Company may have to curtail or cease operations. However,
        there can be no assurance that the Company will be able to obtain sufficient
        funds to continue the development of and the sale of its products. As a result
        of the foregoing, there exists substantial doubt about the Company’s ability to
        continue as a going concern. These consolidated financial statements do not
        include any adjustments that might result from the outcome of this
        uncertainty.
 
 The
        $2.5
        million will provide for our short-term obligation to reduce some of our
        debt by
        $1 million, pay certain obligations as they become due and provide working
        capital, until such time as net profits from operations are sufficient to
        maintain a positive cash flow and allow sufficient time to implement our
        business plan for ongoing operations. The Company is continuing its efforts
        to
        obtain long-term funding through equity or debt sources to obtain this $2.5
        million that management estimates necessary for ongoing operations. The receipt
        of additional equity will require shareholder action.
 
 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.
  **Item
        2. Management’s Discussion and Analysis of Financial Condition and Results of
        Operations**
 
 **Overview**
  ECUITY
        is
        a facilities-based telecommunication carrier providing Voice over Internet
        Protocol (“VoIP”) service offerings as well as legacy telecommunication
        services. ECUITY currently provides VoIP services over FTTP including fiber
        to
        residences and businesses, VoIP over WiFi (VoWiFi), Business VoIP Services
        including IP-PBX and IP-Centrix solutions, “SmartCall” VoIP services utilizing a
        downloadable soft-client on a customer’s PC
        or other
        WindowsTM-compatible computing device, and conference calling.
 
 
 The
        Company has implemented its new VoIP service and has been able to provide
        VoIP
        services to several hundred end-users over various broadband pathways, including
        wireline broadband, broadband over wireless (WiFi) and Fiber-to-the-Premises
        (FTTP).  VoIP service offerings from the Company include business-related
        offerings such as hosted PBX replacement solutions for small business (IP-PBX),
        hosted IP trunking solutions (IP-Centrix), Remote Office and Mobile Worker
        solutions, with single or multi-line residential offerings for home offices
        and
        basic residential services.  The Company has been able to establish
        distribution relationships for the delivery of VoIP services through a variety
        of partnerships, including wholesale and retail channel relationships with
        Internet Service Providers (ISP) and telecommunications services resellers,
        a
        bundled services offering with a telecommunications equipment manufacturer,
        a
        voice over WiFi provider with city-wide high speed broadband deployments,
        and a
        community-wide VoIP over FTTP service to a large residential development
        in a
        suburb of Seattle, Washington.
 
 The
        ECUITY service offerings are comprised of a legacy telecommunications services
        business and a Voice over Internet Protocol (“VoIP”) service offering.  The
        ECUITY legacy service business includes 800 service, 1 Plus (long distance)
        services, Internet Dial-Up Services, Web-Hosting and Digital Subscriber Line
        (DSL) broadband internet services.
  9
  **ECUITY,
        INC. AND SUBSIDIARIES**
 
 **Plan
        of Operations**
 
 Our
        plan
        of operations for the next twelve months is to obtain additional financing
        to
        maintain and develop the Company’s operations.
 
 On
        November 7, 2005 the Company entered into a preliminary letter of intent
        (Digitaria LOI) with Digitaria Communications Networks, LLC (“Digitaria”) under
        the terms of which Digiteria will seek to acquire
        over fifty percent (50%) of the Stock of Ecuity thus leading to a change
        of
        control of Ecuity. Execution of the acquisition of over fifty percent (50%)
        of
        the Stock of Ecuity by Digiteria will be contingent upon Digiteria completing
        a
        fund raising that will allow Digiteria to raise the funds necessary to make
        this
        acquisition. Digitaria also stated its intention to seek to purchase the
        interest of Cornell Capital, Ecuity’s senior secured lender, and to provide
        future funding to the operations of Ecuity as debt or
        equity
        or prepaid services. As part of the Digiteria LOI, Ecuity and Digiteria set
        forth the intention of the parties for Ecuity to provide VoIP and other
        telecommunications services under an exclusive services agreement to provide
        services to Fiber To The Premise (FTTP) communities that may be developed
        by or
        through Digitaria. Jeffrey Haberman executed the Digitaria LOI on behalf
        of
        Digitaria. It is the understanding of the Company that the principals of
        Digitaria include a number of individuals and entities experienced in real
        estate and land development. The Company cannot adequately assess at this
        time
        whether or not the transaction contemplated under the terms of the Digitaria
        LOI
        will be funded and/or completed and, if so, when.
 
 We
        anticipate that a minimum of $2.5 million will be required to sustain existing
        operations for the next 12 months from the balance sheet date and to sustain
        corporate operations, which are segregated from its EAC subsidiary operations.
        Currently, revenue in EAC is insufficient to provide for all operating costs,
        including payroll, rent, selling expenses and costs of sales. Net operating
        losses for the 3-month period indicate that EAC requires an amount in excess
        of
        $130,000 per month as additional funds to support the negative operating
        costs.
        This shortfall has partially been offset by advances from Ecuity, Inc, (the
        Corporate holding company) along with the increase in liabilities associated
        with EAC. Ecuity, Inc., has no direct income, therefore unless subsidiary
        revenues are available to use by Corporate, there is approximately a $40,000
        per
        month shortfall for cash to pay corporate administrative expenses.
 
 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.
 
 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 $7,724,183 at September 30, 2005 from
        a
        deficit of $7,523,191 as of June 30, 2005. In the 3-month period, cash decreased
        by $84,108, prepaid expenses, primarily related to the prepayment of debt
        service, increased by $53,043, accounts payable and bank overdraft increased
        by
        $79,781, and short-term debt increased by $154,003.
 10
  **ECUITY,
        INC. AND SUBSIDIARIES**
 
 In
        the
        3-month period ended September 30, 2005, we incurred a net loss of $736,689
        compared to a loss of $1,546,689 for the same period in 2004. The Company’s
        revenue for long distance and Internet service decreased in the current 3-month
        period compared to the same period in 2004 due to the loss of customers and
        related revenue resulting from the recurring failures of the Company’s
        Coppercom switch in early 2004. The lower revenues were offset by lower costs
        paid to carriers, resulting in an increase in gross profit to $271,072 in
        the
        current 3-month period compared to $151,652 for the same period in 2004. The
        decreased loss between the 3-month periods also resulted from reduced
        expenditures for salaries, rent, and advertising in the current year.
        In
        addition, expense for issued stock for services amounted to $50,000 in 2005
        compared to $412,500 for the same 3-month period in 2004. Interest expense
        for
        2005 was $208,446 compared to $77,348 for the 3-month period last
        year.
 
 Revenues
        from the Fox asset purchase are recognized by our wholly owned subsidiary,
        Ecuity Advanced Communications, Inc. Ecuity's business is primarily related
        to
        long distance services, Internet server provider (ISP), conference calling,
        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 Company's sales revenues from billed services flow through accounts
        receivable.
  **Results
        of Operations**
 
 The
        unaudited financial statements presented herein include the Consolidated
        Statements of Operations for the three-month
        periods ended September 30, 2005 and 2004, and the Consolidated Balance Sheet
        at
        September 30, 2005. Our financial statements are prepared on a consolidated
        basis and all intercompany transactions have been eliminated.
 
 In
        the
        3-month period ended September 30, 2005, we incurred a net loss of $736,689
        compared to a loss of $1,546,689 for the same period in 2004. The Company’s
        revenue for long distance and Internet service decreased in the current 3-month
        period compared to the same period in 2004 due to the loss of customers and
        related revenue resulting from the recurring failures of the Company’s Coppercom
        switch in early 2004. The lower revenues were offset by lower costs paid
        to
        carriers, resulting in an increase in gross profit to $271,072 in the current
        3-month period compared to $151,652 for the same period in 2004. The
        decreased loss between the 3-month periods also resulted from reduced
        expenditures for salaries, rent, and advertising in the current year. In
        addition, expense for issued stock for services amounted to $50,000 in 2005
        compared to $412,500 for the same 3-month period in 2004. Interest expense
        increased to $208,446 for the three months ended September 30, 2005 from
        $77,348
        for the three months ended September 30, 2004 primarily as a result of increased
        debt outstanding.
  11
  **ECUITY,
        INC. AND SUBSIDIARIES**
 
 Since
        incorporation, we have funded our operations through private loans and equity
        financings. At September 30, 2005, our total assets were $2,080,828, consisting
        of cash of $32,420, accounts receivable, net of $437,735, other current assets
        of $75,370, property and equipment of $413,362, non-current deposits of $96,128
        and the purchased subscriber list of Fox Communications in the amount of
        $1,025,813 (net of amortization of $577,480 and a reduction from the sale
        of the
        conferencing services of $260,707). Total liabilities amounted to $10,178,260,
        consisting primarily of accounts payable and accrued liabilities of $4,228,990,
        a bank overdraft of $50,594, deposits on advanced billings of $183,537, loans
        and notes payable and capital lease obligations of $5,559,473, and a defaulted
        bank loan payable of $155,666. Total liabilities of $890,884, including the
        defaulted bank loan payable of $155,666, are liabilities of the Company’s
        inactive subsidiary, Y3K, Inc.
 
 **Recent
        Accounting Pronouncements**
 
 In
        December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based
        Payment" (SFAS No. 123R), which replaces SFAS No. 123, "Accounting for
        Stock-Based Compensation" (SFAS No. 123) and supersedes APB Opinion No. 25,
        "Accounting for Stock Issued to Employees." As a small business issuer, SFAS
        No.
        123R requires all share-based payments to employees, including grants of
        employee stock options and employee stock purchase plans to be recognized
        in the
        financial statements based on their fair values, beginning with the first
        interim or annual period of the Company's first fiscal year beginning after
        December 15, 2005, with early adoption encouraged. In addition, SFAS No.
        123R
        will cause unrecognized expense related to unvested options granted prior
        to the
        date of initial adoption to be recognized as a charge to results of operations
        over the remaining vesting period. The Company is required to adopt SFAS
        No.
        123R in the third quarter of 2006, beginning January 1, 2006. Under SFAS
        No.
        123R, the Company must determine the appropriate fair value model to be used
        for
        valuing share-based payments, the amortization method for compensation cost
        and
        the transition method to be used at the date of adoption. The transition
        alternatives include the modified prospective and retrospective adoption
        methods. Under the modified retrospective methods, prior periods may be restated
        either as of the beginning of the year of adoption or for all periods presented.
        The modified prospective method requires that compensation expense be recorded
        for all unvested stock options and share awards as of the beginning of the
        first
        quarter of adoption of SFAS No. 123R, while the modified retrospective methods
        would record compensation expense for all unvested stock options and share
        awards beginning with the first period restated. The Company is evaluating
        the
        requirements of SFAS No. 123R and has not yet determined whether the adoption
        of
        SFAS No. 123R will have a material impact on the consolidated results of
        operations, earnings per share and consolidated statement of cash flows.
        The
        Company has not determined the method of adoption or the effect of adopting
        SFAS
        No. 123R.
 
 SFAS
        No. 148, Accounting for Stock-Based Compensation -- Transition and
        Disclosure, An Amendment of FASB Statement No. 123. SFAS No. 148
        provides alternatives for a voluntary change to the fair value based method
        of
        accounting for stock-based employee compensation. In addition, SFAS No. 148
        amends the disclosure requirements of SFAS No. 123, Accounting for
        Stock-Based Compensation, to require prominent disclosures in annual and
        interim
        financial statements about the method of accounting for stock-based employee
        compensation and the effect in measuring compensation expense. We will continue
        to account for stock-based compensation using the intrinsic value method
        and it
        has adopted the disclosure requirements
  12
  **ECUITY,
        INC. AND SUBSIDIARIES**
  of
        SFAS
        No. 148. The Company does not expect the adoption of SFAS No. 148
        will
        have a material impact on our consolidated financial statements.
 
 SFAS
        No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143
        addresses accounting and reporting for obligations associated with the
        retirement of tangible long-lived assets and the associated asset retirement
        costs. Companies must evaluate the carrying value of long lived assets to
        determine whether there is any impairment and to record cost associated with
        the
        retirement of such assets. We cannot determine if the adoption of SFAS
        No. 143 will have a material impact on our consolidated financial
        statements.
 
 SFAS
        No. 146, Accounting for Costs Associated with Exit or Disposal Activities.
        SFAS No. 146 requires that a liability for a cost associated with
        an exit
        or disposal activity is recognized when the liability is incurred rather
        than
        when a commitment to an exit plan is made. The Company cannot
        determine if the adoption of SFAS No. 146 will have a material impact
        on
        our consolidated financial statements.
  **Item
        3** **.** **Quantitative
        and Qualitative Disclosures About Market Risk** ****
 
 At
        the
        present time the Company does not have any investments in securities and
        therefore there would not be cause for any material impact on the financial
        statements in the event of a drastic change in interest rates or other factors
        that could influence the stability of investment securities.
 
 **Item
        4.** **** **Controls
        and Procedures**
 
 Within
        90
        days prior to the date of this quarterly report on Form 10-QSB for the first
        quarter ended September 30, 2005, 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: There has been no change in legal proceedings since the
        filing of the 10KSB for the year ended June 30, 2005.
 
 Item
        2.
        Changes in Securities:
  During
        the quarter, 4,193,734 net new shares of common stock were issued (and canceled)
        as follows:
  13
  ECUITY,
        INC. AND SUBSIDIARIES
  Person/Class
              
              #
                  of
                Shares
                Issued
              
              Consideration
                (Value
                  of
                Service)
              
              Date
                  of
                Transaction
              
              Description
                  of
                Services
                  RenderedCornell
                  Capital
              
              
              5,000,000
              
              
              $
              50,000
              
              
              
              September
                  1, 2005
              
              
              Loan
                  Fee for Lease TransactionShares
                  canceled
              
              
              (381,266
              )
              
              
              (34,812
              )
              
              
              September
                  1, 2005
              
              
              Consulting
                  fees not renderedIndividual
              
              
              325,000
              
              
              
              6,599
              
              
              
              July
                  6, 2005
              
              
              Conversion
                  of debtFox
                  Communications
              
              
              (750,000
              )
              
              
              (30,000
              )
              
              
              July
                  to Sept. 2005
              
              
              Repurchase
                  of shares held by Fox
  Item
        3.
        Defaults Upon Senior Securities -  None.
 
 Item
        4.
        Submission of Matters to a Vote of Security Holders - None.
 
 Item
        5.
        Other Information -  None.
 
 Item
        6.
        Exhibits
 Index
        to
        Exhibits:
 
 31.1
              Certification
                  by Andrew Buffmire31.2
              Certification
                  by Leon Caldwell32.1
              Certification
                  Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to
                  Section 906
                  of the Sarbanes-Oxley Act of 200232.2
              Certification
                  Pursuant to the 18 U.S.C. Section 1350, as Adopted Pursuant to
                  Section 906
                  of the Sarbanes-Oxley Act of 2002
  SIGNATURES
 
 In
        accordance with the requirements of the Exchange Act, the registrant caused
        this
        report to be signed on its behalf by the undersigned, thereunto duly
        authorized.
  ECUITY,
                  INC.Date: November
                  21, 2005
                By:
                /s/ Andrew
                  BuffmireAndrew
                  Buffmire, President
 14