**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-QSB**




xQuarterly
      Report
      pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





For
      the
      quarterly period ended **December
      31, 2005**




oTransition
      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: 266,413,944 shares of $0.001 par value common
      stock outstanding as of March 22, 2006.

























**PART
              I
              .**
            **FINANCIAL
              INFORMATION**Item
                1.
            Consolidated
                Financial Statements:Consolidated
                Balance Sheetas
                of December 31, 2005 (unaudited)
            1Consolidated
                Statements of Operationsfor
                the 3-month and 6-month periods endedDecember
                31, 2005 and December 31, 2004 (unaudited)
            3Consolidated
                Statements of Cash Flowsfor
                the 6-month periods endedDecember
                31, 2005 and December 31, 2004 (unaudited)
            4Consolidated
                Statements of Changes in Shareholders’ Deficitfor
                the year ended June 30, 2005and
                the 6 months ended December 31, 2005 (unaudited)
            5Notes
                to the Consolidated Financial Statements (unaudited)
            6Item
                2.
            Management's
                Discussion and Analysis of Financial Condition
              and
                Results of Operations
            10Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            15Item
                4.
            Controls
                and Procedures
            15**PART
                II.**
            **OTHER
                INFORMATION******
            15Item
                1.
            Legal
                Proceedings
            15Item
                2.
            Changes
                in Securities
            15Item
                3.
            Defaults
                Upon Senior Securities
            16Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            16Item
                5.
            Other
                Information
            16Item
                6.
            Exhibits
            16Signatures
            
            16Certifications
            
            17








**ECUITY,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET**


**December
      31, 2005**


**(unaudited)**





December
                31, 2005ASSETSCurrent
                Assets:Cash
                and cash equivalents
            
            $
            11,053Accounts
                Receivable, net of allowance of $ 47,458 at December 31, 2005
            
            
            497,745Prepaid
                expenses
            
            
            27,222Inventory
            
            
            800Total
                Current Assets
            
            
            536,820Deposits
            
            
            96,128Property
                and equipment, net
            
            
            381,540Acquired
                customer list, net of amortization
            
            
            947,597Total
                Assets
            
            $
            1,962,085







The
      Accompanying Notes are an integral part of the unaudited Consolidated Financial
      Statements.





1


**ECUITY,
      INC. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEET (continued)**


**December
      31, 2005**


**(unaudited)**





December
                31, 2005**LIABILITIES
                AND SHAREHOLDERS’ DEFICIT**Current
                Liabilities:Loans
                payable
            
            $
            3,444,189Loans
                payable - related parties
            
            
            754,071Current
                portion of Capital Lease and Long-term Debt
            
            
            177,907Accounts
                payable and accrued liabilities
            
            
            4,774,395Deposits
                and advance billings
            
            
            154,405Total
                Current Liabilities
            
            
            9,304,967Long-Term
                Liabilities:Note
                Payable
            
            
            1,250,000Capital
                Lease and Long-term Debt, net of current portion
            
            
            412,494Total
                Liabilities
            
            
            10,967,461SHAREHOLDERS’
                DEFICITShare
                Capital:
              Authorized:
                400,000,000 common shares, par value $0.001 per shareIssued
                and outstanding:
              266,413,944
                common shares outstanding at December 31, 2005
            
            
            266,414Additional
                paid-in-capital
            
            
            12,810,176Additional
                paid-in-capital stock options issued
            
            
            211,378Deficit
            
            
            (22,293,344
            )Total
                Shareholders’ Deficit
            
            
            (9,005,376
            )Total
                Liabilities and Shareholders’ Deficit
            
            $
            1,962,085




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- and 6-month periods ended December 31, 2005 and
      2004**


**(unaudited)**




Three
                Months Ended
            
            Six
                Months EndedDecember
                31
            
            December
                312005
            
            2004
            
            2005
            
            2004Revenues
            
            $
            596,001
            
            
            924,520
            
            
            1,265,307
            
            
            1,655,562Cost
                of Revenues
            
            
            418,844
            
            
            573,385
            
            
            817,078
            
            
            1,151,775Gross
                Margin
            
            
            177,157
            
            
            351,135
            
            
            448,229
            
            
            503,787Operating
                Expenses:Selling
                Expenses
            
            
            115,009
            
            
            89,680
            
            
            219,125
            
            
            262,074General
                and Administrative Expenses
            
            
            653,827
            
            
            971,468
            
            
            1,307,112
            
            
            2,309,787Depreciation
                and amortization
            
            
            33,345
            
            
            33,064
            
            
            65,909
            
            
            66,128Amortization
                of Customer List
            
            
            78,216
            
            
            78,216
            
            
            156,432
            
            
            156,432Total
                Operating Expenses
            
            
            880,397
            
            
            1,172,428
            
            
            1,748,578
            
            
            2,794,421Operating
                loss
            
            
            (703,240
            )
            
            (821,293
            )
            
            (1,300,349
            )
            
            (2,290,634
            )Other
                income (expense):




Gain
                on extinguishment of debt
            
            
            70,905
            
            
            —
            
            
            119,196
            
            
            —Other
                miscellaneous income (expense)
            
            
            (4,990
            )
            
            —
            
            
            15,585
            
            
            —Interest
                expense
            
            
            (200,619
            )
            
            (325,126
            )
            
            (409,065
            )
            
            (402,473
            )Total
                other income (expense)
            
            
            (134,704
            )
            
            (325,126
            )
            
            (274,284
            )
            
            (402,473
            )Net
                Loss
            
            $
            (837,944
            )
            
            (1,146,419
            )
            
            (1,574,633
            )
            
            (2,693,107
            )Basic
                (loss) per share
            
            $
            (0.003
            )
            $
            (0.01
            )
            $
            (0.01
            )
            $
            (0.02
            )Weighted
                Average Number of Common Shares Outstanding
            
            
            267,364,580
            
            
            164,607,864
            
            
            267,497,913
            
            
            164,607,864Diluted
                (loss) per share (a)
            
            
            n/a
            
            $
            (0.01
            )
            
            n/a
            
            $
            (0.01
            )Diluted
                weighted average
              shares
                outstanding
            
            
            n/a
            
            
            209,161,399
            
            
            n/a
            
            
            209,161,399





**(a)**
            The
                calculation for fully diluted loss per share is not made in 2005,
                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 6-month periods ended December 31, 2005 and 2004**


**(unaudited)**


Six
                Months EndedDecember
                312005
            
            2004Cash
                Flows from Operating Activities:Net
                loss
            
            $
            (1,574,633
            )
            
            (2,693,107
            )Adjustments
                To Reconcile Net Loss To Net Cash From Operating
                Activities:Depreciation
                and amortization
            
            
            222,341
            
            
            222,560Stock
                issued for other than cash
            
            
            6,599
            
            
            433,950Gain
                on non-cash extinguishment of debt
            
            
            (34,812
            )Deferred
                compensation
            
            
            —
            
            
            9,444(1,380,505
            )
            
            (2,027,153
            )Changes
                in assets and liabilities:(Increase)
                decrease in accounts receivable, net
            
            
            (72,844
            )
            
            167,987Increase
                in deposits
            
            
            —
            
            
            (77,293
            )Increase
                in inventory
            
            
            —
            
            
            (800
            )(Increase)
                decrease in prepaids
            
            
            (5,695
            )
            
            6,034(Decrease)
                increase in accounts payable
            
            
            574,592
            
            
            1,212,071Decrease
                in deposits on advance billings
            
            
            (80,155
            )
            
            (83,008
            )(964,607
            )
            
            (802,162
            )Cash
                Flows from Investing Activities:Purchase
                of equipment and property
            
            
            (13,757
            )
            
            (32,000
            )Acquisition
                of notes receivable
            
            
            —
            
            
            (25,000
            )(13,757
            )
            
            (57,000
            )Cash
                Flows from Financing Activities:Proceeds
                from loans and capital leases
            
            
            1,029,791
            
            
            660,548Payments
                on loans and capital leases
            
            
            (106,902
            )
            
            (515,465
            )Sale
                of common stock for cash
            
            
            —
            
            
            694,768Repurchase
                of common stock for cash
            
            
            (50,000
            )
            
            —Payments
                for Capital Leases
            
            
            —
            
            
            (50,591
            )872,889
            
            
            789,260Net
                Increase (Decrease) In Cash and Cash Equivalents
            
            
            (105,475
            )
            
            (69,902
            )Cash
                and Cash Equivalents, Beginning of Period
            
            
            116,528
            
            
            107,695Cash
                and Cash Equivalents, End of Period
            
            $
            11,053
            
            
            37,793Interest
                paid during the periods
            
            $
            51,266
            
            
            157,557




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 was included in
      Accounts Receivable at December 31, 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 6 months ended December 31, 2005
      (unaudited)**


NUMBER
                OF
                SHARES
              
              
              AMOUNT
              
              
              ADDITIONAL
                PAID-IN-
                CAPITAL
              
              
              PAID-IN
                CAPITAL
                STOCK
                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 to retire
                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
                  cancelled for services
              
              
              (381,266
              )
              
              (381
              )
              
              (34,431
              )
              
              
              
              
              
              
              
              (
                  34,812
              )Debt
                  converted to stock
              
              
              325,000
              
              
              325
              
              
              6,274
              
              
              
              
              
              
              
              
              6,599Shares
                  repurchased
              
              
              (1,250,000
              )
              
              (1,250
              )
              
              (48,750
              )
              
              
              
              
              
              
              
              (50,000
              )Net
                  loss (6 months)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (1,574,633
              )
              
              (1,574,633
              )Balance,
                  December 31, 2005
              
              
              266,413,944
              
              $
              266,414
              
              
              12,810,176
              
              
              211,378
              
              
              (22,293,344
              )
              
              (9,005,376
              )







The
      Accompanying Notes are an integral part of the unaudited Consolidated Financial
      Statements.





5


**ECUITY,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2005**


**(Unaudited)**





**1.** **Basis
          of Presentation**





The
      unaudited consolidated financial statements as of December 31, 2005 and for
      the
      3- and 6-month periods ended December 31, 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 December 31, 2005 pursuant
      to
      the rules and regulations of the Securities and Exchange Commission. Because
      a
      precise determination of many assets and liabilities is dependent upon future
      events, the preparation of consolidated financial statements for a period
      necessarily involves the use of estimates which have been made using careful
      judgment. The consolidated financial statements include the accounts of Ecuity,
      Inc. and its wholly-owned subsidiaries. All material intercompany accounts
      and
      transactions have been eliminated. Some items in the December 31, 2004 financial
      statements have been reclassified to conform to the presentation in the December
      31, 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**





December
                31, 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
            
            
            1,071,596Related
                Parties - with interest ranging from 4% to 18%
            
            
            754,071Promissory
                notes to Cornell Capital at 12% per annum
            
            
            1,950,000Short-term
                portion of note payable to Fox Communications
            
            
            200,000Contract
                for advance against lock box receipts
            
            
            66,927Total
                Current Loans Payable
            
            $
            4,198,260





Currentportion of secured debt to Cornell Capital
            
            $
            158,652Current
                portion of capital lease obligation
            
            
            19,255Total
                current portion of Capital Lease and Long-term Debt
            
            $
            177,907Long-term
              portion of
              note due to Fox Communications
            
            
            1,250,000Long-term
                portion of secured debt to Cornell Capital
            
            $
            410,424Long-term
                portion of capital lease obligation
            
            
            2,070




In
      Addition to the table above:


The
      Company signed an employment contract with Mr. Andrew Buffmire to be the
      Company’s CEO on May 20, 2005. The contract stipulated the starting annual wage
      to be $180,000. Subsequently an Amendment was signed on July 24, 2005 that
      reduced Mr. Buffmire’s annual ****salary
      to $144,000 until the Company reaches positive cash flow from operations, at
      which time the salary would revert back. Mr. Buffmire resigned as CEO effective
      November 30, 2005. As the Company was able to only partially pay Mr. Buffmire
      his full or reduced salary, he is owed $50,250 in accrued salary as of December
      31, 2005.








6


**ECUITY,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**


**DECEMBER
      31, 2005**





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 December 31, 2005, Mr. Buffmire
      is owed 1,526,781 shares and an equal number of warrants. The issuance of these
      shares and warrants is contingent upon the shareholders’ 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.





**December
      31, 2005**


Description
                of Asset
            
            Value
                after
              ImpairmentComputers
                andEquipment
            
            $
            323,558Computer
                Software
            
            
            81,921Switch
                Equipment
            
            
            152,698Leasehold
                Improvements
            
            
            25,488Office
                Equipment
            
            
            31,094614,759Accumulated
                Depreciation
              and
                Amortization
            
            
            (233,219
            )Net
                Book Value
            
            $
            381,540








7


**ECUITY,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**


**DECEMBER
      31, 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 December 31,
      2005:




**Carrying
                Value after Impairment**
            
            
            **Reduction
                for**
              **sale
                of**
              **Conference**
              **Calling**
            
            
            **Accumulated****Amortization**
            
            
            **Net**
              **Carrying**
              **V****alue**Acquired
                Customer List for Telephony and ISPs
            
            $
            1,864,000
            
            
            260,707
            
            
            655,696
            
            
            947,597





**6.** **Income
      Taxes**




At
      December 31, 2005, the Company had net operating loss carryforwards for Federal
      tax purposes of approximately $22,293,000. These carryforwards begin to expire
      in 2020. A valuation allowance has been established to reflect the uncertainty
      of generating future taxable income necessary to utilize available tax loss
      carryforwards. ****




**7.** **Subsequent
      Events**




In
      January 2006, management adopted a formal turn around plan which
      we
      believe to have the following effects; to 1)
      cut
      the monthly operating cost2)
      achieve profitability
      as quickly as possible and3)
      focus
      on those core areas of our business that provide higher margins and
      growth.




·
            Downsize
                  the Company in order to cut monthly operating cost and achieve
                  profitability as quickly as possible, we have already made cuts
                  and we are
                  in the process of making additional cuts to operating
                  costs.


·
            Eliminate
                unprofitable or marginally profitable products and services such
                as legacy
                long distance, and instead, focus on our core business of VoIP telephone
                and high speed Internet services, which are highly
                profitable.


·
            Increase
                sales and marketing efforts by 1) focusing on resellers with whom
                we have
                a current relationship, 2) increasing focus on direct sales efforts
                with
                faster time to revenue, and 3) only develop new channel partners
                and
                potential joint venture arrangements that do not require extended
                marketing efforts.


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


·
            Raise
                additional cash through channel partners, joint venture partners
                and
                senior debt holders in order to sustain the business operations through
                to
                cash flow break even.


·
            Achieve
                a self-sustaining positive cash flow not later than the beginning
                of
                calendar Q4 2006.






8


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




1.
            It
                has raised in excess of $500,000 in operating loans from Digitaria
                Communication Networks, LLC, with whom the
                Company has an agreement to be the exclusive provider of VoIP
                telephone services and high speed broadband data services for Digitaria’s
                fiber to the premises business to master planned communities and
                apartment
                and condominium properties. This money has been used to initiate
                substantial cost cutting measures and to negotiate further restructuring
                of Ecuity’s financial obligations. The money was raised through
                convertible demand promissory notes.


2.
            It
                has achieved a reduction in the monthly
                cost from $170,000 to
                $100,000.


3.
            It
                is in the process of moving its corporate headquarters to smaller,
                less
                expensive office space.




**8.  
      Go** **ing
      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 $1,000,000 over the next 9 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 largely through it channel partner, Digitaria Communication Networks,
      LLC
      and to a lesser degree 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 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.





9


**ECUITY,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS (continued)**


**DECEMBER
      31, 2005**





The
      $1,000,000 will provide for our short-term obligation to reduce some of our
      debt, 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 $1,000,000 that management
      estimates is 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.





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





10


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





·
            Ecuity’s
                sales and marketing efforts have primarily targeted four markets:


o
            Small
                and medium sized business market through both direct sales and channel
                partners.


o
            Fiber
                optic cable networks to the premise to large scale master planned
                communities, apartment and condominium developments and commercial
                office
                buildings.


o
            Wholesale
                voice and data services to WiFi providers to large scale city and
                community wide WiFi deployment.


o
            Wholesale
                to independent ISP providers.


.


**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.





In
      light
      of Ecuity’s current financial situation with overhead higher than our revenues
      can support, it was agreed that a change in organizational and reporting
      structure was required. Ecuity will operate as a flat organization with its
      management team taking on additional responsibility with all staff having direct
      line reporting with the turn around Director. Part of this move was the
      resignation of Andrew Buffmire CEO and Jerry Schwartz COO. An interim President
      will be announced.





Our
      current objectives are short term in nature. These objectives are:





·
            Preserve
                a positive cash balance


·
            Set
                up a sustainable business model


·
            Return
                the Company to a positive EBITDA position by the end of
                2006





In
      order
      to accomplish these objectives we will do the following; reduce general
      overhead, attempt to sell the assets of and/or discontinue unprofitable product
      lines, reduce head count, complete a reorganization of the staff, and re-focus
      our sales efforts.





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





Based
      on
      our analysis our legacy business is becoming less and less profitable and in
      fact volumes are on a steady decline. Focusing on VoIP provides us with our
      best
      opportunity for growth.





Although
      the next few quarters will be difficult, if we have a solid funding plan to
      get
      us through our cash shortfall we can continue to grow the business and get
      to
      the point where we are self sustaining. Our funding requirement on a move
      forward basis is a minimum of $1,000,000. Digitaria Communication Networks,
      LLC
      has already provided $517,800 of the necessary $1,000,000.





11





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 Digitaria 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
      Digitaria will be contingent upon Digitaria completing a fund raising that
      will
      allow Digitaria 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 Digitaria LOI,
      Ecuity and Digitaria 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 Premises (FTTP) communities that
      may be developed by or through Digitaria. It is the understanding of the Company
      that the principals of Digitaria include a number of individuals and entities
      experienced in real estate and land development. 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. Digitaria
      has provided $776,300 operating cash to the Company since October 2005, in
      return for convertible demand notes, $517, 800 of which has been advanced to
      the
      Company since December 31, 2005.




We
      anticipate that a minimum of $1,000,000 will be required to sustain existing
      operations for the next 9 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
      $70,000 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.




12


**Results
      of Operations**





The
      unaudited financial statements presented herein include the Consolidated
      Statements of Operations for the three-
      and six-month periods ended December 31, 2005 and 2004, and the Consolidated
      Balance Sheet at December 31, 2005. Our financial statements are prepared on
      a
      consolidated basis and all intercompany transactions have been eliminated.





In
      the
      3-month period ended December 31, 2005, we incurred a net loss of $837,944
      compared to a loss of $1,146,419 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, as well as legacy Internet dial-up customers moving to
      cable and DSL service providers. The
      decreased operating loss between the 3-month periods resulted from reduced
      expenditures for salaries, rent, and advertising in the current year. In
      addition, no expense for issued stock for services was incurred in 2005 compared
      to $21,450 for the same 3-month period in 2004. Interest expense decreased
      to
      $200,619 for the three months ended December 31, 2005 from $325,126 for the
      three months ended December 31, 2004 primarily as a result of recording both
      current quarter’s and prior quarters’ unrecorded interest on the note payable to
      Fox Communications in 2004.





In
      the
      6-month period ended December 31, 2005, we incurred a net loss of $1,574,633
      compared to a loss of $2,693,107 for the same period in 2004. The Company’s
      revenue for long distance and Internet service decreased in the current 6-month
      period compared to the same period in 2004 due to the ongoing 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 percentage to 35.42%
      in the current 6-month period compared to 30.43% for the same period in 2004. The
      decreased operating loss between the 6-month periods resulted primarily from
      reduced expenditures for salaries, rent, and advertising in the current year.
      In
      addition, no expense for issued stock for services was incurred in 2005 compared
      to $433,951 for the same 6-month period in 2004. Interest expense for 2005
      was
      $409,065 compared to $402,473 for the 6-month period last year.





Since
      incorporation, we have funded our operations through private loans and equity
      financings. At December 31, 2005, our total assets were $1,962,085, consisting
      of cash of $11,053, accounts receivable, net of $497,745, other current assets
      of $28,022, property and equipment of $381,540, non-current deposits of $96,128
      and the purchased subscriber list of Fox Communications in the amount of
      $947,597 (net of amortization of $655,696 and a reduction from the sale of
      the
      conferencing services of $260,707). Total liabilities amounted to $10,967,461,
      consisting primarily of accounts payable and accrued liabilities of $4,774,395,
      deposits on advanced billings of $154,405, loans and notes payable and capital
      lease obligations of $5,882,995, and a defaulted bank loan payable of $155,666.
      Total liabilities of $890,884, including the defaulted bank loan payable of
      $155,666, are liabilities of the Company’s inactive subsidiary, Y3K,
      Inc.




**LIQUIDITY
        AND CAPITAL RESOURCES**
 
 The
        working capital deficit increased to $8,768,147 at December 31, 2005 from
        a
        deficit of $7,523,191 as of June 30, 2005. In the 6-month period, cash decreased
        by $105,475, net accounts receivable increased by $72,844, accounts payable
        increased by $574,592, and deposits on advance billings to customers decreased
        by $80,155.
 
 In
        the
        6-month period ended December 31, 2005, we incurred a net loss of $1,574,633
        compared to a loss of $2,693,107 for the same period in 2004. The Company’s
        revenue for long distance and Internet service decreased in the current 6-month
        period compared to the same period in 2004 due to the ongoing 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
        percentage to 35.42% in the current 6-month period compared to 30.43% for
        the
        same period in 2004. The
        decreased operating loss between the 6-month periods resulted primarily from
        reduced expenditures for salaries, rent, and advertising in the current year.
        In
        addition, no expense for issued stock for services was incured in
        2005 compared to $433,951 for the same 6-month period in 2004. Interest expense
        for 2005 was $409,065 compared to $402,473 for the 6-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.


13


**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. The
      Company will continue to account for stock-based compensation using the
      intrinsic value method and it has adopted the disclosure requirements 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.





14


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





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




**Item
        4. CONTROLS AND PROCEDURES**
 
 **(a)**
              **Evaluation
                  of Disclosure Controls and
                  Procedures:**
 
 As
        of the
        end of the period covered by this Report, the Company carried out an evaluation,
        under the supervision and with the participation of the Company’s Principal
        Executive Officer and Principal Accounting Officer, of the effectiveness
        of the
        design and operation of the Company’s disclosure controls and procedures. The
        Company’s disclosure controls and procedures are designed to produce a
        reasonable level of assurance of achieving the Company’s disclosure control
        objectives. The Company’s Principal Executive Officer and Principal Accounting
        Officer have concluded that the Company’s disclosure controls and procedures
        were, in fact, adequate and effective to ensure that material information
        relating to the Company that is required to be disclosed by the Company in
        reports that it files or submits under the Securities Exchange Act of 1934,
        as
        amended, is recorded, processed, summarized and reported within the time
        periods
        specified in rules of the SEC and accumulated and communicated to the Company’s
        management, including its Principal Executive Officer and Principal Accounting
        Officer, to allow timely decisions regarding required disclosure.
  **(b)**
                **Changes
                    In Internal Controls Over Financial
                    Reporting:**
  In
        connection with the evaluation of the Company’s internal controls during the
        Company’s last fiscal quarter, the Company‘s Principal Executive Officer and
        Principal Accounting Officer have determined that there are no changes to
        the
        Company’s internal controls over financial reporting that has materially
        affected, or is reasonably likely to materially effect, the Company’s internal
        controls over financial reporting.




**PART
      II- OTHER INFORMATION**





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





A
      former
      employee has threatened to commence litigation against the Company for alleged
      harassment, creating a hostile work environment, and for wrongful termination.
      Management is in the process of evaluating such claims. Management believes
      such
      claims to be without merit at this time.





Other
      than the above, there has been no change in legal proceedings since the filing
      of the 10-KSB for the year ended June 30, 2005.





**Item
      2. Changes in Securities:**





During
      the 6-month period, (1,306,266) net reduction of shares of common stock were
      issued (and canceled) as follows:





Person/Class
            #
                of Shares Issued
            Consideration
              (Value
                of Service)
            Date
                of Transaction
            Description
                of
              Services
                RenderedShares
                canceled
            (381,266)
            (34,812)
            September
                1, 2005
            Consulting
                fees not renderedIndividual
            325,000
            6,599
            July
                6, 2005
            Conversion
                of debtFox
                Communications
            (1,250,000)
            (50,000)
            July
                to Nov. 2005
            Repurchase
                of shares held by Fox








15





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





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





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





**Item
      6.  Exhibits**




**Index
      to Exhibits:**




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










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: March
              24, 2006
            
            /s/
              M.
              SHANE
              SMITHM.
              Shane Smith, CEO and Chairman of the Board







16